By Peter Anderson5 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited December 21, 2010.
A few weeks ago I published my post called “75 Frugal Gifts You Can Give For Christmas“. The post was an extensive list of frugal gift ideas, gifts that people could buy or make for their loved ones, but not break the bank. One of my favorite gift ideas from the list was one that in my opinion is good for more than just one year, it is the gift that keeps on giving. What was it? The gift of stock.
When I wrote the post I was thinking of somehow buying a single share of stock or giving them a check to open a brokerage account or something along those lines. In the end the idea lacked something because it wasn’t very easy to implement, and it didn’t allow for the type of investing that I would prefer to do, via index funds.
A couple of weeks ago I found the answer to how you can give someone the gift of stock, but a bit easier. And it came from one of my favorite brokerage companies, ING ShareBuilder (review) . They also have one of my favorite bank accounts, ING Direct Online Savings (review)!
ShareBuilder Gift Of Stock
ShareBuilder released something this year actually called the “Gift of Stock“. Basically it’s everything you need to start investing included in the package. Who would this be a good gift for? A friend or family member that might need that boost to start investing, or it can be a great teaching tool to help your kids get interested in saving for the future.
Here are the contents of the package from ING:
$50 ShareBuilder Gift Card. Help friends and family start their own stock portfolio at ShareBuilder or become an investor yourself. The gift card is redeemable when opening a new ShareBuilder Individual, Joint or Custodial account, giving you or the gift recipient the chance to start off with $50 in their account. ShareBuilder has no account minimums.
Five Free Automatic Investment Plan Credits. Free trade credits allow you, friends or family to start building wealth. ShareBuilder’s Automatic Investment Plan allows investors to set up recurring investments with a dollar amount they can afford.
Five-part video series from The Motley Fool. Picking stocks can be easier than you think. The Motley Fool’s How to Buy the Right Stocks for Your Portfolio video series can help you develop the right financial portfolio for your financial goals.
It’s really that easy. When they get the package they can setup a new account at ING ShareBuilder, redeem their gift cards for $50 of stock and 5 free automatic investment plan credits, and start investing!
Gift Of Stock Price Drop!
Originally this gift of stock was retailing for $45 on the ING store, but as of this week the price has dropped to only $25. So get in on this hot deal now! You could even buy it for yourself to get started investing you want to! You’ll get a return for your money right out of the box since you get $50 in ShareBuilder credit for only $25!
Here’s my unboxing video of my own “Gift of Stock” package. Click to watch and see everything that’s included inside.
Want to open your own ShareBuilder account? Open your account here. (Get a $50 account bonus with promo code: 50ws10)
While agency loans have existed for decades—Fannie Mae® was first chartered by the U.S. government in 1938, and Freddie Mac was introduced in 1970—even experienced commercial real estate investors may not have used them.
“With bank and agency loans, one isn’t necessarily better than the other—it depends on the property, the client and their goals,” said Kurt Stuart, Managing Director of Commercial Term Lending Northeast at JPMorgan Chase. “Agency lending has different requirements and nuances than conventional bank loans. Any dedicated agency team is well versed in both.”
What are the main agencies?
The two main agencies are:
Fannie Mae, short for the Federal National Mortgage Association
Freddie Mac, short for the Federal Home Loan Mortgage Corporation
Both Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs). They’re private companies that operate under congressional charters to help stabilize mortgage markets and protect housing during stressful financial periods.
Fannie Mae and Freddie Mac each have two businesses:
Single-family housing: residential properties with one to four units, which isn’t offered through JPMorgan Chase Commercial Banking
Multifamily housing: residential buildings with five or more units; within this category, financing is available for affordable and market-rate properties
“In both markets, the GSEs are a countercyclical source of capital, increasing market share when the private market pulls back, as we’re seeing presently,” said Josh Seiff, Managing Director of GSE Agency Lending, JPMorgan Chase.
These agencies benefit the market in several other ways, including:
Providing standardization of loan terms through their underwriting standards
Bringing liquidity and transparency to the market by issuing mortgage-backed securities that carry their guarantee of timely payment of principal and interest
Encouraging lower rates, greater transparency and more consistent availability of capital for housing
How does the agency financing process work?
GSEs don’t originate or service their own mortgages. Instead, approved private lenders—such as JPMorgan Chase—make loans to borrowers. Fannie and Freddie buy those loans from lenders, which they may hold in their portfolios or combine with other loans as mortgage-backed securities that can be sold on the secondary market. Lenders use the funds from these mortgage sales to originate more loans.
“Prior to the global financial crisis, the GSEs kept much of their risk on their balance sheets,” Seiff said. “Today, they securitize and distribute nearly all of their production to institutional investors, such as mutual funds, banks, insurance companies and pensions.”
What are the benefits of agency lending?
Agency loans provide many benefits for borrowers.
Consistent source of capital: GSE lending provides borrowers access to capital regardless of their location or exposure. Agencies also typically remain active during economic downturns and recessions.
Rates and proceeds: By securitizing and selling their guaranteed mortgage-backed securities to the investor market, the agencies can consistently offer borrowers competitive rates—and often higher proceeds.
Loan terms: Fannie Mae and Freddie Mac most commonly provide 5- to 10-year fixed-rate balloon loans, with interest-only options often available. Both GSEs also offer floating rate loans with terms between 5 and 30 years.
Favorable loan-to-value (LTV) and debt coverage ratio: The LTV may be up to 75% with 1.25% amortization. Most agency loans are less than 70% LTV, but higher leverage may be available for certain property types and situations.
Nonrecourse financing: With most agency loans, borrowers don’t have personal liability for the loan. If there is evidence of fraud or other unethical behavior, however, there can be recourse.
Assumability: If the borrower sells the property before the loan term ends, the property’s buyer may be able to assume the loan.
What types of clients and properties can take out agency loans?
Stabilized property acquisitions and refinances are well suited to agency loans. Likewise, institutional and third-party property management clients can benefit if they:
Are rate- and proceeds-sensitive
Have long-term hold expectations
Are comfortable with prepayment penalties and ongoing reporting in exchange for the best terms
“Understanding the needs of the client upfront is the key to a successful transaction with a customer and a good client experience,” Stuart said. That understanding is especially critical when discussing financing options.
“If you’re looking to do a long-term execution and you want really efficient pricing, then an agency execution is a great way to go,” Stuart said.
“But if you need to access anything in the asset over the next 10 years—if you need to redo the roof, for example, and you want to access equity to do that—a balance sheet loan is going to be much more amenable to those types of strategies,” he said.
The best financing option also depends on the asset and where it is in its lifecycle. For example, agency financing can be an excellent choice for a stabilized multifamily property. But bank financing may be better for new acquisitions or buildings with capital-intensive work, such as extensive renovation or deferred maintenance.
What are the key differences between agency and bank loans?
Borrower vs. property focus: Bank and agency loan servicers perform due diligence on the borrower and property. But bank loans generally focus on the borrower, while agency loans place that focus on the property. As a result, bank loans may also take a much deeper dive into the loan’s guarantor and require specific documentation from the borrower, including a personal financial statement and schedule of real estate. Agency loans often require detailed third-party evaluations on the property, engineering and environmental reports.
Flexibility of terms: Agency and bank financing offer flexibility in different ways. For example, agency loans allow borrowers to keep their cash deposits and property operating accounts at their bank of choice. Bank loans often require borrowers to place those funds with the bank providing the loan. Bank loans may offer flexibility elsewhere. For example, agency loans may have steep prepayment penalties compared to bank loans.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
Right now, many people are exploring different industries looking for the right career change.
As such, people are intrigued about the real estate market, but don’t want to start their own company. So, working for a REIT may be a good fit for you.
Real estate investment trusts, or REITs, are publicly traded investment vehicles that allow investors to pool their money and invest in a wide variety of real property assets. These assets can be diversified by investing in an ETF that holds a portfolio of different REITs.
First of all, careers in REIT tend to be highly lucrative and the industry is growing by leaps and bounds.
When viewed as an industry, REITs make significant contributions to the tax base and the job market. Plus the community is the benefactor of all real estate improvements.
in 2020, REITs contributed an estimated 2.9 million full-time jobs to the U.S. economy (source).
In this article, I will tell you how many positions are available in REITs and what these jobs entail.
What are real estate investment trusts?
Real estate investment trusts, or REITs, are a type of security that owns and operates income-producing real estate. REITs are a great way to invest in real estate without having to be a property owner.
When you buy into a REIT, you are not actually buying any real estate yourself–you are simply investing in a company that owns and operates real estate. The company will not resell the properties it acquires; instead, it will hold on to them and generate profits from rent or lease payments.
How many real estate investment trusts are there?
There are a great number of real estate investment trusts, or REITs, across the globe. These trusts have a combined equity market capitalization of $1 trillion and hold a vast array of properties- from apartments to hospitals to data centers.
In the United States, there are more than 225 real estate investment trusts (REITs) that are registered with the Securities and Exchange Commission (SEC) and trade on one of the major stock exchanges.
Over 1,100 REITs have had tax returns filed according to the IRS. Thus, most REITs are privately held.
What is the job outlook for people in real estate investment trusts?
The job outlook for people in real estate investment trusts is good because the real estate industry is growing and there is a lot of opportunity for people who are interested in this field.
The real estate industry is always changing, so it is a good field to be in if you want to have a lot of opportunities for growth.
The job market for people in real estate investment trusts is expected to grow at a rate of about 10% per year. This means that there will be more high-level positions available in the next few years. In addition, 30% of all REIT jobs require a business degree to start at a managerial level. However, you can find entry-level positions to begin your career.
How Many Jobs are Available in Real Estate Investment Trusts
Currently, there are over 1,500 jobs available in real estate investment trusts on Linkedin and 3000 more on Indeed.
There are many different career paths that one can take on within the industry of real estate investment trusts, with different salaries and opportunities.
Best paying jobs in Real Estate Investment Trusts
Asset managers, for example, can make upwards of $200,000 per year. Other high paying positions include those of developers, acquisitions professionals, and investor relations personnel.
It is important to remember that these roles often intersect and overlap, so it is important to be aware of what companies are hiring for what positions. There are many industries in which you can work for a REIT, including construction projects and residential leases.
Real estate investment trusts, or REITs, are becoming more popular as a way to invest in the real estate market. These trusts are responsible for every aspect of a real estate project, from finding and acquiring properties to managing them and leasing them out. This requires a variety of different professionals, including asset managers, accountants, lawyers, and engineers.
Types of Jobs Available
There are also many jobs available in the field of real estate investment trusts (REITs). A REIT is responsible for every aspect of a real estate project, from development to management.
The company also needs to ensure its success, which requires a lot of hard work and dedication. There are professionals managing the trust’s assets and overseeing its portfolio.
If you’re interested in working in this field, there are many opportunities available to you including:
Property Manager
Commercial Developer
Acquisition Team Member
Financial Analyst
Marketing Coordinator
Construction Supervisor
Check out the full list of available jobs in real estate investment trusts.
Each of these positions has different responsibilities and duties.
For example, a real estate agent is responsible for helping REIT buy or sell properties. A property manager is responsible for overseeing the maintenance and operations of a property, while a financial analyst decides whether or not the assets are living up to their financial obligations. Finally, a commercial developer is responsible for designing, constructing, and managing commercial developments.
How do I become a real estate investment trust professional?
You should be able to identify opportunities and analyze data to make sound investment decisions.
You should have experience in financial analysis, accounting, and investing. Excellent communication and interpersonal skills are also important, as you’ll need to work with clients, investors, and other professionals in the industry.
There are many things to consider when you’re thinking about becoming a real estate investment trust professional. The most important factor is making sure that this is the right career path for you. There are many benefits to working in REITs, but it’s important to make sure that you’re ready for the challenge.
Once you’ve decided that this is the right career for you, there are some basic steps that you need to take in order to get started.
The first step is getting educated on the topic. There are many courses and programs available that can teach you everything you need to know about real estate investing. After you’ve completed your education, it’s time to start building your network. Meeting other professionals in the industry and getting connected with potential mentors will help set you up for success.
The final step is finding a job in the industry. There are many opportunities available, so it’s important to do your research and find the company that’s right for you. Working in REITs can be a rewarding experience, and with the right preparation, you can be on your way to a successful career in real estate investment trusts!
What are the requirements to work in a real estate investment trust company?
The requirements to work in a real estate investment trust company vary depending on the company, but typically a degree in business, finance, or economics is required, along with experience in the real estate industry. Some companies may also require experience in accounting, investment banking, or the law.
In order to work in a REIT company, you must meet some requirements.
First and foremost, you must be passionate about real estate investment. Secondly, you must be able to devote the time and resources necessary to do your job well. Finally, you must be able to meet the company’s standards and uphold its values.
REITs are required by law to invest in real estate–so it’s important that you have a firm understanding of the market before working in this industry. In addition, REITs are limited in terms of the number of shareholders they can have (no more than 50% held by five or fewer people). Lastly, REITs are mandated to pay out 90% of their taxable income each year so that investors can benefit from regular dividend payments.
How Much Can You Earn Working for a REIT?
Smaller companies with lower profit margins usually offer the lowest-paid jobs. Larger companies with higher profits and more complex job tasks often pay more than smaller ones do.
According to Payscale, the average base salary for the REIT industry is $75,000 a year (source). This is above the median salary of $60000. Thus, jobs within the REIT industry are more lucrative than you can find in other industries.
Lead Analysts and Senior Analysts are the most popular jobs within the industry with annual salaries of $80,000 and $90,000. It’s important to note that these figures are national medians and may vary depending on location.
Executive-level jobs offer the highest earning potential with the average salary for a senior executive position reaching well over six figures ($105,000). However, it is also worth mentioning that these earners typically have an ownership stake in their company.
Therefore, if you’re looking to maximize your earnings as a REIT employee then working for a large company is your best bet.
How Many Are Real Estate Investment Trust Jobs Being Created Each Year?
The number of jobs in real estate investment trusts is growing rapidly, with more than 1000 positions becoming available each year.
REITs are a type of business that creates many jobs.
The number and percentage of these jobs will vary depending on the specific industry in which the REIT operates; however, there are always many opportunities for those interested in this field. It’s important to research the particulars of each position in order to decide which is best for one’s interests.
Individuals can be employed in a variety of positions in the REITs sector, including accountants, construction managers, leasing consultants, property managers, and financial analysts.
There are a variety of job opportunities in REITs, depending on the specific department or position you’re interested in.
Many even are early morning jobs too!
Other jobs in real estate investing
Plenty of different jobs are available in the real estate industry and can be broken down into three main categories:
People who invest in real estate
Those who manage or develop properties
Employees who provide support services.
There are a variety of job descriptions to fit your experience level.
In fact, if you keep using these good excuses to miss work, then a job change is probably needed.
REITs – Real Estate Industry a Possibility for You?
It is important to know how many jobs are available in a particular field so you can see if it’s worth pursuing as your career.
As this article showed, real estate investment trusts, or REITs, makeup one of the higher paying jobs. Surprisingly, it has one of the lower barriers to entry as a career field.
Plus, there are more than hundreds of thousands of people who are employed by REITs.
You can earn a lot of money working for a REIT, depending on the company you work for and the job you have.
Start your job search now.
Know someone else that needs this, too? Then, please share!!
On April 12, North Dakota Governor Doug Burgum signed into law House Bill 1068, which creates a new statutory licensing scheme in North Dakota covering residential mortgage loan servicing activities. This follows on the heels of the enactment last month of North Dakota Senate Bill 2090, which overhauled North Dakota’s licensing requirements related to residential mortgage lending. Both licenses will be enforced by the North Dakota Department of Financial Institutions and are effective as of August 1, 2023.
Residential Mortgage Lending
Senate Bill 2090 shifts the applicable license-type for conducting residential mortgage lending from the existing North Dakota Money Broker License to a new Residential Mortgage License. Existing Money Broker Licensees are not required to hold the new Residential Mortgage License until December 31, 2023, a limited extension to the law’s general effective date of August 1, 2023. The entities exempt from the requirement to hold a Residential Mortgage License include banks, credit unions, savings and loan associations, trust companies, and certain nonprofits.
The Residential Mortgage License will require licensees to hold a surety bond of at least $50,000; maintain a minimum net worth of $25,000; file call reports via the NMLS; and refrain from net branching arrangements. Further, the statue will require the following language to be in written contracts (in capital letters):
NOTICE: RESIDENTIAL MORTGAGE LENDERS ARE LICENSED AND REGULATED BY THE NORTH DAKOTA DEPARTMENT OF FINANCIAL INSTITUTIONS. THE DEPARTMENT OF FINANCIAL INSTITUTIONS HAS NOT PASSED ON THE MERITS OF THE CONTRACT AND LICENSING DOES NOT CONSTITUTE AN APPROVAL OF THE TERMS OR OF THE LENDER’S ABILITY TO ARRANGE ANY LOAN. COMPLAINTS REGARDING THE SERVICES OF RESIDENTIAL MORTGAGE LENDERS SHOULD BE DIRECTED TO THE DEPARTMENT OF FINANCIAL INSTITUTIONS.
Residential Mortgage Loan Servicing
House Bill 1068 creates a new North Dakota Residential Mortgage Loan Servicing License, which is required to engage in residential mortgage servicing as a servicer, subservicer, or mortgage servicing rights investor. We note that the statutory language is not clear regarding the types of activities covered by the new licensing requirement.
The law defines “residential mortgage servicing” as receiving any scheduled periodic payments from a borrower, pursuant to the terms of any federally related mortgage loan, including amounts for escrow, and making the payments to the owner of the loan or other third parties of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the mortgage servicing loan documents or servicing contract. For home equity conversion mortgages or reverse mortgages, this includes making payments to the borrower.
“Servicer” is defined to mean “the entity performing the routine administration of residential mortgage loans on behalf of the owner or owners of the related mortgages under the terms of a servicing contract.”
“Subservicer” is defined to mean “the entity performing the routine administration of residential mortgage loans as agent of a servicer or mortgage servicing rights investor under the terms of a subservicing contract.”
“Mortgage servicing rights investor” is defined as “entities that invest in and own mortgage servicing rights and rely on subservicers to administer the loans on their behalf. Mortgage servicing rights investors are often referred to as master servicers.”
“Service” or “Servicing a loan” is defined to mean the following, when performed on behalf of a lender or investor:
collecting or receiving payments on existing obligations due and owing to the lender or investor, including payments of principal, interest, escrow amounts, and other amounts due;
collecting fees due to the servicer;
working with the borrower and the licensed lender or servicer to collect data and make decisions necessary to modify certain terms of those obligations either temporarily or permanently;
otherwise finalizing collection through the foreclosure process; or
servicing a reverse mortgage loan.
Exemptions from licensing are provided for banks, credit unions, savings and loan associations, trust companies, and certain nonprofits. The Residential Mortgage Loan Servicing License will require licensees to maintain a minimum tangible net worth based upon the volume of loans serviced nationwide, with a minimum net worth requirement of $100,000. Special requirements will apply to “large servicers,” which the statute defines, in part, as a servicer with a residential mortgage loan servicing portfolio of 2,000 or more.
Both of the new licensing statutes authorize the North Dakota Department of Financial Institutions to issue regulations. A copy of House Bill 1069 can be found here, and a copy of Senate Bill 2090 can be found here.
Multi-family homes can be a great way for novice real estate investors to get started buying properties that will generate passive income. However, these properties, which contain multiple units for more than one household, have some challenges that single-family homes don’t have. If you’re considering buying a multi-family home, here’s what you need to know before jumping in.
What is a multi-family home?
A multi-family home is a single building that’s divided to accommodate more than one family living separately. They can range from a duplex, which has two dwellings within a single building, to homes or small apartment buildings with up to four individual units. (Buildings with more than four units are typically considered commercial properties.)
The owner of a multi-family home can either live in one of the units and rent out the others, or live elsewhere and rent them all out. The rules for financing a multi-family property are different depending on whether the owner will live there or not: If you don’t plan to live in your property, you’re considered an investor. You may be able to use the projected rental income from the property to help you qualify for a mortgage, and you may also qualify for a higher loan amount.
“When you’re looking at a single-family home, you’re thinking about your own needs only,” says Charlotte Winckowski, a Realtor with iKey Realty in Toledo, Ohio. “When you’re looking at a multi-family home, you have to think of it more as a business: What will the needs of your tenants be? What kinds of income will it produce, and what will your expenses be?”
Multi-family vs. single-family homes
While you can rent out some or all of a single-family home, multi-family homes have other distinct characteristics. Some started out as large single-family homes that an owner or developer decided to divide into multiple units. Each unit in a multi-family home has its own address, its own kitchen and bathrooms and typically its own entrance. However, those living in multi-family homes may have less privacy than those living in single-family homes because of shared walls.
Types of multi-family homes
There are various kinds of multi-family homes to consider, with different offerings in terms of layout and living space. Each type of house has its own pros and cons, as well.
Duplex/Triplex
The term duplex refers to two units or homes that are connected either via a common wall, ceiling or floor. A triplex has three. Each home in a duplex or triplex has its own entrance. The units may also have separate yards and garages.
Condo
A condo is typically an individually owned unit within a community or building made up of other individually owned units. In most cases, condo owners are required to pay monthly fees to a homeowners association. These fees cover the costs of upkeep for any amenities that may be included, and in some cases they cover insurance for the building or community, as well.
Townhome
Similar to duplexes, townhouses or townhomes are homes that are attached to one another via a common wall. Typically they have two or three stories. They are more spacious than apartments and generally involve far less maintenance and upkeep than a single-family home.
Semi-detached house
Like townhomes, semi-detached homes include a shared wall with another home. However, semi-detached houses are typically bigger than townhomes. These types of homes can be more affordable than a freestanding single-family home. They may also offer less costly maintenance, as the owners of semi-detached homes may share upkeep expenses.
Pros and cons of multi-family homes
Pros
The rental income a multi-family property earns can help offset the cost of your mortgage and other expenses, providing you with an income stream. “For some owners, the rent is enough that they don’t have a house payment at all,” says Paul Wyman, managing broker of the Wyman Group in Kokomo, Indiana. “They’re able to use income from other units to cover their mortgage and insurance, and that frees them up to use their cash for other things.”
You’ll be able to tackle repairs and maintenance more easily. If you live in or close to your rental property, you are less likely to miss major issues and will be able to respond faster when problems arise.
You can write off much of your home maintenance as a business expense and prorate part of your mortgage interest payments.
These properties can be an ideal option for multi-generational families who want to be close but retain their privacy. (They also help you keep such options open in the future.)
If you start out living in one unit but ultimately move out, you can still keep it as an income-producing investment, earning even more once you start renting it out.
Cons
Since you’re buying more than one unit, it may cost more upfront to purchase a multi-family home than it would to buy a single-family home.
Being a landlord is a time commitment, and living in the immediate vicinity of your tenants means you may get knocks on your door at any time. You’ll also need to be comfortable negotiating lease terms and screening your tenants, not to mention dealing with them in a business-like way when the rent is overdue, there are issues with noise or there’s damage to the property.
If your units go vacant or a tenant is late with the rent, you’re still responsible for paying your mortgage. You also have to cover the cost of (quickly) repairing problems, like a leaky roof or clogged toilet. “Even if you don’t have a housing payment every month, there is still financial risk in multi-family homes,” Wyman says.
You’ll need a substantial emergency fund. The more units you have, the less impact an individual unit will have on your overall cash flow, but landlords should have plenty of money set aside to cover unexpected repairs and rent on vacant units.
It can be complicated to sell a multi-family property that has tenants in place, since you’ll need to coordinate showings and appraisals — and keep the tenants apprised of the process.
Maximizing returns on a multi-family home
In most cases, a multi-family home will also serve as an investment property for the owner. In order to maximize your investment, it’s important to understand the costs associated with the property, including not only your mortgage, property taxes and homeowners insurance, but also other expenses, such as utilities, real estate agent fees, advertising (to attract tenants) and legal fees.
“An evaluation of the property should include an inspection by a licensed inspector and market research to include a market lease-rate analysis along with current market rental conditions,” Wyman says.
Who are multi-family homes best for?
Purchasing multi-family real estate is best for those who are interested in getting into real estate investing to generate wealth and are comfortable with the added responsibility and time commitment that comes with being a landlord. These types of homes can allow you to live rent free, if you occupy one of the units and the rent from the other units generates enough income to cover your monthly expenses. Once the mortgage is covered, the rent from multi-family homes can become a passive stream of income.
They can also be a smart choice for multi-generational families interested in buying a property together while having their own dedicated space. Typically including anywhere from two to four units, multi-family homes allow extended families to live under the same roof while still enjoying the benefits of having the privacy of individual units.
How to find a multi-family home
Like single-family homes, multi-family properties are listed for sale on real estate search websites, where you can typically filter the results of your search based on the type of property you’re seeking.
A real estate agent, either with a residential or commercial specialty, may be able to help you find investment opportunities in your area, as well, and could even know of some opportunities that have not been advertised online.
As with any house hunt, do your homework to see what multi-family home prices are like in your market and what you might expect to pay.
Find other housing types
Apartment
Apartments are suited for anyone looking to stay in a prime location for a cheaper price near shopping, restaurant and entertainment centers, often at a more affordable cost than buying a condo or single-family home.
Condominium
Condos appeal to those looking for a lower-maintenance living, home with a sense of security, opportunities to be social with neighbors, among other factors.
Townhouse
Townhouses are a particularly good option or first-time homebuyers or other budget-minded home buyers who want more space than typically afforded in a condo.
Modular home
Modular homes are enticing to empty-nesters looking to downsize, couples looking for backyard units like tiny homes or families looking to upgrade their dated properties in nice but expensive neighborhoods.
Single-family home
Single-family homes are best for families who prefer a huge yard and plenty of room to spread out. Others still prefer a low-maintenance condo or townhome that includes benefits like landscaping, snow removal and exterior maintenance.
Multi-family home
Multi-family homes are best for those who are interested in getting into real estate investing and are comfortable with the added responsibility and time commitment that comes with being a landlord.
Bungalow home
At between 1,000 and 2,000 square feet, bungalows are a great option for young families looking for a starter home or retirees hoping to downsize in a home without stairs, or single homeowners who want the single-family home lifestyle without managing a huge property.
Co-op
Co-ops are most often found in major cities, and they can be good for those looking for security or neighbors who largely adhere to the building’s rules and policies.
Patio home
Typically capped at one-and-a-half stories and part of a larger association, patio homes are best for homeowners who don’t want to deal with stairs or maintenance.
Ranch home
Ranch homes are ideal for anyone who prefers single-story living. Singles, couples and families with children can find something to love about a ranch home.
I‘ve been looking into the many options available to me lately when it come to discount online brokerages.
It seems like just about everyone has a service that they like best, and that they prefer using. The first one I had heard recommended was OptionsHouse, which I reviewed last time. It had a good mix of research tools, low cost and ease of use. Definitely one to look into, especially for active traders.
Sharebuilder is another one that I had heard good things about, and since I already have a savings account with Capital One 360, I thought I should give it a look.
ShareBuilder By Capital One Background
From Wikipedia:
ShareBuilder (formally ShareBuilder Securities Corporation) is a United States based online brokerage firm founded in 1996 (as NetStock Direct). It encourages recurring, automatic purchases of shares of stock, ING Mutual Funds (Class O) and exchange-traded funds. All transactions occur online and are entirely at the discretion of the account holder, thus it is an execution-only service. The company does not have brokerage sales representatives or advisors. Account holders can use ShareBuilder’s online research tools to investigate stocks, similar to other online brokerages such as Scottrade, TD Ameritrade and Fidelity. In 2005, ShareBuilder began offering 401(k) plans to small businesses. On November 19, 2007, ShareBuilder Corporation was purchased by ING Direct, a subsidiary of ING Group for US $220 million. In June 2009, ShareBuilder moved its headquarters from Bellevue, Washington to 83 King Street, in the Pioneer Square district of Seattle, Washington. In February 2012, Capital One Financial Corporation completed its acquisition of ING Bank, fsb, and its subsidiaries, including ShareBuilder Corporation. ShareBuilder is no longer affiliated with ING Group.
Awards
ShareBuilder has earned a bunch of awards and has been recognized as one of the top online brokers for beginning & long term investors. Among the awards:
Forbes Best-of-the-Web awards in January 2003 and January 2004
Kiplinger’s Personal Finance ranked Sharebuilder #1 in “25 Ways to Invest $1,000.”
ShareBuilder Fees, Commissions And Minimums
Probably one of the most important things to consider when opening an online brokerage account is to consider what fees, commissions and minimums you’ll see when using an account. Here is what you’ll find at ShareBuilder:
UPDATE: As of March 2013 Sharebuilder By Capital One slashed their prices from $9.95 per stock or options trade, to $6.95 per trade. That move makes them one of the most competitive brokerages out there.
Stock Trades
Sharebuilder by Capital One has middle of the road, to expensive, fees when it comes to stock trades. They have $9.95 stock$6.95 stock trades. Compare to some others and they are very competitive.
On the other hand, if you’re less of an active trader and more of a buy and hold investor, their automatic investments may be a good fit for you, and more affordable. Automatic investments, done on Tuesdays, will cost only $4. If you sign up for their Advantage plan, you’ll get 12 per month for free included in the $12/month subscription, and it’s only $1 for each additional. They offer a dollar cost averaging plan as well.
Options Trades
Sharebuilder has a fee for options trades of $9.95$6.95 per online trade, + $1.25 per contract.
Fees And Minimums For An Account
ShareBuilder doesn’t have account maintenance fees, monthly minimums or inactivity fees. All prices are charged on a flat rate, and what you see is what you pay.
There is no minimum account funding level, although if you want to get the $25 bonus mentioned above, you need to fund with at least $25.
Here’s a basic fee comparison with other discount brokerages:
Investment Account Options
ShareBuilder offers a plethora of other investment account options for investors. Among them:
Individual Account
Joint Account
Traditional/Rollover IRA
Roth or Conversion IRA
ShareBuilder ESA (Education Savings Account)
Custodial Account
ShareBuilder Tools & Tutorials
In the past ShareBuilder may have been a bit short when it comes to the research and education departments. Within the last few years, however, ShareBuilder has really built up their library of educational tutorials and investment tools.
They now have a variety of tools including such things as an investment screener, a portfolio builder, fund/stock/ETF selectors, reports, simulators and calculators.
They also have a wide variety of investment information for beginning investors including tutorials and articles in their investor library.
One thing others have noted that is missing, however, is a forum or community of some sort where you can talk with other investors to get advice. Several other online brokers have something like that, and it would be nice to see Capital One add one for ShareBuilder as well.
Easy Linking To Capital One 360 Savings Or Checking
Another thing that I like about ShareBuilder is that you can easily link it to your Capital One 360 Savings or Capital One 360 Checking account if you have them. I personally already have an Capital One 360 Savings account (review here) and being able to easily link the accounts for automatic investments is nice.
Conclusion
When considering an online discount brokerage ShareBuilder is definitely one of the best options out there for long term investors who want to set up automatic investments and do long term dollar cost averaging. If you’re more of an active trader you may want to look elsewhere for a lower cost option, someplace like OptionsHouse. But if you just want a plan that will allow you to automatically invest over the long term, ShareBuilder would be a good place to check out.
Have you used ShareBuilder, or considered using them? What has your experience with them been like? Are you happy with them? Tell us your thoughts in the comments.
Sign Up For Sharebuilder by Capital One
Check out our comprehensive listing of discount brokerages and mutual fund companies
Tap on the profile icon to edit your financial details.
Is it possible to earn a paycheck while sitting on the couch watching television? Absolutely, but it takes a bit of work beforehand to set things in motion. By developing online assets, investments and interest payments, you can put your dollars to work so they provide gains while you sleep. Here are the details and the best ways to put $1,000 of passive income into your pocket every month. For help managing your money — no matter how you earn it — consider working with a financial advisor.
What Is Passive Income?
The IRS defines passive income as earnings generated by someone who isn’t materially participating in the endeavor, meaning you work less than 500 hours annually on a project or less than 100 hours if you put in more time than the rest of any coworkers involved.
Essentially, passive income is created by developing assets that earn money by themselves. For example, creating a blog with affiliate links will provide earnings every time a reader clicks through to a specific product. This way, you make money in perpetuity for the work you did once.
How to Find Ways to Make Passive Income
Passive income comes from assets, like a YouTube channel or an online store. In most cases, though, you need resources to start out. Whether you buy a better webcam or take a writing course, generating passive income means investing money to get yourself going. Therefore, saving money beforehand is key.
To that end, your first steps are researching the passive income streams that appeal to you, identifying your starting costs and saving the money you need. In this phase, it’s crucial to avoid financial risk. Piling money into a high-yield savings account is an excellent choice because you can earn 4% APY in an account with FDIC insurance.
Putting serious cash into a savings account that compounds monthly can also serve as a first exposure to passive income. You’ll put your dollars to work and watch your money grow. Once you save the money you need, you can invest it in more lucrative passive income streams.
Low-Involvement Passive Income
These options put the ‘passive’ in passive income because they require less work to get going. However, they have less earning potential than high-involvement passive income streams.
Purchase Series I Bonds
Rising interest rates have made Series I bonds a viable passive income investment. Specifically, you can purchase these bonds with a 4.3% APY through October 2023, after which the government will modify the rate (this occurs every six months). Plus, the U.S. Treasury backs these bonds, meaning your risk is almost zero.
Additionally, Series I bonds earn interest for thirty years, making them a suitable long-term investment. On the other hand, you can sell your bonds after holding them for at least a year. However, you’ll lose the most recent three months of interest if you sell them before holding them for five years.
Create a CD Ladder
A certificate of deposit (CD) is like a short-term savings account with an excellent interest rate. Therefore, you can continuously purchase new CDs as they mature and reinvest your gains. You can buy a CD at most banks and credit unions.
CDs mature in one to five years, depending on the specific product. The longer the term, the higher the interest rate. Because your CD money isn’t accessible while it matures (unless you want to forfeit your gains), it helps to create a CD ladder. This way, a portion of your investment is always available.
For example, your ladder could look like this:
$1,000 in a one-year CD with a 3.5% APY
$1,000 in a two-year CD with a 3.75% APY
$2,500 in a five-year CD with a 4.5% APY
So, you’ll receive part of your investment back after a year and can reinvest or pocket the profits. Then, you’ll get another portion of your investment back after another year and the final $2,500 plus interest three years after that. Your ladder will provide a stream of income at different milestones, boosting your liquidity as an investor.
Become a Paid Online Shopper
If you’re a dedicated online shopper, you can turn your pastime into cash. For example, Rakuten pays between 1% and 20% for each online purchase you make, with no upward limit on earnings. While this perk isn’t a license to impulse spend every night, it can provide a passive income boost to purchases you would make regardless. You’ll also get a $10 welcome bonus for signing up (or more for using specific affiliate links).
Use Rewards Credit Cards
A rewards credit card pairs perfectly with online shopping (and any other shopping you do). There are dozens of excellent rewards cards available, such as Discover (1% to 5% cash back per purchase) or Chase Freedom Unlimited (1.5% to 5%). This way, all your purchases, from grocery stores and gas stations to vacation expenses, will provide an income stream. Remember, paying your credit card monthly is essential for this strategy. Otherwise, you’ll pay at least 15% APR on your balance, putting yourself in the hole instead of getting ahead.
Use a Robo-Advisor
Robo-advisors are digital investment companies using algorithms to grow a diversified portfolio of assets. The advantages are the low management costs and balance requirements. For example, Betterment charges $4 per month to invest, with no minimum balance requirement (you can achieve even lower fees with a sufficient balance or monthly deposit). Because human advisors charge at least 1% of the assets managed and often require a high minimum balance, robo-advisors are an inexpensive, accessible way to receive capital gains. In addition, your portfolio will rebalance itself periodically, meaning you don’t have to lift a finger.
High-Involvement Passive Income
These methods require more elbow grease but can provide thousands of dollars per month:
Invest in the Stock Market
Since 1926, the top 500 companies in the stock market (as tracked in the S&P 500 index) have returned an average of about 10% per year. Therefore, the stock market remains one of the most lucrative passive income options.
You can open an investment fund, dump money into an S&P 500 index and let it grow. However, you can also become a more involved investor by researching companies and industries and allocating money to stocks in companies with high growth potential. While doing so requires more work, you may see higher gains if you can stomach the risk.
Invest in Real Estate
Real estate can provide passive income in various ways. First, you can purchase shares in a real estate investment trust (REIT) if you don’t want to own or manage physical property. Instead, you’ll have shares in a company that invests in mortgages and commercial real estate. You’ll receive gains when the company’s investments flourish. Because federal law requires REITs to return at least 90% of their profits to shareholders, you’ll see profits any time the company does well.
Next, you can purchase rental properties to develop monthly income from rent payments. This strategy involves managing property and can get hectic if you acquire multiple properties (fortunately, you can hire a company to manage your properties when you scale). The payoff is thousands of dollars per month, which can offset the mortgages for your properties and pad your wallet. As you pay off the homes, each rent payment becomes worth even more. Plus, property appreciation gives you an opportunity to sell the property for substantial gains.
Start a YouTube Channel
The typical YouTuber receives $18 per 1,000 views on their videos. So, you can transform a hobby or passion into a series of money-making videos. For example, if you have a particular skill, such as DIY home improvement, your how-to videos can educate the masses and provide hefty returns.
Start a Podcast
Similarly, your favorite topics, movies, books and more can become profitable discussion material on a podcast. So, choose what interests you most, purchase a high-quality microphone and start talking. Like a blog, a podcast can provide earnings through advertisements, affiliate sales and membership subscriptions.
Create a Course Online
Likewise, you can turn a special skill or interest into web-based training. So whether you’re a social media marketing savant or a workout expert, you can transform your knowledge into a purchasable set of online classes.
Write a Book
While writing a book requires time, editing and publishing costs, book royalties can provide sizeable passive income. Additionally, your earnings can snowball if you release multiple books. Plus, you can also pair this strategy with an online writing course if you become a well-known author in your genre.
Remember, you can write physical books or eBooks. The advantage of eBooks is the inexpensive publishing, mass availability and sales potential. Specifically, Publishers Weekly reported eBooks sales for 2022 to be $2.57 billion, a 6% increase from the year prior.
Maintain a Blog
Writing a blog can be an excellent creative outlet and passive income generator. Whether your focus is pet training or gardening, you can write with expertise and direct readers to the products you use. This way, you can earn affiliate income, gain an online/social media audience and accumulate an email marketing database.
Create Leads For Another Business
If you want to create a website but don’t have a specific idea for earning money, you can increase sales for another company instead. For instance, you can write about topics pertaining to the business and provide links to the company’s website. This way, every click can earn a commission. In addition, you can use social media and Google ads to generate leads.
As a result, competence in Digital Marketing and SEO is essential for this strategy to work. The payment structure usually involves a flat monthly fee or a pay-per-lead model. This flexible business model has great potential for scaling up to generate an unlimited monthly income.
Sell Stock Photography
Many internet-based entrepreneurs lack the time or inclination to snap their own photographs for their websites. Instead, they resort to stock images, which are generic and expertly captured photographs. These photographs are usually acquired as a set or via a monthly membership to a stock photo website.
So, if you want to diversify your income sources as a photographer, you could create and sell styled stock photo bundles. For instance, you could offer a package of 15 stock photos with a business theme for $15. Then, you can market your product to websites and businesses. By doing this, you can earn a continual flow of revenue from images you captured once.
Rent Out a Room
If you have additional rooms in your home and are open to having guests, you can utilize online platforms such as VRBO to rent out a room in your house. Moreover, you could rent out your entire home if you travel frequently. The cost of renting a room varies based on location and the area you reside in, meaning you could charge hundreds of dollars per night in a high-demand area.
Rent Out Your Car
Similarly, you can rent out a car if you have a second one or don’t drive much. Platforms such as Turo connect car owners with customers who need a vehicle temporarily. Renting out your car a couple of weekends per month can create hundreds of dollars of extra income for an asset you already own.
The Bottom Line
There are numerous options for generating $1,000 a month in passive income. Your path toward earning this self-sustaining income stream depends on your strengths, interests and the amount of time and work you put into the project. Therefore, your way forward may be as simple as becoming an Airbnb host or involve researching the real estate market and purchasing a rental property. Remember, your passive income will have specific tax implications, so it’s best to understand how an asset will affect your taxes before going all in.
Tips for Making $1,000 a Month in Passive Income
A financial advisor can help you create a plan for your money. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Remember, reducing costs means keeping more of your passive income. Shaving even a tiny percentage off expenses can create a significant upside. For more, here’s how minimizing expense ratios can boost your savings.
Ashley Kilroy
Ashley Chorpenning is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.
LendingHome, a marketplace lender that claims it’s “the best way for borrowers to get a mortgage,” announced this week that it funded more than $550 million in mortgage loans during 2015.
That represents a 600% increase from 2014 as marketplace lending continues to surge in popularity.
If you’re wondering just what the heck marketplace lending is, it’s essentially a setup where individuals obtain and invest in mortgages at the same time.
LendingHome refers to themselves as a “direct lender with a marketplace of investors who buy our loans.” They close the loans with their own funds and then offer them to investors via a secondary sale.
So Joe Investor backs a mortgage (via a fractional note) taken out by Jane Homeowner after LendingHome funds it. Institutional investors are also involved in the process.
To that end, some $200 million in principal and $20 million in interest has been doled out to investors in LendingHome mortgages.
LendingHome Mortgage Products: Fix & Flip or Primary Residence
If you’re a borrower seeking a mortgage, you have the ability to choose from either a “fix & flip” product or a standard owner-occupied mortgage.
Let’s talk about the first option first. Assuming you’re an investor, you get the ability to apply for a purchase or refinance loan on a rental property.
LendingHome will ask you a series of questions online about the property, including whether you’ve found it yet, and if an offer has been made.
As far as the loan goes, you have the ability to add rehab funds on top of the desired loan amount if you need to finance improvements before unloading it again. The loan term appears to be set at 12 months because it’s basically a bridge loan.
They ask the typical questions such as property value, loan-to-value, your estimated credit score, and your real estate experience. Specifically, they ask how many properties you’ve purchased in the past six and 12 months, the number you’ve purchased in your lifetime, and the average purchase price.
The product is available in Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, Maryland, Michigan, Missouri, North Carolina, Nevada, New York, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington, and West Virginia at last glance.
LendingHome Rates Appear to Be Favorable
If you want to take out a mortgage on a primary residence you intend to occupy, it appears you can only do so in Nevada and Oregon at the moment, though I’m sure that list will grow soon enough.
I did a mock application to see what kind of rates you can get and they weren’t bad at all. For a 30-year fixed, the rate was advertised at 3.5% with no mortgage points. For a 15-year fixed, the rate was 2.75%, and for a 5/1 ARM it was 2.625%.
LendingHome’s rate estimates assume a $750 origination fee and a $400 escrow fee plus 0.07% of the loan amount. There’s also a smaller application fee.
For the record, I geared the quote toward a pristine borrower with excellent credit and a sizable down payment. When I inputted a 600 credit score it was deemed too low for financing.
However, a 620 credit score got me back in the game and rates were still low, with the 15-year fixed unchanged at 2.75% and the 30-year fixed a slightly higher 3.875%.
So a borrower with a low credit score may benefit from their forgiving pricing structure.
LendingHome aims to be speedy, with a three-minute rate quote, a 20-minute full application, and a closing date in just 10-14 days. In fact, they aim to close all loans in less than 2 weeks. That’s pretty fast!
The process is also done 100% online, with questions answered via online forms and documents uploaded via their website. You can also keep track of your loan progress via their customer portal and contact a human if you so wish.
If anything changes along the way, they may need to adjust your rate, but they’ll let you know if and when that happens.
For those who wind up getting denied, the company claims it will work with you to provide a creative counter-offer if at all possible.
Becoming a LendingHome Investor
If you want to invest in LendingHome mortgages, you need to be an accredited investor. This typically requires a six-figure income and assets north of $1 million. If that sounds like you, there’s an option to earn a healthy yield on mortgages.
Assuming you choose to invest, LendingHome’s marketplace requires a minimum opening balance of $50,000, with a minimum investment of $5,000. When you invest in one of the company’s mortgages, you can earn a “yield upwards of 10 percent on average.”
The company differentiates itself from other FinTech platforms by allowing investors to put their money behind secured loans backed by real estate, as opposed to unsecured loans offered through competing marketplace lenders like SoFi.
Once you choose a mortgage to invest in, you’ll receive a monthly payout of principal and interest when the borrower on the loan makes a payment.
And because you’re taking a fractional interest, you can diversify your mortgage holdings so you don’t just wind up with one sour loan.
Your money is basically locked up until the loan matures, which could be earlier than the actual loan term if the mortgage is prepaid.
Should You Apply for a Mortgage at LendingHome?
All in all, it appears that LendingHome is targeting a niche market that has either been shunned by traditional mortgage lenders, or simply doesn’t want to deal with them because of the many restrictions investors with lots of properties face.
While I don’t know what the mortgage rates are for the fix & flip loans, my assumption is that they’re going to be significantly higher than what you’d find with a conventional mortgage lender. I’ve heard something about rates being closer to say 7-10%, as opposed to the 6% rate you’d find on a traditional 30-year fixed issued by a large national bank, credit union, or mortgage banker.
However, companies like LendingHome (and Sindeo or Lenda) may offer more flexibility than the big mortgage players, which is probably why a borrower would seek them out in the first place.
As noted, their rates on owner-occupied loans are quite competitive, though they only appear to be offered in two states at the moment. You may also be able to gain approval even if the loan doesn’t fit the Qualified Mortgage rule.
What’s great is how simple the process appears to be. Their automated system even recognizes and removes documentation requirements that a traditional mortgage provider would ask for but isn’t needed for your loan. They’re all about speed and convenience, something Millennials seem to be pretty fond of.
If they can compete on price and keep closing costs low (via technology), they should be a viable alternative to the standard big bank approach, even if you’re a vanilla borrower.
On December 8th, 2016, LendingHome announced that it had surpassed $1 billion in mortgage loan originations.
In late August 2018, the company said it had surpassed $3 billion in origination volume, with the third billion lent out in a mere eight months, 33% quicker than the time it took to dole out the second billion and some 375% quicker than it took to originate the first billion in home loans.
Return on Equity vs. Return on Assets: Key Differences
Close thin
Facebook
Twitter
Google plus
Linked in
Reddit
Email
arrow-right-sm
arrow-right
Tap on the profile icon to edit your financial details.
Return on equity (ROE) and return on assets (ROA) determine how efficient a company can be at generating profits. Both formulas that can help investors determine how good a company is at turning a profit. Let’s take a look at both metrics, how to use them, how they differ and what their limitations are.
If you’d like personalize investment advice, consider working with a financial advisor.
Return on Equity Definition
According to the Corporate Finance Institute, return on equity (ROE) is a percentage that expresses a company’s annual income relative to its total shareholder equity. The equation for ROE is the company’s net income for the year divided by its shareholders’ equity. ROE is a great way to calculate a company’s profitability—put simply, how good it is at making money.
A company’s net income is the amount of money it brings in after paying all its financial obligations, such as taxes and operating expenses. Shareholder equity is the sum of a company’s net worth. The idea is that if the company shut down and liquidated its assets and paid off its debts immediately, the shareholder equity would be the remaining amount that would be distributed to those who owned stock in that company.
Here’s a simplistic example to illustrate how ROE works: Let’s say Company A has a net income of $10 million. Meanwhile, their total stockholder equity—the amount the company would pay to stockholders if it liquidated all its assets and paid off its debts—is $80 million. The ROE for Company A would be 12.5%.
Thus, ROE can be a valuable metric to use as an investor. If you’re considering investing in a company, you can look at their ROE over the years to see if its growing or diminishing, which can point to whether leadership is making wise decisions that benefit shareholders. You can also compare that company’s ROE to other companies in the sector to see how their financial performance matches up.
Return on Assets Definition
Return on assets (ROA) is a different equation but serves a similar purpose: determining how effective a company is at utilizing their assets to create more value. The equation used for ROA is taking the company’s net income and dividing it by their total assets.
A company’s total assets include everything that company owns that can generate money. That might be plain old cash, inventory, intellectual property such as patents, real estate and more. If they could sell it for a profit, that’s an asset.
Let’s take a look at what a simple example of ROA might look like. Let’s say Company B has a net income of $5 million and owns $25 million in assets. When you do the math, you see that Company B has an ROA of 20%. That means for every dollar of assets, the company generates 20 cents in profit.
ROA can be helpful because it shows how a company is using its current investments to generate profits. Higher percentages mean the company is better at its assets to make more money; lower percentages mean that its worse at it.
How ROE and ROA Differ
If both of these measurements sound pretty similar to you, you’re not wrong. They do have a lot in common — both in what they measure and the purpose they serve. But they do have some important differences.
The single biggest difference between ROA and ROE is that ROA takes into account a company’s debt, while ROE doesn’t. If a company doesn’t have any debt, these two numbers would be the same for that company. Debt can add new assets to a company’s balance sheet, but of course the company also now has a financial obligation to its creditor.
Companies can use debt to artificially boost their ROE. Companies can generate profits by borrowing large amounts of money and using that to drive greater income. Of course, that money isn’t free and a company with too much debt isn’t healthy. Make sure you examine both of these metrics rather than just relying on ROE.
How to Use These Metrics
It’s important to know that there are some limitations to these metrics. Investors should not make decisions based on any one number. Any one number may not be representative of the company as a whole, and there are many ways that numbers can be manipulated by unethical accounting methods.
ROE particularly can be manipulated due to the fact it’s not impacted by how a company is leveraged—that is, how much debt it has. As mentioned above, company can borrow extensively to boost profits and artificially inflate their ROE. Stock buybacks can have a similar effect. Make sure that you’re taking a look at the company’s entire balance sheet and wider strategy before making any investment decisions.
And you may be asking: How will I know whether a certain percentage is “good?” For ROA, over 5% is good and over 20% is great. For ROE, 15-20% is considered good — in 2022, S&P 500 companies averaged a ROE of just over 21%. However, these standards can differ greatly between sectors and industries.
The Bottom Line
ROE and ROA can both extremely useful metrics for investors determining the financial health of a company. These formulas can help you determine whether a company is using their assets in a productive and efficient way—and thus, whether or not you should invest in them.
Tips for Investing
Investing isn’t always easy to get into, especially for beginners. But you can get personalized, detailed financial advice from a profession to help you build an investment strategy for your current and future life. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
One of the most important lessons in investing is to maintain a diverse portfolio. A variety of investments in different sectors, industries, locations and risk levels can help you create a portfolio that minimizes risk while still generating strong profits. Use SmartAsset’s asset allocation calculator to help determine a well-diversified portfolio that works for you.
By Peter Anderson10 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited November 5, 2018.
When starting to invest one of the first things that you’ll have to decide is how you want to invest.
Will you choose a tax advantaged retirement vehicle like the 401k or Traditional IRA?
Will you use a Roth IRA that is funded with post-tax dollars?
Will you go down the road of taxable investing through a brokerage account?
Will you use something new like peer-to-peer lending?
All of these are things you are important to consider when setting up your retirement accounts, as it can affect many different aspects of your financial picture.
For me I don’t consider myself a super-savvy investor, but I do feel like I’ve got a pretty good hold on what I want to do for our savings and retirement accounts. I want to invest in mostly passive index funds, and invest in the following account types – in this order:
Invest in Roth IRA to max: First, I want to invest in our Roth IRA to the max of $6000 per investor – $6000 each for my wife and I.
Invest in company 401k to max: Next we’ll be investing in my company 401k up until the max. I’m not sure we’ll be meeting that maximum this year because of other expenses that have come up.
Investing in taxable accounts: Next we would be investing in taxable investments, most likely through an account with Betterment, Wealthfront or one of the discount online brokerages.
So why am I starting our investing via a Roth IRA?
Why We’re Investing With A Roth IRA First
There are a few reasons why we’re investing with a Roth IRA first.
Tax advantages: We really like the idea of investing our money in a Roth IRA, letting it sit there, and never having to pay a dime more in taxes on the contributions or earnings as long as we wait until retirement to withdraw it.
Tax diversification: The Roth IRA is a part of our tax diversification plan, where we invest in both pre-tax and post tax investments so as to hedge our bets when it comes to current and future tax rates and which will be higher or more to our advantage. We’re investing a portion in Roth, and a portion in our 401k which will be taxable at withdrawal.
The Roth allows for flexibility: One thing we like about the Roth IRA is the fact that you can take out your contributions at any time without having to pay it back like the 401k. While it isn’t a good idea to be withdrawing your retirement funds, it can be good to know that in a pinch you can withdraw those contributions. (Note: You can’t withdraw earnings without penalty, only contributions).
College savings and home purchase withdrawals: The Roth IRA also allows account holders to withdraw from contributions and earnings to use the funds to pay for their first home, or for college bills. Normal early withdrawal penalties are waived in these cases.
Easy to start, and tons of options: Opening a Roth IRA is super easy and can be done within a half hour to an hour if you want. Plus companies like Vanguard are making it easier to start, reducing their minimum investments in a wide range of funds to only $1000 to start. Most people should be able to scrape together $1000 to start their Roth IRA! In addition, the companies are making a wide range of investments available to account holders, with many more choices than a traditional 401k.
Roth can be passed down to heirs tax free: While it wasn’t one of our main reasons for choosing the account, the fact that your heirs can withdraw the money tax free from the account upon your death is a plus. The withdrawals are tax free, just like for you.
So those are some of the pluses of the Roth IRA, and why we’re choosing to invest in those accounts first. Of course, we’re hoping to also invest in our company 401k after our max Roth contribution has been reached, as well as possibly some other taxable investments later on if we have a good year and can max out both the Roth and 401k (unlikely).
[embedded content]
Roth IRA Rules
If you’re looking to invest in a Roth IRA as well, here are some posts you might find helpful.
So are you investing in a Roth IRA? If so why? If not, why not? Tell us your thoughts on whether the Roth is the best place to start investing in the comments.
Related Posts
Roth IRA Withdrawal Rules
The Roth IRA is a wonderful investment option that many people take advantage of every year mainly because of it’s tax free growth and because…
2010 Roth IRA Conversion Rules
Over the past week we’ve been writing quite a bit about retirement accounts, which ones are better for different situations, and talking about what the…