May 2007

Headlines: Baby Boomers: The Years Ahead | Conducting an Effective Due Diligence | Savvy Investors Profit from Rise in Foreclosure Rates

Baby Boomers: The Years Ahead

NuWire Investor, April 2007. Copyright NuWire, Inc. All Rights Reserved. Reprinted with permission. www.NuWireInvestor.com.

"I want my retirement years and locations to convince me I am on vacation every day of the year—except when babysitting grandchildren," Craig Dewey, a semi-retired direct marketing consultant, said.

Dewey is one of many baby boomers changing the concept of retirement. Many boomers opt to work part-time, rather than retire completely; some change careers entirely once they reach the traditional retirement age. Life expectancy is getting longer and longer, and many people simply aren't ready to retire at age 65.

In fact, "two-thirds of all of the men and women who have lived to celebrate their 65th birthday in the entire history of time are still alive today," Bob Froelich wrote in his book Where the Money Is. Further, Froelich wrote, Americans who reach age 65 have a life expectancy of 85 years—10 years longer than the general population.

What this means is that baby boomers will be around far longer than their parents, and in far greater numbers. The question many investors are asking is: how will baby boomers change the face of investing?

Baby boomers tend to consider themselves young at heart. They are not content to sit on the sidelines of life; they seek an active retirement. Many baby boomers plan to pick up new hobbies, such as travel, continued education, sports and fitness.

"As this unique, postwar generation has plowed its way through the nation's school systems, labor market, housing market and stock market, it has always broken the mold, determined to transform institutions, both public and private, in its path," William H. Frey wrote in a 2006 study of America's demographics by the Brookings Institution.

Baby boomers are the 76 million babies born in America between 1946 and 1964. The oldest baby boomers will turn 65 in 2011 and the youngest in 2029. The U.S. Census estimates that the number of Americans over 65 will double by 2030.

This influx of retirees could have widespread effects across a variety of markets, including real estate and small business. From 2010–2020, the preferences of aging baby boomers will dominate the housing and service industries, Frey wrote.

"The most dramatic and influential demographic trend in the history of the United States has been the baby boomers," Froelich wrote. "And as the baby boomers are aging, they are prepared to write their final and most dramatic chapter yet influencing the social, the business, and the political fibers of that nation for the next quarter-century."

Top 10 Baby Boomer Investments

1. Recreational Businesses
   
   An AARP survey found that 79 percent of people over 50 years old plan to work even after they reach traditional retirement age; some might channel one of their passions to start a business, such as a vineyard, bookstore or bed and breakfast. Potential investments include starting businesses to provide turn-key investment and job opportunities for baby boomers and buying land and/or properties that could be used for such businesses.
2. Tourism Businesses
   
   An ABC News/USA Today poll found that being able to travel during retirement is the top concern of baby boomers. As baby boomers retire and spend more time traveling, tourism businesses that cater to them, such as tour companies, restaurants and those that provide activities, education or entertainment, should do well.
3. Active and Cost Effective Senior Developments
   
   Active adult communities are gaining in popularity around the country; a Del Webb poll found that 26 percent of baby boomers plan to move to an active adult community in retirement. Many boomers will downsize their residences and live healthy, active retirements. Many existing active adult communities are high-end; less expensive developments in the U.S. or even abroad would likely be successful in coming years.
4. Health Clubs/Health Food Businesses
   
   As boomers age, they will become increasingly concerned with their health and wellness. A Harris Interactive study found that 62 percent of boomers are concerned they won't be healthy during retirement. Businesses that help them stay healthy, such as health food and nutritional supplement stores or health clubs focusing on low-impact exercises, could be in increasing demand.
5. Foreign Properties
   
   Many foreign countries featuring beaches and warm climates are cheaper to live in than the U.S. Because many baby boomers will have 20-year retirements—those who reach age 65 are expected to live to age 85, according to the National Center for Health Statistics—they will have to find ways to reduce their overhead. Easily accessible foreign property could see significant value increases as a result of aging baby boomers.
6. Beachfront Properties
   
   Many people dream of spending their retirement on a warm, sunny beach. Forty-five percent of baby boomers plan to move someplace with a warmer climate, according to the Harris Interactive study. Given that there is a limited supply of beachfront property in warm climates on the planet, values of beachfront properties in or easily accessible from the U.S. will increase.
7. Senior Financial Planning Businesses
   
   As they approach retirement, baby boomers will be looking for creative ways to reduce their overhead and get maximum value out of their savings; they should also be thinking about end-of-life financial issues. Ninety-seven percent of baby boomers aren't comfortable with the amount they've saved, according to a survey by OppenheimerFunds, Inc. There could be a demand for financial planning businesses that help baby boomers with estate planning and wealth management.
8. Vacation Destination Properties
   
   Increased travel by baby boomers as they retire provides opportunities in real estate in vacation destinations. Many baby boomers might prefer to stay in a unique vacation rental home rather than at a ubiquitous hotel chain. Additionally, a National Association of Realtors study showed that 40 percent of baby boomers plan to make a seasonal or vacation property their primary residence upon retirement.
9. Assisted Living Facilities
   
   The increase in life expectancy has led to a dramatic increase in medical costs; further, some prevalent diseases simply require around-the-clock care. Sixty percent of Americans who reach age 65 will need long-term care at some point in their lives, according to the American Association of Homes and Services for the Aging. Facilities that care for ailing baby boomers will be in demand because of the medical care they provide for their residents and the relief they provide for the residents' relatives.
10. Condominiums and Townhomes
    
    Many baby boomers will downsize to simplify their lives and focus more time, energy and resources on activities and relationships, and less on home maintenance. Forty-nine percent of those aged 50–59 and 51 percent of those aged 60–69 plan to downsize during retirement, according to a Del Webb poll. Condos and townhomes provide lower-cost housing alternatives with reduced maintenance, and many are in urban locations, within walking distance of many amenities.

Conducting an Effective Due Diligence

By: Richard Parker

Due diligence is probably the most critical stage in the buying process. Many prospective buyers incorrectly identify this period as strictly a financial review, but it goes far beyond that. Due diligence encompasses a far greater project -- the complete investigation and review of the business.

One of the keys to buying a good business comes from your ability to learn the intimate details of the business: to identify the strengths, weaknesses, pluses, minuses, growth opportunities and areas of concern. If you do not do a flawless job of gathering information, you will not be able to pull the trigger and complete the transaction since you'll be uncertain about too many components of the business.

When to start the due diligence?

The investigation process begins the moment a business becomes of interest to you. Your goal is to make certain that you uncover everything about any business BEFORE you buy it. You don't have to meet the seller or even visit the business for your research to begin. The Internet is an incredible tool that will allow you to investigate the business, the industry, the competition, the marketing, the suppliers, and on and on.

The importance of beginning your investigation early on cannot be emphasized strongly enough. This way, you'll position yourself to ask the proper questions to the seller. Once you progress to the stage of an accepted offer, you will commence the inspection or financial due diligence. This period usually lasts 10-30 days. This is the time when you'll have access to all of the company's books and records.

Once you being looking at a particular business, you'll find a thousand things crossing your mind regarding the acquisition. Keep a notepad handy at all times and log your thoughts. You'll have many thoughts about things "I need to check out." Write these all in one place. Don't trust your memory; these little things are the ones that can come back to haunt you down the road. Begin to put together your checklist of what you need to investigate and how you're going to do it, along with the materials you may need from the seller to accomplish it.

A couple of things to keep in mind

• Allow yourself enough time
  
  

  Many sellers and some brokers will press for a very short inspection period; sometimes just days. Don't get bullied into this -- give yourself ample time to complete this part of the process. You should allow for, negotiate and not settle for less than a 20-business-day inspection/due diligence period.

• Prepare properly
  
  

  Since you'll have some time restrictions (you'll only have x number of days per the contract), provide the seller with a listing of all of the materials required for you and/or your CPA to complete this exercise. No matter what you're told, do not begin the process until they have everything ready for you.

• Dealing with surprises
  
  You'll probably find some surprises; don't panic, it's normal. Work through them. Get clarification. Build your case. Don't run to the seller or broker every time you find an inconsistency between what you've seen versus what you were told. No business is perfect. The rule to follow is do not treat any incidents as catastrophes or any catastrophes as incidents. If you find a major problem, get your facts in order, and then you can decide the appropriate action to be taken with the seller (i.e., renegotiation, walking from the deal, etc.).

According to industry statistics, 9 out of 10 people who begin the search to buy a business never complete a transaction. While there are many reasons for this dismal figure, a lot has to do with the inability of people to "pull the trigger." This gun-shy reaction is related specifically to uncertainty: if you have not gathered the right information or failed to investigate the business thoroughly, you will not be 100% certain of what to do. And so, you'll drop the project. Conversely, if you do a flawless job of investigating the business, and everything else adds up right, then making the final decision is simply one more step in the process!

Richard Parker is President of The Business Buyer Resource Center and author of How To Buy A Good Business At A Great Price©. Richard can be reached via email at rparker@diomo.com.

Savvy Investors Profit from Rise in Foreclosure Rates

By: Ryan Myers

The number of foreclosed properties is continuing to increase nationwide. RealtyTrac recently released 2007 U.S. Foreclosure Market Report, which stated the foreclosures in the first quarter of 2007 were up 27 percent from the previous quarter and up 36 percent from the first quarter of 2006. The increasing foreclosure rate is unveiling a different breed of real estate "flipper" looking to turn a profit on investment property purchased up to 20 percent below market value.

"Due to a slowing real estate market, rising interest rates and salaries that are not keeping pace with standard of living increases, we are seeing a dramatic increase in foreclosures nationwide," says David Nilssen, CEO of Guidant Financial Group™. "This is not great news; however, it does create opportunities for savvy investors looking to obtain properties at below-market value."

Nilssen cautioned that the foreclosure-investing process can be risky. "A great deal of research should be done to ensure that the investment is sound and clear of additional encumbrances that could affect the deal." Information about foreclosure properties is found in many places including foreclosure websites, legitimate third-party foreclosure listings, educational websites, private banks, auction houses, and local tax-collection agencies. The number of foreclosure listings increases every day, with the rise forecasted to continue. Foreclosures are non-traditional investment options that can provide profitable rewards when proper research is conducted.

More foreclosures emerge as interest rates climb, and the 30 percent of loans that were originated with adjustable-rate mortgages continue to significantly increase. Those faced with increasing mortgage payments are attempting to liquidate in a market where housing inventory is increasing and the buyer pool is shrinking. The softening market and the rise in interest rates and accompanying payments may spell disaster for many people who could be forced to sell at a loss out of necessity. Yet, as with most cases in investing, one individual's loss is another's gain. As homes become available at up to 20 percent below market value, large profits can be realized by savvy investors.

As the real estate market shifts gears, a growing number of investors are learning that they can utilize their IRA or 401(k) funds to make these types of investments. Based on IRS law [IRC 401 (M)], it is perfectly legal to use retirement dollars for these and many other types of investments within an IRA. All that is needed is someone to setup the structure to do so. Once the structure is established, investors can gain checkbook control of their retirement funds and begin making investments that yield higher and more secure returns than those typically yielded within the stock market.

Ryan Myers is the V.P. of Marketing for Guidant Financial Group.