Sheer Diversity Makes For Interesting Legal News UK

The legal fraternity related to the environmental sector will surely shoot into prominence due to the oil spill caused in the Gulf of Mexico. BP is sure to face increased flak in both the US and UK over the accident and subsequent handling of the crisis. However, this matter is yet to fully explode on the legal news in UK as the legal, environmental and financial impact will fully surface once the leak is successfully plugged.

Just as in any other developed country, laws in the UK also need to change with changing times and circumstances. The news of the oil spill has already triggered debates on how to deal with environmental disasters and while calculators can be used to calculate the financial damage, there are hardly any instruments to calculate the damage done to the environment that includes animals, plants and fishes. Various cases pertaining to BP will surely continue to be in the news for a long time on both sides of the continent.

Similarly, British soldiers serving in Iraq have also been in prison legal news for the wrong reasons due to the treatment that they have meted out to Iraqi prisoners. The British Army’s Lieutenant General, Robin Brims admitted that he was not aware of the continuance of torture techniques such as “hooding” has angered many. The irony of this statement is that hooding was banned by the same General way back in 2003 in his unit. His explanation for the continuance of this practice was that this issue was still under discussion by legal experts.

Although it is usually high profile cases that make it to legal news in UK, common folk too need the services of the legal community when they are faced with a legal problem. In the UK, people that are confused as to how to locate the best lawyers to handle their case can get a host of information from legal 500 UK. This website offers vital information on legal firms based not only in London and surrounding Scotland but also in almost all countries around the world. In addition, their up-to-date news on events around the world can also be quite useful for readers.

Joining the legal fraternity is also an excellent option for people all around the globe, and especially in the UK where budding lawyers in various fields can expect quick placements through efficient firms such as Hudson Legal UK. Such companies also provide company secretaries, commercial and contract managers, patent and trademark attorneys, and legal executives in addition to qualified lawyers to both the public and private sector. Increasing population and an increase in legal cases in fields such as environment, corporate, human rights, etc will surely require additional numbers of lawyers and solicitors to represent their clients. In fact in some developing countries a lawyer might fight a particular case for a client from the day he or she attains a license right until his or her retirement is due to a pitifully slow judicial process.

It will certainly be interesting to see how giants such as BP untangle themselves from the environmental and legal mess that they have managed to find themselves in. On the other hand, life for the common man continues as it is and they too might require the services of an efficient legal team in case they do find themselves in the midst of a legal battle. It is the sheer diversity of large and small cases that make legal news in UK seem so much more interesting.

How Much Money Did You REALLY Make on Your Real Estate Investment?

Have you heard this statement before? “I made a lot of money on this property – I bought this house for $200,000 and I sold it for $300,000″. Have you ever been in a conversation with someone and heard a story similar to this? Does $100,000 sound like a good return on investment? It depends on many factors. The example in this article will initially focus on real estate used solely as an investment, but your principle residence will also be examined this way if you are trying to figure how much money you have made living in your house.

How long did it actually take this person to make this money?

If you bought a house for $200,000 and sold it for $300,000 one year later, versus 20 years later, this makes a big difference. Why? When looking at investment returns, you have to look at how long it took for you to achieve the return. This is true because when looking at other investments, time as well as the return itself will be the common yardsticks for comparison. If the price increase of $100,000 happened in one year, this is a 50% return in one year. Other investments might average 1% for cash, 2% for bonds, and 5% for stocks for that same time frame. If you made this $100,000 in 20 years, this would mean 50% spread over 20 years. If you do a simple linear calculation, that is 2.5% each year. Now, the bonds and stocks are pretty attractive compared to this real estate investment. This is important because most people hold on to real estate for a long time and forget how long it took them to achieve the return that they received.

The numbers presented are usually only about the buy and sell price

Did you notice that the only numbers mentioned in this example are the buy and sell prices? For most goods, these are the only prices that matter when examining if you made money or not. With real estate, this is not true. Why? Real estate has to be maintained, which is not the case for stocks, bonds, cash or any other paper based or contract based investment. Why does this matter? If you have ever lived in a house, you know that there are utilities to pay, renovations to make, repairs to perform and taxes to pay. If you were to buy a GIC at a bank, and the bank said to you: “you will receive $100 in interest each month. However, to keep the GIC you need to pay $20 a month for a maintenance fee.” Wouldn’t this mean you would only make $80 per month, and not $100 per month? This same thinking applies to real estate. If you buy a house as an investment, and you have to pay utilities, taxes, renovation costs, mortgage interest, and repairs as well as costs to buy and sell the real estate, shouldn’t these be accounted for in your return? If you are renting the property, the rent collected would also add to your return. If you are trying to rent a property, but it is vacant for 6 months, that 6 month period is not part of your return.

As an example related to the above, let’s say the house was bought for $200,000 and sold for $300,000, and it took 5 years for this transaction. To actually buy the house, the legal fees, land transfer taxes, mortgage contract and real estate fees amounted to $1000, $3000, $500 and $5000 respectively. The total set up costs would be $9500 so far, which would be subtracted from the money you made, because it actually costs you $200,000 PLUS $9500 to physically buy the house.

Let’s say now that you rented the house for $2000 per month, but you had mortgage costs of $600 per month in interest (note that the principle is not included in this figure because principle is your money that you receive in return). You also have property taxes of $250 per month and utilities of $500 per month. You are netting out $2000 – $250 – $500 per month or $1250 per month. With the mortgage interest deducted from this sum, you would have $1250 – $600 or $650 per month. This equates to $7800 per year in extra income. Since the house was rented for the entire 5 year period – this is an additional $39,000 in return.

If for example, work had to be done to get the house ready to rent, wouldn’t this cost be part of the return as well? This is money that you have to spend, and it is only being used on this investment property. If it cost you $5000 for paint, landscaping and minor repairs, this would come off of your investment return.

If the roof had to be fixed during that 5 year period, and you paid another $5000 for that repair, the whole amount would be deducted from your return. People may argue that the roof will last another 25 years, which is true – but you only receive the benefit of these repairs if you keep the house! If you sell the house, you may receive the benefit of keeping the house well maintained in a higher selling price, but it will also depend on how hot the real estate market is, what the local neighbourhood is like and other factors which are beyond your control and will come into play only at the time that you are making the sale. This means now that you have an additional $10,000 deducted from your return.

To sum up so far, the house profit generated was $100,000. You would subtract $9500 in closing costs to buy the house, add $39000 in rental income less expenses, subtract $5000 for minor repairs, and deduct a further $5000 for a major repair. This would leave you with $100,000 – $9500 + $39,000 – $5,000 – $5,000 = $119,500. Since this transaction took 5 years to complete, the $119,500 should be spread over 5 years. This means that the return per year is $119,500/5 years or about $23,900 per year. Since the original price of the house is $200,000, this means that you are making $23,900/$200,000 or about 12% per year. This is a relatively good return, but if stocks are making 10% per year, this is fairly comparable to what everyone else is getting. Would you have that impression reading only the original story: “I made a lot of money on this property – I bought this house for $200,000 and I sold it for $300,000″?

What About the Effort in Managing the Real Estate Property?

Consider the time you are spending on your house. If you are a landlord, you will have to inspect your house, make sure your tenants are paying you on time, look for tenants and do minor repairs. If you don’t like doing these things, this is considered work and it will cost you in terms of time you could be doing something else. How to account for this? Tabulate how long it takes you to manage the real estate investment, and multiply how many hours you spend by how much money you are making at work – this would represent a substitute for what else you could be doing since you are already working in that job. If you spend 5 hours per month maintaining the house, and you make $20 per hour at your day job, this is an additional $100 per month in costs. This translates into $1200 per year in your time. Note that with paper based investments like stocks and bonds, there may also be time required to read the news, follow how the stock market is doing and research for timing and alternative investments. An underlying factor here is whether managing real estate feels like a job or a hobby. If it feels like a job, the time should be treated like a job. It the time spent is enjoyable and feels like a hobby, you will get benefits that cannot be quantified and it will likely not bother you to spend time taking care of the property.

If you spent time cleaning up the property or moving things left on the property by previous owners, this would all be included in your costs. The rule of thumb is that any money or resources you would have to outlay for this property would be added to the costs and would affect the final return. Any extra money generated, like rent or credits would be added to the return. Another way to say this is: if I didn’t own this investment property, would I still be spending this money? If the answer is no, this would be deducted from your return. If the answer is yes, the cost would not be deducted.

What about taxes?

Taxes have been left out of the calculation s so far, but if this is an investment property, there will be capital gains taxes on the return generated. They may even be taxes on the rental income if it is deemed to be income, and all of these numbers would get reduced. This is also not part of the story that people describe for their own real estate experience, but you should consider this in your experience. If you borrow money, the interest is tax deductible for an investment property so the situation goes both ways.

What about Leverage?

It was assumed so far that you are buying the house with cash, or you are borrowing money and receiving it in return once the house was sold. There are calculations out there where people put a fraction of the price of the house as a down payment, borrow the rest and then buy and sell real estate. There are expenses similar to what was calculated above, but the base for the return calculation is much smaller, which makes the return much bigger.

Going back to the story in the first paragraph, you do not know if the person borrowed money to buy the house or not. Most people don’t consider that as part of an investment return and don’t tell you that as part of their result.

Let’s say you would put down 10% of the value of the house when you buy it. This would equate to $200,000 x 10% or $20,000. Over the time that you borrow the money, you would be paying interest. Any costs involved in setting up the borrowed funds, like appraisal of the property, legal fees or bank fees would be part of the financing costs. The interest paid would be part of your investment as well. If you borrow $180,000 and the interest rate is 4%, you are paying $7200 per year. Over 5 years, this is $7200 x 5 or $36,000. If the cost to set up the loan was $3000 in total, the actual amount of money that you invested would still be $20,000. The costs to set up the loan and the interest charges would be deducted from the return. Looking at the original example, if you have a gain or $100,000 plus the adjustments, the total gain was $119,500. If you subtract the costs of the leverage, you would have a net gain of $119,500 – $3000 – $36,000 or $80,500. If you were to go ahead and calculate the return on your investment, you would use a base of $20,000, and a gain of $80,500. Since the time period to earn the return was 5 years, this would be $16,100 per year. On this base amount, the return would be 80.5% per year. This number is much larger than what you had without the leverage – the only difference is that the money was borrowed rather than paid in cash. Once the house is sold, the bank would have to be paid the $180,000 that was lent, but you get to keep the whole gain over and above that amount.

Leverage can be good or bad depending on whether you make or lose money. Leverage magnifies your gain and your loss. Since most real estate deals happen with borrowed money, be mindful of how these numbers get calculated. It may be the leverage that makes the return astounding, not the return on the original investment using cash. If you see advertising for real estate return calculations, be mindful of how much of these returns are based on leverage versus the actual gain in the property itself.

What if the Price of the House Goes Down?

Yes, prices of real estate properties can go down. In the long run, prices are said to move up almost always, but this is also true for stocks, bonds, and physical goods as well. The reason why prices go up is not entirely because real estate is a good investment – it is because inflation keeps rising, and as that happens the numbers will always get bigger. If you have a fixed amount of something, and the number of dollars keeps rising, the number of dollars available to buy each thing will get larger. This is why all investments will go up if you wait long enough and if the merits of the investment are still true in the long run. If the price of the real estate property decline while you are holding it, all of the expenses will still be there. This is why some people lose money in real estate. It may take 5 or 10 years for a property to recover in value once it begins to decline – so you have to be willing to wait about this long if you want the adage to be true.

What if I Live in the House?

If you live in the house, the wrinkle in the calculations is that some of the money you are paying is for expenses you would pay anyway. If you didn’t buy a house and rented an apartment, you would have to pay some equivalent in rent and bills. You can take the difference between those two situations and this would be the money expended, and the return generated as well. Contrary to what a lot of people say, owning is not always better than renting – it depends on the circumstances and what is important to you. What you choose as a lifestyle is very important when deciding whether you have a house for the money or because you like to live there. There will not be any taxes on a house that you live in compared to an investment property, which is another important consideration.

What if I Have a Business at Home?

If you live and run a business from home, this is even more advantageous to you because you can write off expenses and reduce commuting time and other costs of going to work, while still retaining the income that the work generates. This would generally make the expenses of owning a home cheaper because some of them are tax deducted, and the home make generate more income because it replaces location expenses. The idea of choosing your lifestyle becomes more important here as your home life and your work life are being stationed in one place. If there are issues with your home, this will have a larger effect on you.

Real estate is not a good or bad investment – it can be all of the above. The point of the article is that people misrepresent what actually happens in real estate by leaving out selected information. It is usually losses and monthly expenses that are ignored in favour of the big gain made on the price. All aspects of the investment need to kept together to find out if it is really worth it for you to buy real estate.

Best Investment Strategy for 2013 – Simplified

Here we lay out the average person’s best investment strategy for 2013, keeping both the investment strategy and investment options simple. For most folks the best investment options are mutual funds. So, here we highlight the best funds and funds to be wary of for 2013 and beyond.

Due to the risk of interest rates rising in 2013 or 2014 and the heavy investment losses that this could cause, money market funds are your best investment strategy and best funds in the safety department. They earn interest and pay dividends that increase when rates go up, and their share price does not fluctuate in value (pegged at $1). Every major fund family offers these funds, and your best strategy is to go with tax-free funds ONLY if you are in a higher tax bracket. Otherwise, the best funds here for you are the traditional, taxable money market variety.

Bond funds are the next investment options to consider in putting together your best investment strategy, and this is where you must be careful. Bond funds should be a part of virtually everyone’s investment portfolio; and have been good solid performers year after year for a long time (basically, for 30 years). However, the best funds in the bond arena of yesterday could be the worst funds in 2013 and beyond. Bond funds are relatively safe and are some of the best investment options for average investors ONLY when interest rates are high and/or are falling. Since interest rates fell to record lows in the summer of 2012, there is not much room for them to fall much further.

Your best investment strategy in terms of bond funds: go with short or intermediate term bond funds. Don’t reach for the higher dividends offered by long-term bond funds, because if interest rates head north significantly, your fund’s value will head south big time. That’s one of the worst investment options for the average investor. Don’t go with the highest quality bond funds; and don’t go with tax-free funds unless you are in a higher tax bracket. Both of these investment options will only serve to lower your dividend income in this period of record low interest rates.

The average person also needs to include stock (equity) funds as a part of their investment strategy for 2013. The best funds in the diversified equity funds category will be those that hold large-cap, high quality stocks that pay higher than average dividends. These are your best investment options because they offer: diversification, good dividend income, and less volatility (price fluctuation risk).

There are times when the best investment strategy is aggressive in nature; but with financial problems in Europe, and a floundering economy in the USA this is not one of them. Keep all 3 mutual fund types in your investment portfolio to keep your portfolio balanced. But cut your risk in both your bond funds and stock funds by going with the mutual fund investment options suggested above.

It’s tough to find good interest income and dividend income these days without taking significant risk in long-term bond funds. To increase your dividend income I suggest you also consider specialty stock funds that specialize in a specific industry. Real estate equity funds could be one of the best investment options to increase your dividend income, and could offer good returns (growth) as the real estate industry gains strength.

When considering your best investment strategy for 2013 and beyond you’ve got to take today’s HIGHLY UNUSUAL interest rate environment into consideration. Our Federal Reserve has openly stated that they INTEND to hold rates down or lower them even further through 2013 and possibly 2014. They want to stimulate our lackluster economy. Meanwhile, the USA goes further and further into debt. National debt: $16 TRILLION. Even at today’s ridiculously low interest rates, the economy is not responding.

Maybe the Federal Reserve will successfully take interest rates even lower; and maybe this will stimulate our economy. In putting together your best investment strategy for 2013 or 2014, I wouldn’t count on it. Sooner or later the party will be over for people who assume that their longer-term bond funds will continue to be one of the best investment options out there.

Your best investment strategy in times of high uncertainty should focus on both caution and balance. Here I have offered my opinions on the best funds, best investment options for the average investor for 2013 and beyond.