November 2006

Headlines: Rising Interest Rates: Providing Opportunity for Self-directed Retirement Accounts | Funding a Business with Equity – Not Debt! | Building Wealth With A Self Directed IRA: As Simple as 1-2-3 | 2006 Franchise Trends/Opportunities

Rising Interest Rates: Providing Opportunity for Self-directed Retirement Accounts

By David Nilssen

Since 2003, the prime rate has more than doubled, increasing from 4% to 8.25%. Because of rising interest rates, the real estate market, which was on fire during previous years, is cooling down. Does this mean that the rate of newly opened self-directed IRA accounts should also slow? Absolutely not.

Self-directed IRAs provide opportunities to unconventional investors who want to take a more active role in the investment of their retirement funds and use their knowledge of less traditional markets. Furthermore, truly self-directed IRAs provide these investors with additional capabilities to invest in multiple markets to diversify their investment portfolio.

The rising interest rates are creating opportunities for investors using truly self-directed IRAs with checkbook control to buy foreclosures. Over the past three to five years, adjustable rate mortgages (ARM) have fueled the boom in home ownership. According to the Mortgage Bankers' Association, 24% of all US homeowners used ARMs to finance their homes. As the Federal Reserve pushes interest rates higher, the adjustable rates are rising, causing many to default on their ARM loan payments. There are an estimated 1.3 million US homes that are in foreclosure.

The rise in interest rates corresponds with rises in monthly payments for ARMs, making it difficult for many homeowners to make their payments. While this is unfortunate for those individual homeowners, it also creates an opportunity for self-directed investors that are able to make purchases quickly. As rates continue to rise, so should the number of foreclosures and pre-foreclosures, creating buying opportunities for investors.

For self-directed investors, the key to purchasing time-sensitive investments is having checkbook control of their retirement funds. Traditionally, self-directed IRA account holders haven't been able to participate in pre-foreclosure or foreclosure real estate transactions because they could not access their funds quickly enough to compete with cash investors. Self-directed IRAs are subject to a custodian's or bank's approval of an investment before any money changes hands. Time, a luxury for foreclosure investors don't have, is required to complete administrative paperwork. Companies such as Guidant Financial Group are now structuring truly self-directed IRAs in order to help investors gain checkbook control and make time-sensitive investments. While many real estate investors using high amounts of leverage are panicking about the rise in interest rates, and dropping out of the real estate game, the truly self-directed IRA investors are able to continue purchasing property with a potential for high returns.

Funding a Business with Equity – Not Debt!

By: Ryan Myers

The Global Entrepreneurship Monitor suggests that 20% of new businesses in the United States fail in the first year (Barringer and Ireland, 2006). The most common reason for business failure is insufficient operating cash. New businesses are often more expensive than anticipated. The initial cash flow sometimes cannot support the business overhead, draining cash reserves over a period of time until an owner is forced to close it down. SBA loans and Home Equity Lines of Credit (HELOC) are the most common forms of business financing. Both of these types of loans are tremendous solutions in rate-driven markets. However, when interest rates are on the rise, as in recent years, business owners find their variable SBA loan and HELOC payments (company overhead) rising as well. Since July 2003, the Federal Reserve has raised the Prime Rate nine times to the latest rate of 8.25 – the same place we found it in 1996. Because of this, HELOC and SBA loans are commonly being offered at between 10 and 13 percent.

Rising interest rates are a significant reason why companies like Guidant Financial Group are experiencing such tremendous growth. Guidant helps individuals buy a business or franchise using their retirement funds without taking a taxable distribution. Since 2004, Guidant has experienced an increase of more than 400% in their business funding services. David Nilssen, CEO and co-founder of Guidant, attributed the company's significant growth to "greater awareness of this strategy in the general business community. CPAs and attorneys are beginning to embrace and understand the benefits their clients can receive by utilizing this form of financing." Guidant can help individuals establish plans that allow their retirement funds to invest in their new business. "It is very similar to buying stock in Microsoft inside a 401(k)," Nilssen said. "In this case, we're talking about a privately held company as opposed to a publicly traded entity."

Entrepreneurs who feel their new business opportunity would be a worthwhile investment for their retirement plan may have a great chance of business success. It is possible to use a HELOC or SBA loan in addition to retirement financing. Nilssen suggested that it is preferable to buy the business entirely with retirement cash. "A tremendous benefit is that our clients are buying a business with equity, not debt. They're not obtaining a loan. They are using cash from their retirement plan. This means the initial revenue the business generates can be reinvested in the business rather than sent to a bank in the form of interest payments."

For a small business or franchise owner, using retirement money could significantly improve the longevity and ultimate success of that business. For instance, a $150,000 SBA loan obtained today at an 11% interest rate for 10 years would require almost $100,000 in interest payments. Using equity rather than debt to buy the business would not only save nearly $100,000 in interest, it would free up more than $2000 each month for reinvestment back into the growth of the business. Nilssen explained that using retirement funds to purchase a business offers additional benefits, such as allowing the owner to contribute more money into their retirement plan and if the business is successful the profits generated will increase the value of the plan.

Building Wealth With A Self Directed IRA:
As Simple as 1-2-3

By: Robert Hubbard

Over the next 15 years, "baby boomers" will be looking for places to invest about $46 trillion from a combination of inheritance and their own qualified retirement plans, such as a 401k from a former employer.

Every major brokerage house and bank in America is well aware of the potential to earn enormous incomes from fees and commissions "helping" to place this money in secure investments. But, individuals who understand the power of utilizing Self Directed IRAs are in the best position to take advantage of this incredible transference of wealth.

Many "boomers" are looking at starting their own businesses and need investment capital to make their dreams come true. Actually, they need look no further than their own retirement accounts. They can tap into these funds to buy a franchise, start a business or simply provide an existing business with working capital.

What about investing in the stock of a private company? Yes, there's no problem with doing that, even if it's outside the United States. And, other options, both common and exotic, abound.

Then, there's real estate. Most people think the boom is over, but they may be mistaken. According to a report from The Brookings Institute and an article in Business 2.O Magazine (November 2005), more than $25 trillion will be spent in real estate development between now and the year 2030.

To accommodate another 70 million people being added to the population base in the next two decades, 127 billion square feet of new or replacement structures will be added to the existing base of 300 billion square feet.

The executive summary of The Brookings report entitled "Toward A New Metropolis: The Opportunity To Rebuild America" written by Arthur C. Nelson, states the following:

• In 2030, about half the buildings in which Americans live, work, and shop will have been built after 2000
• Most of the space built between 2000 and 2030 will be residential space. The largest component of this space will be homes. Over 100 billion square feet of new residential space will be needed by 2030.
• Overall, most new growth will occur in the South and West. In the West, 87 percent of the space existing in 2030 will have been built since 2000.

This report was primarily written for urban, city, regional and state planners so they would understand how to prepare for infrastructure needs to support the increased population base. The need for new water treatment facilities, roads, bridges, schools and general land use planning will be of great concern to everyone, but especially to these planners.

The Business 2.0 article entitled "The $25 Trillion Land Grab" took the mostly statistical information from the Brookings report and restated it so that it was more readable and understandable. Bottom Line: The development will represent "the biggest business opportunity since the end of World War II".

That's good news for investors. Anyone with a Self Directed IRA can tap directly into this opportunity, whether through equipment leasing, real estate lending or direct investment into a myriad of real estate projects. It all starts with education.

We recommend that clients pick one area of investment opportunity and become experts. Then when conferring with investment advisors and tax consultants, good decisions can be made that will result in building wealth that is potentially much greater than can be realized by only investing in the securities markets. As we like to say to our clients, it's as simple as 1-2-3: Learn, Setup and Invest.

For more information on Self Directed IRA investing, please go to www.IRA123.com or contact Robert Hubbard, President & CEO, at 888 808-7687 or robert@roberthubbard.com.

2006 Franchise Trends/Opportunities

By Joel Libava

The time when we look back on what we did and didn't do. Some will be starry-eyed and flush with energy and enthusiasm; others will be looking for ways to better their own lives, and take back some control.

Dwindling nest eggs, dead-end jobs, later retirement age possibilities, and corporate downsizing all contribute to the feelings of powerlessness that some of us have. These days, there are a lot of jaded corporate employees ready to put their skills to use to profit themselves, instead of their employers. There is also a newer generation of future business owners, known as the "active" Baby Boomers not quite ready or able to retire.

A sizeable portion of these people are turning to the $1.5 trillion dollar industry, the franchised business. $1.5 trillion is the annual retail sales figure which franchising is responsible for according to The International Franchise Association. That figure roughly represents 760,000 franchised small Businesses in more than 75 different industries in the USA.

In addition, the IFA estimates that franchised small businesses account for more than 40 percent of all US retail sales. Estimates put employment because of franchising at 18 million, with a new franchise opening up every eight minutes.

As they do in other facets of life, and as mentioned before, Baby Boomers will play a major role in the growth of franchising. During the next 30 years 76 million Baby Boomers will be hitting retirement age, says the U.S. Census Bureau. This group currently finds themselves in the role of "DINK'S".(Double Income No Kids) They are generally active and healthy, and will not be content sitting around watching the years go by. They will want to make a difference in others lives, and one way to do this is to get into their own businesses. Maybe they will help their own children and grandchildren experience business ownership, becoming active investors. Or, they may want to add to their own incomes and build equity for themselves.

The following is a list of the franchise segments which are showing significant growth trends.

Fitness and weight loss
The fitness and weight loss categories experienced significant growth last year, and all the signs are there to predict no slowdown. Issues such as obesity and diabetes are still prevalent and these factors affect the industry. This is not a fad like the "hot" diets of the past few years. With the US Government releasing new "Food Pyramids", more and more people are realizing that a balanced diet and moderate exercise are the "prescription" for great and consistent results.

Business Services
These franchise concepts allow small businesses to outsource their needs for everything from signage to IT services. With small businesses driving our nation's economy, franchises that provide services and products to help them grow are crucial, and always in demand. Services like sanitation, signage, and other services may not be overly glamorous but are much needed to support daily business.

Home Improvement
The strong housing market is driving growth in these industries. According to Standard & Poor's, in its semi-annual survey in the household durables industry, published in October 2005, "The demand for household appliances and home furnishings is rising steadily in step with a strong housing market and the trend is likely to continue." Some franchises that will continue growing with these trends include everything from window coverings to decorative lighting.

Basic Consumer Services
Dual income families with no spare time are a continually growing demographic, and have been for two decades. For working couples with children, weekdays can be an adventure, between after school soccer practices, musical instrument lessons, and doctor's appointments; there is not much time for household duties. Residential cleaning services can help relieve some of the everyday stresses of running a busy household and household repair franchises that assist adults who are not as skilled to fixing things around the house, are both projected for growth.

HR Staffing and Consulting
According to The American Staffing Association, contract and temporary staffing services had combined sales of $16.9 billion in the second quarter of 2005. The growing shortage of skilled workers is helping fuel the growth of staffing franchises. In addition there is a growing labor pool of older workers, who still want to work, and can add value to a company. This trend is expected to keep growing, according to a 2003 AARP-Roper survey. Which states that 55 percent of retirees would like to work part time for either income or enjoyment. Older workers can usually move through training programs faster, adding efficiency to management.

Unique and New Niche businesses
Prospective franchise owners should be monitoring trends continually, looking for franchise opportunities that they can involve themselves with that will provide years of prosperity. "Hot" franchises tend to come and go, but trends are longer lasting. The trick is to get involved early enough to get the territory/location you want, that has the largest growth potential. "Equity" should be one of the most important words you remember during your investigation and decision process.

After all, if you are willing to work harder than you ever have before by owning your own business, shouldn't you get something back at the end of your journey?

Joel Libava is President of Franchise Selection Specialists Inc. located in Cleveland, Ohio, and a member of FranNet, an international franchise consulting group. Joel can be reached at 216-831-2610, or you may e-mail him at franpro@sbcglobal.net.