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The Urgent Need for Pre-Retirement Passive Income

Americans are facing an urgent, but often overlooked need for passive income. Some have put this thought off until retirement. The big problem is that most never know when, and how soon they are really going to need it.

The Desperate Need for Passive Income

Via the Harvard Business Review professor Robert C. Merton has echoed the warning of a pending global retirement crisis. Specifically Merton says that income is the biggest challenge facing Americans in retirement. A big nest egg might sound great, but it will rapidly disappear, unless it is throwing off cash flow returns. Unfortunately experts like Merton point out that the entire investment and retirement saving system completely fails to help individuals and families target income goals for later in life. They focus on the wrong goals; defined contributions, not defined benefits.

Retirement Saving Statistics

  • Only the top 10% of Americans have $250,000 or more saved for retirement
  • The average 401k balance is around $90,000
  • Around half of Americans have no savings at all

Even for the wealthy with $1M saved, withdrawing $100k per year would completely deplete their funds within 10 years. Yet, more and more Americans need to be prepared for a 30 plus year retirement.

Kiplinger and Bankrate.com IRA Minimum Required Distribution calculators show that the average 70.5 year old, with a $90,000 balance may have to begin withdrawing just over $3,000 per month. That’s just $250 per month. Meanwhile the balance is decreasing.

You Never Know When You’ll Need It

Despite the fact that many Americans say they will just work until 70 or older in order to pay their way, the data shows most are retiring far earlier than planned. And they are not doing it because they believe they are financially prepared. This can be due to layoffs, health problems, or simply age. He Transamerica Center for Retirement Studies’ Survey of American Retirees says the median retirement age is actually 62. These factors that force individuals into early retirement can also bring big expenses themselves; depleting any savings a lot faster than expected. Some statistics show the average retirement account balance plunging around 50% within a few years of retirement age.

3 Current Challenges to Earning Passive Investment Income

  1. Rising living expenses which prevent savings
  2. A new era of zero or negative investment returns on stocks and bonds
  3. A recession forecast for 2016

Finding Income Solutions Pre-Retirement

The bottom line is that individuals need to setup and secure passive income streams in advance of retirement. Having a reliable stream of passive income coming in now means that you’ll be ready for retirement at any time. Every year that you don’t retire you can use that surplus income to expand investments and grow income streams, or spend it.

CDs and investing in mortgage debt are examples of income producing investments. Yet, one which may be far more advantageous in the years ahead is mobile home park investing. It doesn’t require great credit, substantial startup capital, or full time hands on management. Yet these investments can throw off cash every month, while providing extra tax breaks.

Take a look at this asset class and find out if it is a good match for you…

Retirement: Beating the New Era of Zero Investment Returns

Can Americans beat the new economy, to retire with confidence and in comfort?

There is little uncertainty about what’s ahead in the minds of many leading financial experts. They are pretty adamant that at best we are facing a stalled economy, if not a recession even greater than 2008. What threats does this really bring to Americans who are trying to save, and get ahead financially?

The New Era

Even if things don’t crash; fund giant Bill Gross warns we are entering an era of minimal to zero returns, and that can be far worse for retirement savings than most understand.

Sub 5% returns in the stock market and bonds mean that savers and investors will effectively be in a zero net gain environment, and a negative rate situation when inflation is factored in. That means cash and saving may not grow, and could be depleted year after year, before retirement instead.

That’s if markets don’t plummet from the stampede effect. 2016 began with what CNBC calls the “worst performance ever.” The coverage also warns that dominant financial institutions and governments rarely warn the public of impending crashes.

Key Points

That would be counterproductive to their goals. CNBC reminds us that the peak to trough of the last 6 recessions has been 37 percent. That would take the S&P 500 down to 1,300; if this next recession were to be just of the average variety,” And forecaststhis one will be worse.”

Financial advisor and author Harry S. Dent who has successfully called previous crashes predicts this next one will be far uglier than what we’ve seen in the past, including the Dow Jones getting crushed to just 6k.

Sam Zell is adamant that the US is heading into a recession in 2016, that’s if it isn’t already in one. He’s walking the walk too, and has recently shed billions in investments which he believes have topped out for this cycle.

Negative interest rates are already being effectively felt by many savers across the world, and Bloomberg warns that this could simultaneously tighten lending and working capital for businesses and home buyers at the same time.

Factors That Could Alter the Course of the Economy

What factors could alter the current course of economic and investment performance for better or worse?

  • 2016 presidential election
  • Fed rate changes
  • Positive or negative reports on job, growth
  • Stock market volatility
  • New regulations

Most Important Considerations for Retirement Planning

  • How to grow savings and investments in a zero rate environment
  • How to save enough when other sources of income may be hampered
  • How to ensure sufficient passive income for time out of work, and in retirement

Key Takeaways from the Economic Forecast

Less than 10% of Americans have enough saved for retirement. Saving and growing that nest egg through traditional stock and bond portfolios seems unlikely to be a viable strategy ahead. These assets may still have a place in a well-balanced portfolios, but all of them, including cash in the bank could be net losers for a number of years.

In order to beat these dynamics Americans must act fast to beat the crowd to the few asset classes which still offer value, attractive yields, and most importantly; reliable cash flow.

Mobile Home Park Investing

Investing in mobile home park investing may be the answer for many. It is the one asset class which Sam Zell has continued to increase his footprint in, even while selling off apartments, office buildings, and other business investments.

The advantages of this sector for retirement planning include:

  • Traditionally grows in line with inflation
  • Can produce consistent income uncorrelated to asset value
  • True passive income and monthly cash flow
  • Potential to perform well in both bull and bear markets
  • Full suite of tax advantages

Perhaps even more notably in the current and forecast environment; seller financing and alternative financing is quite common in this space. That could prove to be an invaluable advantage during periods when conventional lending is tight. It means the ability to leverage and achieve asset and income growth, while others struggle to stay afloat.

Summary

The economic and investment performance forecast for Americans isn’t very sunny according to the majority of experts. Even stalemate returns can be a serious threat to retirement planning. However, there is at least one asset class which could prove a powerful ally. Don’t overlook the advantages of mobile home park investing.

 

The New Housing Bubble and Your Retirement Plan

Are we in a new real estate bubble? What are billionaire moguls selling and holding now? How will it impact your retirement plan?

New questions and concerns are being raised about the US real estate market. Is another bubble or correction possibly on the horizon? How are leading investors reacting? What strain might this put on current retirement savings and expectations? What smart moves should individuals be making now in order to protect themselves?

What Kind of Bubbly is the Real Estate Market in for in 2016?

The National Association of Realtors had forecast a year worth breaking out the glasses and bubbly for. An even better year than 2015, and a return to ‘normal’. New data suggests the hangover from that party may come sooner rather than later.

Although the facts are disputed by PropertyShark; the Financial Times proclaims that New York City’s property market began crumbling last year. FT states that NYC luxury real estate sales fell 27% year over year in 2015. A new report from FMA Data states that the “Orlando Affordability Index topped 177% in January 2016, meaning housing costs are almost double what the median income earner can afford.” This report, and statistics from The Real Deal also show that Miami Beach home inventory has swollen to 24.6 months. 6 months of inventory reflects a balanced market. New records have been set in NYC, with a Manhattan penthouse selling to a hedge fund major for almost $100M. He says it is a speculative investment he hopes to flip in the future.

Of course not all markets have reached these new highs. RealtyTrac reports that New York City as a whole is facing a 300%+ spike in foreclosure auctions, and bank repossessions in early 2016. Over 50k Detroit homes were slated for foreclosure auction for past due properties this year.

Stock market declines and uncertainty in the economy is driving even more capital to real estate. So while some markets still appear to offer great value, analysts can fairly argue that some niches of the market have already peaked.

What Sam Zell is Selling, and Holding

All real estate is local, and different types of real estate assets move on different cycles. So what are the savviest investors buying, holding, and selling?

According to The Wall Street Journal billionaire real estate investor Sam Zell made a deal to sell off 23,000 apartments for $5.4B in the third quarter of 2015. The Denver Business Journal notes that Zell arrange to sell off $1.4B of metro Denver apartments in early 2016; more than 25% of the sales volume of the whole market in 2015.

Note that Zell is also credited with one of the largest single sell off deals ever, right before the last bubble burst. He unloaded a $39B portfolio of office properties to Blackstone, just before most of them ended up tanking in value.

Interestingly the one most consistent area of growth for Sam Zell, and one he has held onto for years, through multiple cycles is manufactured housing parks. He owns hundreds of them.

What a New Housing Slowdown Would Mean for Americans

Firstly; those approaching retirement should consider that a new decline or at least a stall in higher end housing prices and sales in top metros could negatively impact plans for retirement. During slower period home equity lines of credit can be frozen and reeled in by lenders. It may be tougher to sell. Hopes for tapping equity with a reverse mortgage as a form of pension may be cramped.

Recently we’ve seen many investors and home buyers buying at prices which only make sense as Airbnb short term rentals at incredibly high prices. Some of that activity may dry up in a leaner economic period. It is also worth noting that some cities are banning short term rentals or are using permits to minimize them to 30% of less of local housing stock. The move recently hit one Minnesota neighborhood hard where 78% of the properties were rentals.

Then there is the impact on REITs and real estate stocks. The Street recently reported that Real Estate would be given its own sector in the S&P 500 later in 2016. Some analysts speculate this was aimed at propping up the index during a forecast recessionary period. However, higher interest rates, and a slowdown in condos, apartment buildings, office, and single family rental homes could drag down the performance and trading prices of these publicly traded, and highly volatile investments.

The Need for Affordable Housing

The pressure from all the above is only going to increase the demand for affordable housing. Mortgage lending is still tight, and rents have been spiraling upwards to a point where Zillow reports the average income required to rent an apartment in many cities is several times minimum wage.

One of Sam Zell’s keys to success is “supply and demand.” Those that control the supply of affordable housing are going to find substantial demand for their product. Taking a page out of Zell’s playbook, manufactured or ‘mobile’ home parks could be one of the most prized assets, and most desirable property types ahead.

In comparison to other housing types there are not many manufactured home parks. Yet, the need for living in them can only grow. Owning one of these properties could be key to empowering individuals to continue to generate income in lean times, preserve and grow their wealth, and possibly even secure affordable or essentially free housing for themselves, and their loved ones.

Summary

A new housing bubble and correction may happen this year, or several years from now. When it happens it will hurt the retirement plans of millions of Americans. It will likely hurt their stock portfolios, and many of their real estate investments, while cramping the ability to leverage existing home equity. The opposite may be true for mobile home park owners. These investments ought to flourish ahead. Right now interest rates are low, seller financing may be available on these properties, and many are ripe for increasing rents and profitability. This could provide exactly what many need to maintain their lifestyles, and stay on track to a comfortable retirement.

What Investors Need To Know About The 2016 Recession

When is the next recession coming to America? How can mobile home parks help investors maintain their finances during the tough times which may be ahead?

The Financial Forecast for 2016

Billionaire mobile home park investor Sam Zell has predicted an imminent recession within the next 12 months. He is not alone.

While The Fiscal Times is a little more bullish than the rest of the crowd, many media outlets including the Huffington Post have suggested 2016 is going to see ‘Judgement Day’ for the US economy. Barrons says “It’s at least 2 to 1 that we’ll be in a recession at the end of 2016.” A December 2015 report from Citi Research puts “the probability of the US entering a new recession at 65 percent.”

All the data seems to back these predictions of a 2016 recession up too.

Recession Indicators

A recession is identified by two consecutive quarters of shrinking economic growth. MSNBC estimates the last recession ended in June 2009.

  • The average recovery lasts 39 months
  • Only 5 (out of 28) recoveries have lasted more than 60 months
  • As of December 2015 the US has been in recovery mode for 72 months

Investopedia reminds us that the S&P had risen 92% between 2010 and 2015 alone. Many point to financial issues in Europe and China as sizable dangers to the US economy. IBT points to Bureau of Labor Statistics data showing the lowest labor force participation rate in 15 years. The wage pains, and lack of pay check gains are no secret to anyone.

What Will a New Recession Mean?

While even the Federal Reserve Bank of San Francisco appears to struggle with differentiating a depression from a recession, there may be little need for all out panic.

Recessions as with other sector specific downturns are often self-fulfilling prophecies. Given the above analysts’ outspokenness and media coverage, the odds of a recession by the end of 2016 may be far closer to 90% than 65%. The fact that many individuals and businesses have locked in low interest rates, and there has been mountains of equity capital poured into markets over the last seven years suggests there is no need for a new foreclosure crisis or complete meltdown. On the other hand when things start sliding they often snowball. And this will be the perfect “I told you so” moment for many pessimists who have doubted the recovery.

What most commentators are most concerned about is that the Fed and central banks have little in the way of tools to work with to avoid a recession, or deal with one.

It may not be doom and gloom for everyone, but a fresh recession will put many in a bind just as they thought they saw some light at the end of the tunnel, and it will absolutely fuel a surge in conservative living.

The 2016 Recession & Mobile Home Parks

Sam Zell has said none of his businesses offer the promise of his mobile home park company. We all know Warren Buffett is one of the other biggest manufactured home investors, and remains incredibly bullish on US real estate. They know that mobile home parks are currently a fantastic investment, whether or not there is a recession.

If there isn’t a recession investors are still getting into an asset class which appears to offer the most value, room for growth, and protection from the downside. If there is a recession in 2016 and beyond there will only be an even larger surge in demand and need for mobile home park living, and investments.

Why Are Mobile Home Parks The Best Investment?

According to some estimates, American investors have billions of dollars sitting “on the sidelines”: it’s ready to invest but investors haven’t yet found the right opportunity for their capital. Perhaps some have been wounded in the stock market crash of 2007/2008; perhaps others have bought residential real estate only to lose all return after a bad tenant left an ugly mess; perhaps others have tried alternative investments that simply don’t deliver as hoped. As a result, these investors are sitting on cash, wanting to invest but waiting for a better opportunity.

One investment worth a closer look is Mobile Home Park (MHP) investments. This investment is frequently overlooked and even disregarded as an opportunity, which is too bad because it’s often ignored based on misunderstandings rather than facts.

In this report, you’ll discover why Mobile Home Parks are among the best investments for the average investor with underperforming capital or cash on the sidelines. You’ll discover why MHP-savvy investors are outpacing the returns they got in more conventionally understood investments, and you’ll find out why the return and value of this investment is continuing on an upward trend.

Rate of Return

Rate of return (ROR) is the number one reason to invest in mobile home parks. All other forms of real estate – from single and multifamily dwellings to commercial to billboards and storage facilities — have a cap rate that is virtually immovable. Self-storage is the most comparable cap rate to mobile home parks at 7 to 10 percent initially, but that’s where the rate will stay. It’s nearly impossible to move up the cap rate in any other real estate model, even just a point or two.

Mobile home parks, on the other hand, have many factors which make bumping the cap rate up several points dead easy. Rents in other real estate models barely keep pace with the inflation rate, let alone increase, so the cap rate stays consistent. Rents can be increased without fallout because of improvements to the park. And, mobile home parks increase in land value as time passes, just like any other real estate.

Non-“Mobile” Clientele

Mobile homes are only named such because they were delivered on a truck. 95 percent of the modular buildings will never move from the pad where it was delivered, much less get moved out of the park. It costs from $5,000 to $10,000 for a mobile homeowner to move their residence and re-connect their services, which is money most of them will never have liquid at any time. It’s one very solid reason tenants are extremely loyal in a mobile home park.

No Customer Retention Cost

With occupancy rates at 99 percent, there is no need to advertise! Many owners of mobile homes are among the more than 20 percent of the American population that earns an income of $20,000 per annum or less. This tight income leaves little more than $500 per month for housing costs, and only mobile homes offer ownership at that price point. Mobile home parks are aggressively sought after by an increasing number of clients looking for affordable housing as the American economy continues to decline. Owners of aged mobile homes are likely to purchase a newer model and have it switched onto their rented lot instead of moving elsewhere!

Extremely Low Maintenance Cost

Mobile home parks are unique in that the infrastructure is owned by the park owner. Common areas like playgrounds and community centers, and streets and utility connections are extremely affordable to maintain compared to other multifamily residential models. Capital expenditures are 3.8 percent of revenue for mobile home parks as compared to 8.8 percent for multifamily housing, keeping a significant five percent in the park owners’ pockets. This equates to $125 per site annually, so keeping a high quality, aesthetically pleasing neighborhood becomes quite cost effective.

Increasing Demand

Mobile Home Parks attract a number of demographics with the same need: First time home buyers, the aging population, and the low income sector all have the same problem. Affordable single family dwellings are increasing in price and becoming unattainable. Home prices continue to climb, and with these populations unable to afford that market the only place to turn is mobile home parks. The Baby Boomers are retiring at a dramatic rate, many of whom are ill-prepared for a life on a small fixed income. With nowhere else to go while maintaining the dignity of unassisted living, mobile home parks become extremely desirable.

Decreasing Supply

In the 1960’s when the vast majority of mobile homes were being established, the land used was usually rural or on the fringes of cities. Sprawling metropolitan areas are swallowing up the mobile home communities. Many municipalities have stringent restrictions inhibiting the development of new mobile home communities, locking mobile home owners in place. Many of the original mobile home park investors from the sixties are of retirement age and are selling to developers who convert the land into other more urban uses. Mobile home owners find themselves being evicted with their homes and no place to re-establish. Prospective tenants  are constantly trolling mobile home parks for openings, resulting in extremely low vacancy rates.

Rental Rate Control

With new mobile home park construction restricted in almost all cities, and the supply and demand equation solidly in the favor of the mobile park owner, rent prices can be raised with virtually no risk of vacancy. Mobile home owners are much more willing to pay a rent increase than pull up and move their mobile home to another park, and cannot afford to purchase a single family dwelling. Rental rates can be pushed higher, faster by the park owner with little feedback from clients.

Security

Mobile park owners have the confidence that tenants will pay their rent as they have first claim on the homes if tenants are delinquent on their lot rental fees. A mobile home park tenant, whose most valuable asset is their home, will be much more inclined to ensure their rent payments are up to date, and unwilling to risk losing their home for a few hundred dollars. This contributes to a very loyal customer base that takes pride in their home’s condition and appearance.

Community-Minded Focus Keeps Tenants Longer

There is an appeal in being an integral part of a community. Mobile home parks offer the same communal feel as a suburban neighborhood without the substantial overhead cost of a single family dwelling. It sets mobile home parks apart from apartment buildings for the same reason; families can have their children playing outside in their own yard or a community greenspace, can own bicycles and barbecues, and can park their cars in a driveway they call their own. This keeps happy residents in your park longer and helps to keep repair and tenant-turnover costs down.

Accelerated Tax Benefits

Mobile home parks are largely comprised of infrastructure, which can be advantageously used to the owner’s benefit for tax breaks. Owners can claim land improvements on an accelerated schedule compared to other multifamily models, usually at a rate of 15 years compared with up to 39 years. This leads to a virtually tax-free operating cash flow for the owner in the long term.

Summary

If you’re an investor who is ready to move your money back into an appreciating, cash-flowing asset, and if you want an investment that delivers significant returns today plus plenty of upside potential in the future, Mobile Home Parks make the perfect addition to your investment portfolio. You’ve read just ten of the many reasons that investing in mobile home parks is an incredibly compelling asset class. But you should know that mobile home parks are disappearing fast as municipalities buy out parks and convert them to suburban development.