I’m trying to open a restaurant using cash we’ve saved in our 401(K). Is this a wise decision?

Posts Tagged ‘Entrepreneurship’

I’m trying to open a restaurant using cash we’ve saved in our 401(K). Is this a wise decision?

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Q: I’m Trying to Start My Business, a Small Barbecue Restaurant. I Have Taken Business Classes at the SBA. We Are Taking a $10,000 Loan From My Husband’s 401(k), and We are Using $8,000 Cash That We Saved to Start the Business. I Want to Know: Are We Taking the Proper Steps?

A: It sounds like you’ve made some smart financial and business moves in preparation for entrepreneurship and your efforts thus far are to be commended. You stated that you didn’t want bank loans, but you were savvy enough to educate yourself and take business classes at the Small Business Administration. I’m sure the information you learned in those classes will prove helpful in your future endeavors. While I generally don’t like to see people take 401(k) withdrawals for things like paying off credit card debt, I do think it’s OK to use 401(k) money for investments, like launching a business or perhaps buying your first home. Additionally, it’s great that you’ve been able to save up $8,000 specifically for the new business. That tells me that you’ve been dedicated to this process and have been willing to sacrifice to give your business the best possible chance at success. You probably already know that the restaurant industry can be challenging. But if you start small, as you’ve planned, keep our overhead and debts low, and do your market research (as I’m sure you’ve done), I think you’ll beat the odds and have a very successful enterprise.

Are There Any Grants or Loans Available For First Time Investors to Buy and Rehab Houses?

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Author: The Money Coach

To find grants or loans to purchase or rehabilitate housing, your best bet is to seek out federal money that is provided to state and local governments, and in turn, passed along to investors or organizations. For example, through HUD’s Neighborhood Stabilization Program, home-buyers can purchase foreclosed properties that may need fixing. To learn more about this program, visit http://www.hud.gov/nsp. Additionally, once you get a little experience under your belt, be sure to check out the HOME Investment Partnership Program (http://www.hud.gov/sec3.cfm). These funds are provided via HUD to non-profit or for-profit organizations with experience in providing affordable housing to low-to-moderate income people. Activities for which funding is available under the HOME program includes:
•   Homebuyer assistance, such as down payment aid and closing-cost help, acquisition, rehabilitation or new construction of homes
•   Homeowner rehabilitation, including help for owner occupants to repair or reconstruct their homes
•   Site improvements, demolition, relation and administrative costs
•   Tenant-based rental help, such as economic aid for rent, security/utility deposits
•   Rental housing, including purchase rehabilitation and construction

Texas-based Homeownership Programs
As for specific programs in Texas, you can get grant funds up to 5% of your mortgage amount, along with two type of loans with interest rates that are typically 1% below current market rates via the Texas First Time Homebuyers Program. For more information, call the Texas Department of Housing and Community Affairs at 512-475-3800 or toll-free at 800-525-0657 or visit: http://www.tdhca.state.ts.us. My understanding is that these loans and grant funds are made available to those planning to become owner-occupants of their homes – not simply buy houses for investment potential and resell them. Read on for more tips on how to find housing grant or loan programs offered in your area.

State Housing Finance Agencies
Start by turning to State Housing Financing Agencies (HFAs). These are state-chartered authorities established to help meet the affordable housing needs of the residents of their states. Although they vary from state to state, most HFAs are independent entities that operate under the direction of a board of directors appointed by each state’s governor. Their reason for being is to help homeowners, so they can often point you in the direction of incredible housing and development programs you never dreamed existed. There is a National Council of State Housing Agencies (NCSHA) active in Washington D.C. to keep the issue of affordable housing high on the government’s list of national priorities. Housing Finance Agencies and NCSHA (http://www.ncsha.org) can help you tap into three federally authorized programs, including Mortgage Revenue Bonds and Mortgage Credit Certificates, and the HOME Program.

• Mortgage Revenue Bonds
State and local housing agencies also offer loans to first-time buyers via mortgage revenue bond programs. Mortgages funded with these instruments often feature low down payment options and have interest rates as much as 1.5% to 2% below conventional 30-year fixed rates.

• Mortgage Credit Certificates
The Mortgage Credit Certificate (MCC) Program is another perk available through states to qualified first-time homebuyers. This benefit is in the form of federal income tax credit of between 10% and 20% of the annual interest you pay on your mortgage.

• Home Investment Partnership Program (HOME)
Available from the U.S. Department of Housing and Urban Development, the HOME program is the largest federal block grant available to state and local governments. The HOME program allocates roughly $2 billion to local governments each year in an effort to create affordable housing for low-income households. One component of the HOME initiative is the American Dream Down payment Initiative. Through ADDI, you can receive down payment assistance, money for closing costs, and even funds to fix up a home you are buying. The cash comes in the form of a loan equal to 6% of the purchase price or $10,000, whichever is greater. The loan carries a 0% interest rate and a maximum loan term of 10 years. For each year you live in the house, 10% of the loan amount will be slashed. If you stay in the home 10 years, the entire amount will be forgiven. If you sell your home before 10 years – and most first-time buyers do sell their homes after an average of four or five years – the remaining amount of the loan must be repaid. This program is open to all first-time buyers who haven’t owned a home within the past three years. The money provided via ADDI can be used to purchase a one-to-four family house, condo, cooperative unit, or manufactured housing. To qualify, your income must not exceed 80% of your area median income. Get more information about this initiative through your state housing finance agency, or by visiting HUD’s website at: http://www.hud.gov. Also, if you find out about a program like this one that receives federal money, but the money hasn’t come through yet, put your name on the list to be notified about a change in status ASAP. That way you’ll be ahead of lots of other people who are also seeking housing grants or forgivable loans.

• Housing Redevelopment Offices
In addition to state housing finance agencies, contact the Housing and Redevelopment Office in your state, county or city. Members of The National Association of Housing and Redevelopment Officials (NAHRO) (http://www.nahro.org) champion the cause of adequate and affordable housing for all Americans – especially those with low and moderate incomes.

Be mindful that state housing agencies and redevelopment offices across the country can use lots of different names. One might be called a “Housing Finance Agency,” as is the case with the Vermont Housing Finance Agency, while another one is dubbed a “Housing Development Authority,” as is true of the Virginia Housing Development Authority. Any agency with the name “Home” “Housing,” “Community Development,” “Mortgage Finance” – or similar words – is a good place to find homebuyer assistance programs.

Should I Take a Loan From My Whole Life Insurance to Pay Off My Debt?

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Author: The Money Coach

Q: I Owe $15,000 in Credit Card Debt, all on 1 Card. I Just Switched to 1 Credit Card With a 2.99% Rate Until May 2011. The Contract on My Job is Ending Soon. Should I Take a Loan From My Whole Life Insurance to Pay Off My Debt?

A: If it was just a matter of evaluating the wisdom of using your life insurance to pay off your charge card debt, I would be inclined to tell you that it would probably be a smart move. However, there is a big wrinkle in the whole equation: namely, you stated that your job is ending soon. Normally, I would have counseled you to seriously consider paying off the debt quickly while you can – especially since taking a loan from your whole life insurance policy should have no tax consequences to you. However, the bigger issue is your looming unemployment status.

Use Insurance as a Cash Cushion in the Future

If you don’t find another job or a replacement contract, you will have to consider how you will pay all your normal monthly obligations – housing, food, utilities, transportation, and so forth. I assume you have little to no savings (or some of that likely would have paid the debt already). Unfortunately, it is taking people longer than ever to find jobs. And with 10% unemployment, 1 out of 3 job-hunters has joined the ranks of the “long-term unemployed.” This means they have been out of work for at least six months. So given the current economic environment, and the fact that your credit card debt is carrying an extremely low interest rate right now, I would suggest continuing to pay on that debt as aggressively as you can, but don’t yet tap the cash value of your whole life insurance policy. Keep it untouched for now, as a standby cash cushion that you can access in the future if things get especially tight and you can’t easily replace your income.

My Husband Is Planning to Work Overseas Soon. How Will This Affect Our Income Tax?

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Author: The Money Coach

Q: My Husband Is Planning to Work Overseas Soon, Maybe for a Total of 2 Years. How Will This Affect Our Income Tax?

A: Without knowing the details about your situation, it’s very hard to say the impact that working overseas will have on your income taxes. It depends on several factors, not the least of which are: the exact country in which your husband will be working, how he is compensated, and whether or not he is deemed to be an employee or an independent contractor. Regardless of these considerations, U.S. citizens are legally required to pay taxes on all income, no matter where it is derived or generated (i.e. either domestically or overseas).

Lowering Your Tax Bill

To potentially lower your tax bill, find out three things:

•   Is There a Reciprocal Tax Agreement With the U.S.?
Some nations have reciprocal tax treaties and agreements with the United States; other countries do not. If a U.S. worker is employed overseas in a country that does have a reciprocal tax agreement with American, then that worker may be eligible to get a tax credit for taxes paid to that foreign country.

•   Is His Pay “Grossed Up?”
Many employers will “gross up” an employee’s pay when that person is working overseas, relocating, or doing something else to benefit the employer – which in turn, may negatively impact the employee, from a tax standpoint. So it’s important to know whether your husband’s pay will include added compensation to essentially cover his income tax bill.

•   Is He Considered an “Employee” or an “Independent Contractor?”
Your husband’s taxes will also be determined by his employment status as either an “employee” or an “independent contractor.” Each has its pros and cons form a tax standpoint. And each may be afford certain tax benefits and deductions not provided to the other. For instance, an employee may get a deduction for relocation or moving expenses; whereas an independent contractor may be able to write off some of the same business expenses as entrepreneurs and self-employed individuals.

Once you find out the answers to these three important questions, then you can begin to do some appropriate tax planning. Also, since this situation involves a far more complicated set of financial and tax considerations than normal, I would strongly advise you to also consult a qualified tax professional.

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Posts Tagged ‘Entrepreneurship’