If you’re reading this blog, chances are good that you’re trying to get ahead financially. There are a lot of things you’re probably doing right, and some things that you need to work on. Amongst all the other fiscally responsible things that you may be doing such as building an emergency fund and living frugally, you need to be investing in order to get ahead.

The next question is most likely, what should I invest in? And this is exactly the question that you should be asking yourself. If you’re looking for someone to tell you where the best place to put your money is, you’ll have no problem finding them. You can find brokers for stocks and bonds. Turn on the TV at night and you’ll almost surely find someone willing to show you how to invest in real estate. You could also find someone to help you invest in gold, silver, or commodities.

One of these is not necessarily better than the other. You need to find out what interests you and where you’d like to invest. Warren Buffett has made a ton of money investing in stocks. Donald Trump has done likewise mainly through real estate. Bill Gates and many others have gone the entrepreneurial route and invested in their own business. The point is that there are many different ways to invest and increase your wealth. If this weren’t the case, the Forbes 400 would be a very boring list.

I’ve written before about shopping for investments, and that we should put as much effort into researching where we put our money as we do comparing the different models of cars or flat panel televisions. If you’re interested in real estate, learn all you can about the industry and how to invest there. Take a trip to the library and check out all the books you can on the subject. There’s a wealth of information out there on the subject.

Perhaps you’re drawn more to the stock market and the opportunities that are offered there. There are also plenty of books, audio books, and websites where you can learn fundamentals and strategies of the stock market.

There are a lot of opportunities out there if you’re willing to look for them and seize them. You know you need to invest, so figure out what you’re style is and what type of investing interests you the most. You don’t have to invest in just one asset class, but start with one and branch out from there. And remember that no one else cares as much about your financial future as you do.

I was talking with someone today about a couple of real estate investments and he mentioned that he was going to go talk with a couple different accountants. This made me think about when I was looking for an accountant about a year ago. I also was looking for some advice about an investment, and for someone to handle everything come tax time. This is actually what I wanted to write about here.

There isn’t really a better time than now to look around for and interview accountants. The heavy tax season is over, and they have more time to spend with you answering questions and explaining things to you. A lot of people are also worried that they’re going to get charged for every minute that they spend talking with an accountant (I had this concern at least). Interestingly enough, it was actually quite different.

I had made an appointment to speak with someone on a recommendation (always a good start) and we scheduled about an hour. I went in with a list of questions, mostly about real estate investing and the tax implications (and benefits). He was very nice and was more than willing to answer all my questions and even point out things I didn’t know to ask about.

What did it cost me for such an informative meeting? Not a thing. You see, it was a win-win situation for the both of us. I was able to learn and have my questions answered, and he was able to make a good impression on a prospective (now current) client. And all I had to do was call and ask to speak with him.

What I’m getting at is that you can do the same thing. Take the opportunity to speak with a couple different CPAs and see what you can learn and how they can benefit you. Maybe you don’t need one (or think you don’t) yet. Whatever the case, this time of year is a great time for it. They’ll definitely have less time come the end of the year as we head into tax season.

I’m also sure that my accountant won’t mind the plug here on this blog. His name is Dave Peterson at Haynie and Company (this is not sponsored). They’re based in the Salt Lake City, Utah area, but they do work for clients all over the U.S.

Also, if for no other reason, it’s worth taking the time to talk with someone solely for the knowledge that you can gain. It’s yet another step towards mastering your finances and reaching your goals.

Opportunities are all around us, yet most of us don’t see them or aren’t looking for them. We can fix this to some degree by learning and training ourselves to look for and spot great opportunities. What still stands in the way of many, however, is being unprepared to take advantage of these opportunities when they arise.

If a friend or acquaintance came to you today with a great idea or investment opportunity, how able would you be to take the opportunity? Would you be able to afford the initial investment without jeopardizing your or your family’s finances?

Soldiers in the armed forces are constantly training and maintain a state of readiness that when and if called upon they’ll be able to function and perform at the highest possible level. We should also maintain this constant readiness with our finances and investments.

Many will say that there aren’t any more good investments in real estate these days. Others are brought multiple deals per day from agents or brokers because these brokers know who can and who won’t be able to take the deals. If a deal requires a certain down payment, only those that have prepared and accumulated such will be able to take advantage of it.

We also hear all the time that when the stock market “crashes” or “makes a correction” it’s the best time to get in and buy. How many of us were able and had cash available to do so this past February when there was a sharp temporary decline? Moreover, how many people out there had already done research into certain stocks and determined at what price it would be a good deal?

The point I’m trying to make is that there are plenty of opportunities out there, but we need to prepare mentally and financially in advance in order to take advantage of them. Now is the time to prepare yourself. Don’t wait until the opportunity comes and you’re forced to pass on it because you don’t have the means.

With the recent run up in both the stock market and the real estate market, it’s now become quite en vogue to call oneself an investor. Those who have sold their home for a profit are calling themselves investors, even when it’s the only piece of real estate they own. Others believe they’re investors because they have seen their 401k balances increase.

My concern is that what many are now calling investing is nothing more than speculating. We frequently hear stories of those that have bought properties in the so-called “hot” markets hoping to flip them for a grand profit. There is also no shortage of hot stock tips. If that’s not enough, you’ve probably at one time or another seen those ads on TV trying to get you to “invest” in gold.

So what separates an investor from a speculator? Benjamin Graham, who could be seen as Warren Buffett’s mentor, has this to say in his book, The Intelligent Investor:

“An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”

Two words here stick out to me: “thorough analysis”. So many people these days have no idea what they’re invested in much less have done a thorough analysis of these investments. Some will argue that they invest in Mutual Funds because the fund manager does the analysis for them. This can be true, but I still believe that no one cares about your money as much as you do.

Another point Graham makes here is that investments “[promise] the safety of principal and an adequate return.” This probably had something to do with Warren Buffett’s formulation of his Rule #1 of investing: Don’t Lose Money. (Remember that a 75% loss is only offset by a 400% gain.)

Speculation does have its place, but we need to recognize the difference between speculation and investing.

Conventional wisdom tells us to save for a down payment when purchasing a home. Twenty percent happens to be the magic number. In today’s world, however, this just isn’t the norm. Between the over-inflated housing prices and America’s scanty savings rates, many are finding that they have to explore other options.

If you’re going to buy a house without putting any money down (or less than 20%), there are two main options. You can get a single loan of up to 100% percent of the purchase price of the home, in which case you’ll be forced to pay Private Mortgage Insurance, or PMI. You could also get a loan for 80% of the purchase price and another piggy back loan for the other 20%.

So which choice is the better choice? Or is one better than the other?

With the first option, you’ve got one loan that’s typically at a competitive interest rate that keeps the payment low. The downside to this option is that the lender will make you pay an insurance premium called Private Mortgage Insurance. The policy insures the lender against a default because they’re lending more than 80% of the value of the home. It has no benefit to you, and is the reason your payment will be higher.

If you choose the second option, you won’t have to pay for PMI. What you’re essentially doing is getting a loan for your 20% down payment and financing the other 80% separately. This would seem like the better option except that the smaller loan, or piggy back loan, is financed at a higher interest rate. This will also serve to raise the payment amount.

As far as your monthly payment is concerned there is no clear winner between these two options. It’s usually a good idea to get a quote for both of these options.

It used to be that only the mortgage interest was tax deductible and you couldn’t deduct your PMI payment. This has changed, however, as of 2007. Now you can also deduct your Private Mortgage Insurance payments. So, it would seem that both are viable options.

I, however, still prefer to go with the 80/20 loan split as long as the monthly payments are comparable. With this option you’re able to lower your monthly payment once you pay off the smaller of the two loans.

If you’ve got a loan with PMI, it’s a more involved process in order to remove it and lower your payment. You’re able to remove your PMI payments once you’ve payed the loan down to 80%, but it doesn’t just automatically get removed usually until the loan is down to 78%. If you believe that you’ve already got 20% equity in your home at some point then you’ll have to go through the process of ordering an appraisal and proving to the lender that you indeed have 20% equity.

While these two options are different in how they work, they provide very similar outcomes. The choice between them is then left up to your personal choice and what will work best for your particular situation. As I stated before, it’s best to get a quote for both scenarios. You can then compare the two options and make an informed decision.

What are your thoughts?

I’m going to quickly explain a metric used in real estate investing to evaluate potential rental investments. The Capitalization Rate is a way to compare different real estate investments. Here’s the formula:

Cap rate = Annual Income / Capital Cost

This is basically a measure of how fast an investment will pay for itself with its cash flows. Typically, the cost of financing is ignored in this analysis in order to compare apples to apples.

This is a quick tool to use to see if you want to look into the investment further. If the cap rate is pretty low, say 3%, you’ll probably want to move on and look for another investment. If you find a property with a cap rate hovering around 10%, it’s a good indication that you should analyze the deal further.

You shouldn’t ignore the costs of financing, taxes, insurance, maintenance costs, and other costs of ownership, but using the cap rate is a great starting point or filter for deciding which opportunities to pursue.

It’s another tool in your investment tool box, and it doesn’t hurt to be able to understand some of the jargon used by agents, brokers, and other investors.

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Today I’m going to tackle the old question of whether one should rent or buy a home. I’ve heard pretty much all the arguments for and against both options, and you might have also; so I’m going to keep the usual arguments to a quick review.

The controversy basically boils down to the following: After looking at the expected appreciation rate, the amount of closing costs, and the fees you would pay to sell the home, you’ll be able to determine the length of time that you’ll need to stay in the home in order for it to be a break even deal. If you plan on staying in the home longer than this time, it would make sense to buy. If your stay will be shorter, it’s better to rent.

This is the typical rationale that you’ll hear over and over.

I have a slightly different opinion on this matter. While I agree that there are circumstances that would make someone want to rent, I don’t think that people should basically throw their money away on rent when they can own it.

Most people think only of the traditional options available to them. When they decide to move, they must sell their house and then go buy another one in the area that they’re moving to. I don’t understand why this is the only option considered.

Who says that when you move, you have to sell your house? You could rent out your house thereby letting someone else continue to buy it for you. You could also lease the house with an option to buy (this is called a lease option) which would allow you to collect a higher monthly payment. The lessee would also treat the house better because he is looking to purchase it.

This is usually the easiest way to break into the world of real estate investing. Because you originally financed the house as an “owner occupant” you’re likely to carry a better interest rate and terms than you would be able to get strictly as an investor.

In short, there are many options available to you if you’re willing to step outside of the norm and think outside the box. Buying instead of renting is a proven way to build significant wealth.

Instead of thinking that you can’t do this, it’s not right for you, or it’s too risky, try figuring out a way that it will work for you. Don’t say you can’t do something. Ask yourself HOW you can do something.