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Breaking Bad (Behavior): Inherent bias when investing

9/29/2020

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I know we usually cover real estate and mortgage-related content on this weekly marketing blog, but I wanted to share something that's super interesting outside of the world of real estate, although it definitely still applies.

A friend and client of mine, Brian Boyd of Boyd Wealth Management, is a financial planner for high net worth individuals. He recently wrote this piece for his audience, which covers behavioral finance and our tendencies to screw things up based on emotion and bias.

Enjoy this excerpt from his article and there a link to the full version at the end. Thank you, Brian!

-Norm  :-)

Psychological and behavioral biases may cause investors to make decisions with their portfolio that have a negative impact on their long-term investment success.
 
Basically, human beings are often our own worst enemies when it comes to investing.
 

Understanding Behavioral Finance
 
Behavioral Finance is the study of psychological influences and biases that directly affect decisions around money. This phenomenon explains why markets often move erratically, based not on objective data but on the actions of participants who aren’t always acting rationally.
 
These influences can actually drive investors to make decisions that are contrary to their best interest.
 
Some common biases include:
 

Confirmation Bias – accepting information that confirms an already-held belief while ignoring information that contradicts it. 

Examples: searching out news reports that support your opinion that markets are set to go up/down. Or, if this candidate or that candidate wins the election, the economy will tank.
 

Loss Aversion - placing a greater weight on the concern for losses than the pleasure derived from market gains. 

Example: studies have shown that investors feel the effect of losses TWICE as much as they enjoy the satisfaction of gains.
 

Familiarity Bias - the tendency of investors to only buy what they know and are comfortable with, at the exclusion of other alternatives. 

Example: a US based investor may neglect quality international stocks in their portfolios. (By the way, this is also an issue with investors in Australia, Japan, Europe, and the UK.)
 

Anchoring Bias - becoming tied to a readily available reference point when making an investment decision. 

Example: judging your portfolio allocation and performance based on its most recent high-water mark.
 

Recency Bias - over-extrapolating the recent past or present into the future. 

Example: assuming a current run-up or downturn in stocks will persist forever.
 
These biases in human behavior are not likely to go away anytime soon. They’ve been ingrained in us since early humans survived by hunting and foraging for food, all-the-while mightily trying to avoid becoming food for something else!

-Brian Boyd, Boyd Wealth Management

To read the full article, click here.

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The top 10 Tax Deductions for Real Estate & Mortgage Pros

9/8/2020

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​Just about every real estate agent and loan officer I know is incredibly busy these days, as record-low interest rates, a swell of buyer demand, and a considerable shift from city to suburbs is driving a housing market boom. 

But, let’s face it, there are good years and bad years in real estate just as in any cyclical business, and just because you’re earning well into six figures this year doesn’t mean the deals will always come as easy.

Therefore, whether it’s the hottest seller’s market or we see the point where REOs and short sales dominate once again, it’s crucial to take advantage of every legal and ethical tax deduction if you sell real estate or home loans for a living.

After all, it’s not what you make, but how much you keep that matters!

So, today I enlisted CPA Jose Ramirez of Advanced Tax Advisors to outline 10 common tax deductions for real estate agents and loan officers:

1. Commissions Paid Out
Have you paid a portion of your commission to referring agents, a buyer’s agent, or anyone else on your team? Those are deductible!

2. Broker and Desk Fees
Unless you’re at a 100% commission split, you’re paying some form of broker or desk fees to your real estate firm, and those can be tax deductible. Just be very careful about writing off desk fees from your brokerage AND a home office deduction, which can be a red flag for the IRS. There are different rules to follow when having multiple offices.

3. Training and Education Expenses
If you’re investing in your education and skills, those costs may be deductible. For instance, traveling to seminars or training conferences can offer a host of deductions, but there are caveats. It must be real estate related (of course) and the training must maintain or enhance a skill in your field.

4. Advertising, Marketing, and Promotional Expenses
This is a big one for most agents, with signage, photography, websites, digital marketing, and even purchasing leads that are commonly deducted. Even staging costs are tax deductible!

5. Licensing, Memberships, Professional Designations, and Insurance
From MLS and Realtor membership fees to E & O insurance, there are plenty of write-offs for the average agent.

6. Gifts
The typical Realtor gives plenty of gifts every year, from closing gifts to housewarming gifts, and even gift cards and holiday presents. But beware that the IRS has specific requirements for gift giving, such as that you can deduct no more than $25 for the cost of a business gift, a “floor” of $4.00 or less for gifts with your logo like pens, golf balls, etc., and the cost of engraving, shipping, and wrapping not included in the $25 limit.

7. Automobile Mileage
No one drives around town more than Realtors, and a portion of your mileage is deductible. This deduction can be significant, particularly if you put 10,000 miles or more on your car annually.

8. Home Office
Are you writing offers from home, using the computer in your designated home office, and using a home printer or fax for your real estate business? You’re due a home office deduction, just like most business owners who truly operate from home.

9. Meal Expenses
If you’re not taking clients, referral partners, and team members out for food and drinks, you’re not doing this whole real estate thing right! As long as it’s truly for business purposes, breaking bread is deductible up to 50% of your bill, including tax and tips.

10. Business Items, Tools, and Stationary Expenses
Any material items you use to perform the day-to-day tasks of your job may be deductible or depreciable, such as office supplies, copies and faxing expenses, furniture, a portion of your personal cell phone bill, and even your computer.
***
Remember that there are very specific IRS rules for tax deductions, so refer to IRS Publication 535 and schedule a consultation with your tax planner for details! 

Your friend,
Norm  :-)

P.S. Thank you, Jose Ramirez of Advanced Tax Advisors for the information! 
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