If you download the free report on the right, you’ll get onto my email list. I don’t email out every blog update, but I do email out some more valuable stuff to those who are serious enough about their personal wealth to become an email subscriber here

Jeff

The problem with many prominent businesses that deal in home improvement is that their advertising and sales approach seem a little sleazy and turn people off. I think, however, that someone with business savvy and some marketing skills could partner up with some respected local businesses that deal in these products, put together a team of professional (but currently starving) contractors, and offer people one-stop shopping to fix up their drafty house, lower their utility bills, and get a huge tax credit in the process.

I have another suggestion for a way to profit in these tough economic times that takes advantage of the extreme downturn in the housing market. The old adage that the best time to buy real estate is five years ago is, for the first time in a many years, not true. Everyone knows that now is a golden opportunity to find bargains in investment property but few people have ready cash to make a down payment. At least they think they don’t because they are unaware of the potential of the retirement savings that are shrinking in their brokerage accounts.

Based on my limited research the existence of self-directed solo 401(k)s is still a well-kept secret. Although hardly a professional, I consider myself somewhat knowledgeable about financial matters, yet I had never heard of this investment vehicle before I stumbled across the idea when looking for more information about self-directed IRAs, which I also knew very little about. I’m retired and only make a few thousand $ each year from part-time self-employment work, but I have a substantial 457 plan from my previous employment that I could role into my new plan. This makes me a perfect candidate for the solo 401(k) and I know there are thousands of others in a similar situation. There are also millions of folks who are not currently self-employed but have sizable retirement accounts. These people could be encouraged to sell some cookies over the internet or anything else to earn some Schedule C income and thus be eligible for this investment opportunity. I get mailers each day from hungry realtors reminding us they’re still alive, and I’m sure they would love to learn about solo 401(k)s so they could target their marketing to this vast pool of untapped potential clients. The trick is to bring these three parties together: the self-employed or potentially self-employed person with other retirement savings, the solo 401(k) facilitator, and the real estate broker with access to all the hot investment properties. And I’m sure they can all share in the profits from the sales commissions from desperate sellers.

Why choose a high interest but risk-laden GM bond when there are 21 states offering some variety of tax lien auction to consider? They are AL, AZ CO, FL, IA, IL, IN, KY, MD, MI, MO, MT, NE, NJ, OH, OK, SC, SD, VT, WV, and WY. Every state’s rules and fees are a little different, as is every county. Most lien sales are held in person, but some auctions are online now.

The premise behind a tax sale, which differs from a Trust Deed sale that other states do, is that it allows a county to raise money from lien investors who in return earn interest. Essentially the lien purchaser becomes a surrogate tax payer for the delinquent property owner, so that the local county government can continue to operate.

Determining the winner of a lien varies, but the most common method is bid-down, where the investor accepting the lowest rate of return is the winner. Iowa is famed for starting bidding at 24%. You decide how low you wish to bid from there. If no one else wants that lien, it would be yours at 24%.

Besides the potential high rate of return, after a certain amount of time (usually 2-3 years) paying the delinquent property taxes, the lien holder receives the right to foreclose on the property. In reality the majority of liens redeem before that occurs. In 17 years we have ended up with only one parcel of land. Tax liens also hold a very senior position relative to other liens in their likelihood of being paid off and not excused.

As in any investment there are pro and cons. Some counties charge the bidder a fee for every parcel bought. Bidding competition can be fierce, especially on prime parcels. Your funds could get tied up for an undetermined time in bankruptcy, but are seldom “lost”. You need to do due diligence before bidding to avoid risky or low-valued properties. Many counties readily offer very detailed parcel information including satellite images, others hardly any. The most crucial drawback to note is that tax liens are very illiquid. With few exceptions, you have to wait until the owner pays the back taxes.

Given the long term nature of tax liens — you can hold a lien up to 10 years in some states — it seems logical to make them the foundation of our Solo 401K. Our plan is to continue investing in lien
certificates, but use our retirement money instead. If only I’d known about this concept before!

This investment opportunity, whether for a Solo 401k/IRA or not, is ideal for everyone as some liens can be purchased for $100, or even less. There’s a learning curve but for us the effort has been very
worthwhile. Tax liens give you real estate exposure without a huge outlay of cash or credit requirements. We’ve found there is really nothing comparable to the risk-return ratio that tax liens offer.

Today bad news abounds. Unemployment is up, inflation beckons, foreclosures have infected every market, and our culture of negativity is flourishing like it hasn’t in decades. Gloom lurks behind every corner. Yet there are still plenty of reasons for hope, and it’s important to talk about them.

I spent most of the 1980s in universities, earning degrees in economics. I then retired (sort of) while I could still enjoy it, and spent most of the 1990s living out of my backpack; traveling and living abroad, writing as a freelance journalist for US and Europe-based publications and teaching English. Much of my time was spent in central and eastern Europe. I lived in Prague from 1990 to 1992, and traveled the region extensively, observing both clumsy and masterful transitions from centrally-planned to free enterprise economies.

While so many writers were focusing on the problems of the times, I tried to illuminate as many reasons for hope as I could find. In Albania, Europe’s poorest nation, I discovered an entrepreneur who endured mind-numbing bureaucracy to start her own hair salon. In Afghanistan I watched resourceful workers make their livings by turning old car tires into sandals and handbags. In Slovenia, I found a man who had developed his own currency pegged to the German Mark to replace the inflation-prone Yugoslavian dinar, then facing triple digit inflation. Even in hard-line Cuba bicyclists were taking tourists on bike trips to supplement their small state wages, subverting the parameters of rules and limits in the process. It was my travels that drove home the fact that the only limits to human creativity and enterprise are the ones that we, the people, impose on ourselves.

Like all great nations throughout history, the USA wasn’t built by complainers, it was built by do-ers. Or at least by complainers who took action after airing their grievances. Yes, today we’re facing a downturn. Yes, some people are in pain. This is nothing new, in fact, such business cycles are endemic—if not fundamental—to modern capitalism. And for those who have cultivated their own talents, rather than depending on someone else to decide how, if at all, to value one’s efforts and skills, this is a defining moment of opportunity. To be sure, I’ve become more cautious as a real estate investor, speculator, and landlord. But I find that, “crisis” or not, my own business does better when I approach it from a place of optimism. And I find others become just a little more hopeful and optimistic themselves when I share my own insights about the glass-half-full that currently defines our economy.

Belief that diligent, resourceful efforts will yield rewards requires more than showing up for work on time, or even doing good work. It requires the right attitude and a belief that no matter what one does, keeping an upbeat, optimistic attitude will foster success.

Some of the happiest, wealthiest people have endured bankruptcy once, twice, or more. Yet they keep on plugging, and became household names. I recently read Bono from the band U2, a successful enterprise to be sure, quoted as saying that there is no such thing as failure, there is only giving up.

Prosperous people for centuries—and long before Dale Carnegie’s defining and timeless book “How to Win Friends and Influence People”—have understood the power of positive thinking, so it is not in itself revolutionary. But it is fundamentally necessary for us, and for capitalism, to succeed. Optimism feeds an exquisitely self-fulfilling prophecy and, ultimately, it is profoundly American. And if I don’t achieve my goals regarding income and wealth creation, I will continue smiling, learning new methods, and fine-tuning the old ones. And I will continue believing that somewhere ahead prosperity is not only possible, but inevitable.