Tanja Fijalkowski, Author at HappyNest

REITs and the Taxman: How to settle the bill

Dec 22, 2021

For those just getting their beaks wet with REIT investing, we have some news: Uncle Sam wants his crack of the nest egg.

A basic understanding of REIT tax mechanics can help trim the tab and your nest egg in tip top shape.

REIT income taxation 101

When tax season rolls around, REITs send shareholders a 1099-DIV form summarizing the growth of the principal investment as well as the cumulative dividend payouts for that tax year.

In most cases, REIT investors simply need to input the information from the 1099-DIV form into TurboTax, H&R Block, FreeTaxUSA, or other preferred self-filing software.

With the exception of the 1099-DIV form, REITs generally do not require any additional paperwork.

In the eyes of the IRS, there are two components to REIT taxation:

Dividends
Capital gains or losses (resulting from the sale of an REIT stake)

Here, we’ll break down how they are handled and what variables impact taxation rates.

On the backend: REITs and corporate tax

REITs are granted favorable tax status if they meet the following conditions:

90% of their income is distributed to shareholders in the form of dividend payments
75% of income is generated from real estate activities

In return, they are considered “pass through” corporations (like LLCs and S-corporations) and exempt from paying corporate taxes.

Consider that other types of dividend distributions, like those that come from profit-sharing stocks, are first taxed at the corporate level.

This bodes well for REIT shareholders – there’s more pie to go around.

REIT dividend distribution taxation

However, that pie isn’t getting off scot free. Though they weren’t taxed on the corporate level, they are taxed on the individual (shareholder) level.

REIT dividend distributions fall into one of three taxation buckets:

Ordinary income, marginal rate
Long-term capital gains
Return on capital

Here, we’ll go over each category and how to know where your 2020 REIT dividend payments fall.

Ordinary income

The U.S. tax code classifies dividend distributions of any variety as either ‘qualified’ or ‘ordinary.’

Because the investor receives the untaxed REIT payment, dividend distributions are considered ‘ordinary’ or ‘non-qualified.’

In the majority of cases, REIT dividend distributions are categorized as ordinary income – the same bucket as the salary your employer pays you, bonuses,

commissions, tips, income from your own business, etc.

In 2017, Congress passed the Tax Cuts and Jobs Act, which included an advantageous tax perk for REIT investors.

REIT dividend distributions were granted a 20% deduction, which lowers the taxable amount.

For example: If an investor received $10,000 in REIT dividend distributions in 2020, only $8,000 of it is added to their taxable income for the year.

Ultimately, the rate of taxation of your REIT distributions will depend on your total income for that tax year. That figure is subject to the federal government’s progressive income taxation rate, outlined in the table below.

2021 Federal Income Tax Brackets

Rate	Single Individuals	Married Individuals Filing Joint Returns	Heads of Household
10%	Up to $9,950	Up to $19,990	Up to $14,200
12%	$9,951 to $40,525	$19,901 to $81,050	$14,201 to $54,200
22%	$40,526 to $86,375	$81,051 to $172,250	$54,201 to $86,350
24%	$86,376 to $164,925	$172,251 to $329,850	$86,351 to $164,900
32%	$164,926 to $209,425	$329,851 to $418,850	$164,901 to $209,400
35%	$209,426 to $523,600	$418,851 to $628,300	$209,401 to $523,600
37%	$523,601	$628,301+	$523,601

The tax rate of your dividend distributions will depend on your total net income for that calendar year.

Long-term capital gains

While the majority of REIT income is taxed as ordinary income tax, some of the dividend distributions may instead be subject to a capital gains tax.

In most cases, capital gains tax rates are preferable to income tax rates because they are usually lower.

Dividend distributions that qualify for the preferred capital gains tax are the product of incidental events.

Most commonly, it is income generated from the sale of a property in the REIT’s portfolio that is in turn distributed to shareholders> The only condition for the proceeds from a sale to qualify for long-term capital gains tax is that it must have been held in REIT’s portfolio for at least a year.

Not to worry – the 1099-DIV form will parse out how much of your total distributions will be subject to ordinary income tax (Box 1) versus capital gains tax (Box 2).

Return of capital

Lastly, a portion of your total REIT distribution income may be classified as ‘return of capital,’ which you will find in Box 3 of your 1099-DIV document.

The good news is that any funds that fall into Box 3 are tax free (woo hoo!) – for now.

In short, the REIT is returning a portion of investors’ principal investment.

Because you already shelled out taxes on your initial investment, you won’t need to pay taxes again when that capital is returned to you.

However, return on capital income could have tax implications downstream.

When the REIT returns a piece of your original investment in the form of distributions, you aren’t selling your shares in the REIT.

Instead, your cost-per-share is reduced.

For example:

You bought 100 shares of HappyNest’s REIT at $100 per share.
In a dividend distribution, HappyNest distributes $5 per share return on capital.
You would see $500 ($5 x 100 shares) in Box 3 of your 1099-DIV
After, your cost per HappyNest share is $95.
A few years from now, you sell your HappyNest holdings at $200 dollars per share.
Because of that $5 return of capital distribution, your profit on the sale would be $105 dollars per share ($200-$95=$105).

The profit from the sale of REIT shares is subject to taxes in the year of their sale.

Reinvested dividend taxation

If you are reinvesting your REIT dividend distribution, the distribution is still considered taxable income.

Principal investment taxation

As far as your core investment, no tax applies while it remains invested in the REIT.

It only has tax implications if you sell your stake.

If you liquidated out of a REIT stake this year (i.e., sold you shares), there are a few more tax considerations.

If the shares you sold gained value while you were holding them, the profits (sale value – principal investment) are taxable.

The rate of taxation depends on how long you held your REIT stake.

Short-term capital gains tax

If you held the shares for less than a year, then any profits from the sale should be considered ordinary income and will be based on your income tax bracket.

Long-term capital gains tax

There is a tax incentive to hold your REIT investment for at least a year.

If you do, any profits from the sale of your shares will be subject to the long-term capital gains tax, which is generally lower than income tax rates.

2021 capital gain tax rates

Taxation %	Income
0%	$0–$40,400
15%	$40,401–$444,849
20%	$445,850

Capital losses

2020 proved to be a difficult year for certain sectors of the real estate market, especially the commercial office and retail sectors.

That means investors may have sold out of their REIT stake at a loss. Filers can subtract up to $3,000 worth of capital losses from their taxable income per year.

However, $3,000 is the maximum capital loss deduction allowed per year against your total earned income. Losses that exceed $3,000 can be deducted from future tax filings.

A lucrative investment

Taxes might not be great dinner conversation, but they are the tail-side of the wealth-growing coin.

Tax efficiency can have big implications on your bottom line. Working with a tax professional to better understand how taxes work can further your financial education and optimize your tax bill.

And there’s no better investment than that of your financial knowledge.

5 real estate market predictions for 2022

Dec 7, 2021

By Tanja Fijalkowski

As 2021 draws to a close, we’re looking ahead for our annual real estate market predictions, 2022 edition.

There are two big variables that could impact how things might play out. First, whether the prices of lumber and building materials that have spiked over the past year will correct, continue at elevated levels, or possibly even continue to climb.

The second factor is whether or not the Federal Reserve will do anything about high levels of inflation and raise interest rates.

So far, there haven’t been strong indicators that they will. As such, the following real estate market predictions for 2022 assumes fiscal policy and commodity prices will continue in the same trend they are now – upwards.

Here are HappyNest’s five real estate predictions for 2022.

1. The housing market will continue to see double digit growth

After an unbelievable year that saw appreciation rates nearing 20% on the tail of 2020’s 7% gains, people began to wonder if perhaps we are in a housing bubble.

We’re probably not. The reason is that much of the influx of demand that came into the market is investment institutions (hedge funds, banks, etc.).

While the mainstream media claims it’s Millennials entering the market, this is simply not true. First of all, there is always some organic turnover as young adults reach their home-buying years. Millennial have been very delayed in this regard. After a decade of setbacks, those entering the housing market for the first time represent a minority of buyers. Additionally, many of them are buying as couples – even friends are teaming up – as homeownership would otherwise be unattainable.

The Federal Reserve has kept interest rates as 0% since the onset of the pandemic. That money is lent out to big banks. This money finds its way into various investment vehicles – hedge funds, private equity, etc. – who have been buying up houses like hotcakes. Earlier this year, Zillow accidentally over-purchased almost 7,000 homes.

However, the Fed’s low interest rates aren’t being passed onto consumers. While mortgage rates are low, the criteria around who can get mortgages in the first place has tightened.

Bank lending multiples have declined significantly over the last decade. Now, the average mortgage lending multiple is about two and a half times the borrower’s income. Less than five years ago, it was about four times the annual income of applicants with good credit.

With the Fed’s printer still humming and interest rates still near zero for banks, there’s no reason to think they will cease buying up houses, adding a steady stream of demand side pressure and driving up prices in the housing market.

2. The Industrial and Logistics sector will have exponential growth

Our real estate market prediction for 2022 is the industrial and logistics sector will continue its exponential year-over-year growth.

The massive growth in e-commerce that started accelerating aggressively at the onset of the pandemic has held strong through 2021, as we predicted. As of right now, there’s no discernible reason to think that trend will slow down in 2022.

Filling all those online orders requires big industrial shipping facilities, much like HappyNest’s flagship property. Currently on a 10-year lease with FedEx, the real estate market outlook for this sector is so promising, rent increases are already in the lease terms.

The warehouse market has seen tremendous growth, and trucking remains the primary domestic transportation route. As retailers continue to scale up their e-commerce activities, the demand for these limited-supply properties will drive prices even further up. There have already been reports of warehouse lease rates soaring due to skyrocketing demand. Every one of those warehouses will need semi trucks to deliver the stock to retailers or consumers, therefore the need for industrial properties sustaining or continuing its appreciation is all but guaranteed.

HappyNest’s industrial property is in a strategic location for nationwide operations. It is located in Fremont, Indiana. It is nestled between three major interstate in America’s heartland for maximum efficiency.

3. Office real estate will improve, but not recovery fully from the pandemic

One real estate market sector that might experience growth on a year-over-year basis is the office sector. However, that growth will only partially recover from the dive the sector took from the onset of the pandemic. That’s because a huge portion of the remote work force doesn’t want to return to the office.

For that reason, a year-over-year perspective doesn’t provide the scope needed to understand this corner of the real estate market.

Because since then, several large-scale companies have announced that they will not require large portions of their workforce to return to the office at all. Additionally, small and mid-sized businesses appreciate the financial lift off their operational overhead now that they’ve worked out the logistics of running their companies remotely.

With an influx of supply and reduced demand, out real estate market prediction for the office space sector is a reduction in rates to seduce companies into leases and recondition them to the 9-to-5 work life the pandemic interrupted.

With new virus variants creating some uneasiness around calling the workforce back into the office, this sector may find themselves with vacancies on their hands long-term. Buildings whose zoning support it may find a different use cases, such as an AirBnB, housing, or hotel conversion.

4. Investment capital will continue to sweep into all sectors

With the Federal Reserve keeping interest rates at zero, thereby making lending capital to banks and financial institutions all but risk free, more investment capital will flow into all real estate sectors.

Considering the back drop of high inflation levels, keeping cash on hand is somewhat of a liability for banks. No where is this better evidenced than the Federal Reserve’s reverse repo market. The use of the fed’s reverse repo is at all time highs – and on an eye-popping exponential curve.

The Federal Reserve's reverse repo use levels are a variable in our real estate market predictions — Source: The New York Federal Reserve

Real estate has long been a hedge against inflation. Continuity of current policy is the Federal Reserve implicitly encouraging large financial institutions to buy up assets in quantity. From financial institutions’ perspective, while capital is available at 0% interest rates, why not keep adding assets to their balance sheets?

The reality is, in light of the tremendous double-digit gains in several real estate sectors (notably, the housing market and industrial sector), even what would usually qualify as a major correction wouldn’t fully undo the gains since 2020.

Until the Federal Reserve signals a meaningful change in policy, such as raising interest rates or pulling cash out of circulation, it is our real estate market prediction that the real estate market at large will continue to see increased demand in all sectors.

Compounded with the private sector’s strong interest in real estate and you’ve got a recipe for big pumps. Investors want to be on the right side of that.

5. Migrations and mass relocations will have regional effects

Ever since the major shutdowns of 2020 that have meaningfully reshaped the workforce and untethered former office workers from their workplace, some cities are experiencing major exoduses while others are experiencing major influxes.

Austin, Texas in particular has seen tremendous growth. In 2020, Austin’s population grew by almost 3.5%. Partially thanks to Elon Musk, Austin’s population is on track to gain another 3.6% in 2021. Several large companies, including Apple and Google either have plans to move or expand operations through 2022.

Of course, the people moving to cities like Austin and others that are experiencing growth are coming from somewhere. Notably, all three companies with plans to move to Austin are currently headquartered in the Greater San Fransisco Bay Area. This exodus of thousands of jobs is already being felt in Bay Area real estate prices.

Likewise, Boise, Idaho has experience tremendous growth over the last two years, and housing prices have followed suit. Major metropolises like New York City and Chicago have experienced population contractions.

Large-scale population shifts will be felt asymmetrically across the nation as supply-demand dynamics change on a regional level.

HappyNest’s real estate market prediction

As our final real estate market prediction, HappyNest remains confident in its portfolio performance for 2022 and beyond. We remain well fortified against the uncertainties in the times ahead. Properties in our portfolio will presumably remain in demand as well as appreciate. We are not anticipating any vacancies. With strong, financially stable tenants on long-term leases, we expect rent income to continue uninterrupted for the foreseeable future.

We look forward to sharing the wealth and paying out to HappyNest shareholders in the form of quarterly dividends and property value appreciation.

Wishing you a happy holiday season and a prosperous New Year from all of us here at HappyNest.

Introducing Loose Change

Nov 29, 2021

By Tanja Fijalkowski

We’re excited to share some big news with you!

Here at HappyNest, we want to help you achieve your financial goals. That’s why we have developed Loose Change, a tool designed to help you build your nest egg consistently and organically with your day-to-day purchases.

We know it can be hard to put aside chunks of cash into investing accounts. Loose Change allows you to contribute to your investment portfolio incrementally – a few pennies here, a nickel and dime there – over time. A little change in your growth strategy can add up to a big change in the long run. That’s especially true when it comes to building wealth. As the old saying goes: It’s not timing the market. It’s time in the market.

Consistency and time are the no-so secret ingredients. Loose Change was developed to make contributing to your financial future easy, manageable, and methodical.

How it works

As you go about your life, Loose Change will track your daily purchases and calculate the number of cents it would take to round up the total to the next nearest whole dollar.

For example, if you buy a coffee and your total comes out to $3.69, Loose Change tallies an additional $0.31 cents to bring that purchase amount up to $4.00 even.

That $0.31 is called a Round Up. That $0.31 round up gets pooled with other round ups from the rest of your regular purchases.

Every time your cumulative Round Ups reach $5.00 total, we’ll automatically deduct that amount from your linked bank account and invest it in your HappyNest account. Contributing to your financial future will be a built-in part of your daily life.

How to opt-in

Loose Change is only available to current HappyNest investors. In order to sign up for this feature, you will have to have an active account with HappyNest.

You will also need the most up-to-date version of the HappyNest app. You can check that you have the latest version by going to your personal profile on your device’s App Store. If you have an older version, you’ll see a button that says ‘Update.’ (You know what to do.)

Once you have the latest version, hop back into the HappyNest App and login to your account.

At the top of your HappyNest home screen, you’ll see a banner that says ‘Try Round Ups for Free.’

Click on that banner, and you’ll be directed to the Loose Change self-guided setup process.

After agreeing to the terms and conditions, you’ll connect either a credit card or bank account through our partners at Plaid.

You can connect Loose Change to credit card, debit card, or bank account. Round-ups will only be tallied based on designated linked payment sources.

Tracking your Loose Change Round Ups

Once you have connected a payment method to Loose Change, you will be able to view your purchase history and the resulting round ups in your HappyNest account.

This activity log can be found on your HappyNest profile’s home screen.

Turbo charge your nest egg

Loose Change also offers a multiplier feature on round ups for those who want to turbo charge their portfolio contribution activity.

You can access the multipliers feature by clicking on Account Settings on the Loose Change activity log screen.

There you’ll have the option to add a 2x, 5x, or 20x multiplier to your Round up contributions.

Try Loose Change for free

As a HappyNest investor, we invite you to try out Loose Change free of charge. We want you to see for yourself what a difference your Loose Change can make over time.

This free trial is good for six months. After that, you can continue to use the feature for just $1 per month.

FAQs

Can I link more than one account/card to Loose Change?

Currently, Loose Change only supports one linked payment method. We recommend linking your most active account or card to maximize your regular spending activity’s impact on your investing portfolio.

When I go to sign up, it shows Round Ups as ‘coming soon.’ Am I not eligible to sign up?

If you see ‘Coming soon’ in the opt-in banner on your home screen, you may have to log out of the app, turn off the ‘Remember me’ toggle on the login page, and sign in manually.

Once you log back in, you should see “Let’s get started’ where ‘Coming soon’ appeared before. If you continue to see ‘Coming soon’ after logging out and logging back in, please reach out to us at info@myhappynest.com and we would be happy to assist. You can also send us a chat message.

Will Round Ups be charged to my linked credit card?

No. If you link a credit card as the purchase log on which to base your Round Ups, the actual drafts will still be deducted from the bank account you have linked to your primary HappyNest account.

Bottom line

Making your money work for you is the key to financial success and independence. Loose Change is an easy and effortless way to grow your nest egg. Combined with other tools such as our auto-invest feature and dividend reinvestment option, you can manageably build your portfolio into a passive income producing machine.

Download the HappyNest app:

Saving vs. investing: Which should you be prioritizing?

Nov 9, 2021

By Tanja Fijalkowski

Saving vs. investing – the age old question. Which makes more sense for your long-term financial future?

Both saving and investing come with their own risk-reward profiles, and the best strategy varies from person to person. Sometimes, it makes sense to change course due to the changing external factors of life.

Here, we’ll explore the profiles of both for your consideration to help you better understand the merits and drawbacks.

Macroeconomics of saving vs. investing

Context is key.

Macroeconomics (i.e., the ‘big picture’) are important considerations when comparing saving vs. investing.

Some key concepts worth factoring into your decision making are inflation and the dollar’s purchasing power.

They are functions of each other. They have an inverse relationship. When inflation is up, the dollar’s purchasing power goes down. That’s because when inflation is high, the prices of goods and services goes up. You have probably noticed an increase in the cost of many regular expenses – your groceries, a tank of gas, perhaps your rent. This is the product of inflation.

Say every year, you allocate $100 to take your friends out to the movies while they’re all in town for the holidays. You’ve been doing it for decades.

In the year 2000, when movie ticket prices were $5.66, you would have been able to bring along 17 friends. In 2020, when the national movie ticket price averaged $9.31, you would have to make a few cuts, because now, you can only afford 10 tickets with the same amount of money.

You’re still putting up the full $100 – but what you can buy with that money has gone down.

While there are several economic indicators used to measure inflation rates, the one that is generally most significant for average Americans the CPI index. The CPI index measures a basket of consumer goods – from food, to gas, to rent – to estimate the increase in the overall cost of living.

As last reported by the Department of Labor, the CPI index has increased by 5.4% for the 12-month period ending in September 2021. That means life is about 5.4% more expensive than it was a year ago.

With that, we have some framework in which we can better assess if saving or investing makes more sense.

Risk management

The world of finance, proper due diligence doesn’t only evaluate potential gains and losses. It’s also about risk management.

Risk management considers the probability of different outcomes.

You likely weigh out the probabilities of different outcomes often in your daily life. For example, you look up a car mechanic in your area on Yelp! You find two – one that has numerous 5-star glowing reviews, and another with numerous 1-star complaints. The former is more expensive.

But you decide to do business with them despite the higher cost, based on from pervious customers. You are betting that the lower the risk of getting ripped off or having a faulty repair done – worth the extra cash.

This assessment of likelihood of desired outcome is arguably more important than determining potential outcomes. After all, most people would take 50-50 odds of winning $1,000 than a one in a million chance of winning a million dollars.

Savings: A guaranteed loss

For most people, keeping their money in a savings account feels safe. It is safe in that money kept in a savings account is secure and insured.

Additionally, money kept in a savings account is essentially instantly accessible in times of need. If a financial emergency required $5,000 to be paid on the spot, having the money in a savings account readily available can prevent you from having to put the expense on credit and pay interest rates in the 20%+ range.

But by other measurements, it’s quite unsafe. With inflation rates topping 5% in just one year, the value of your money it is a guaranteed loss. In other words, there is a 100% chance that the purchasing power of your savings accounts will decline as inflation goes up.

With inflation rates at historical highs and showing no signs of subsiding, it’s critical to understand that money sitting in a bank savings account is losing value.

If your bank pays you an annual interest rate, that does help a little. But with most bank savings accounts offering around 0.5% interest annually, it is hardly offsetting about 10% of the value lost to inflation.

In a nutshell, given the current rate of inflation as the cost of living goes up, the risk-reward profile of keeping money in a savings account breaks down to:

Loss potential: Very high probability
Loss max: Capped at the rate of inflation (-5.4% in purchasing power for 12-month period ending in September 2021.)
Gain potential: Very low probability
Gain max: Decline in the cost of living
Other considerations: Easy access to funds

Investing: A risk of loss, and potential to gain

The alternative way to store your hard-earned dollars is in the form of investments.

With a savings account, you can, with a fair degree of certainty, know what to expect.

Investing on the other hand has many more possible outcomes, each with its own risk-reward profile.

However, with investing, there is a much higher probability of staying ahead of inflation in the form of returns. If a $100 investment produces 6% in returns for in a year, the extra $6 in profit fully offsets the purchasing power erosion effects.

Funds held in investments aren’t any more protected from inflation than those held in savings accounts. But unlike money kept in savings accounts, there is potential to gain on investments – potential that essentially does not exist with savings accounts.

No investment is risk free

As a general rule of principal, the higher the risk, the higher the potential reward. Traditionally, the safer the investment, the lower the reward potential. The higher the risk, the higher the potential returns – but also a lower probability of hitting those returns, and a higher possibility of losing your investment.

For example, odds of ‘losing it all’ on blue chips stocks aren’t high. Companies like Microsoft and Johnson & Johnson are likely to survive even sharp market corrections.

But they aren’t likely to top the potential gains of a unicorn penny stock that really hits it big. That being said, for every unicorn penny stock investor that hits it big, there were thousands of others who took losses on penny stocks.

Every investor has to decide their own risk tolerance.

In sum, the risk reward profile of investing:

Loss potential: Very low–very high (depending on investment, e.g., blue chips vs. penny stocks)
Loss max: Capped at initial investment (unless engaging in short selling)
Gain potential: Very low–very high (depending on investment, e.g., blue chips vs. penny stocks)
Gain max: Uncapped; infinite potential
Other considerations: Lower liquidity. Some investments, like stocks and crypto add a 1–3 business day delay to access your funds; alternative investments, such as real estate or commodities could make accessing your funds a long and involved process.

Saving vs. Investing

While everyone’s financial situation is different, with inflations eating away over 5% of the dollar’s purchasing power every year, keeping money in a savings account is in effect an almost certain loss.

Investing on the other hand, opens up the possibility of staying ahead of inflation.

For example, HappyNest is an REIT portfolio you buy into for just $10 per share. On average, the quarterly dividend payments average 6% a year, topping inflation’s erosion on your purchasing power.

In addition to the quarterly dividends, as the properties in our portfolio gain value, your investment does as well. As such, you not only keep pace with inflation and preserve your nest egg’s purchasing power, you also can gain value on your capital while it is invested.

Priorities

Remember: It’s not really about movie tickets, rent, the price of gas, etc.

Most Americans work for wages or salaries. They exchange their time for money.

In a savings account, time works against you. It erases hours you already clocked in – hours away from your family, your friends, your hobbies, your pets. Smart investing makes time your friend, opening up the opportunity to buy some of it back in the future.

Because it is time – not money – that is life’s most precious, limited and valuable asset.

5 financial hacks we wish they taught us in school

Jul 27, 2021

By Tanja Fijalkowski

Hey, teacher – leave those kids alone. Or at the very least, maybe teach them something that will be useful in the real world? Financial hacks to keep them out of a lifetime of living paycheck to paycheck and debt might be a good place to start.

stat about financial literacy in America - financial hacks — Source: National Financial Educators Council

One thing an overwhelming amount of Americans agree on is that financial literacy should be taught in schools.

A hard majority – 85% according to a recent study by National Financial Educators Council – think so.

Surprisingly, despite this widespread agreement, personal finance coursework is only required in less than half of states.

It’s puzzling, isn’t it? You would think that budgeting, understanding the true costs of loans and interest rates, and real wealth-building strategies might generate more productive, law-abiding, tax-paying members of society. And that’s the goal…isn’t it?

Whatever the backstory on that mystery, the bottom line is that many of us were never properly taught how capital works. To cover some of that lost ground, we’re sharing some financial hacks that can help you get off the paycheck-to-paycheck treadmill.

So if you want to do your homework on real-world financial hacks, this in-depth lesson will get you in the right mindset.

But for those of you just looking for the cliff notes, here’s a 1-minute video featuring HappyNest CEO and founder Jesse Prince giving you the TL;DR.

Financial hack 1: Pay yourself first

You put in the work, you should get the reward. Everything else is secondary – period.

One of the most common mistakes people make when they get their paycheck is getting squared up on bills, rent, loans, etc. first. They then try to get to their next paycheck on whatever’s left over.

Sure, it seems like the responsible thing to do. But with this approach, the check that takes two weeks (or whatever payout cycle you’re on) to earn is spent within hours of hitting your bank account. By the time the next paycheck rolls around, it can’t come soon enough. The goal of saving and investing gets put off once more.

Not anymore. From now on, the first line item on your paycheck to-do list is paying yourself. This is the single most important wealth building financial hack.

Your nest egg is now priority number one. If your goal is to save $250 per paycheck, then the first withdrawal from your paycheck should be $250 for your nest egg.

Feeding two birds with one scone: This nest egg account should have some safeguards in place to prevent you from tapping it too easily. For example, a savings account is not an ideal nest. Not only because saving account interest rates are a joke and inflation is eroding the purchasing power of your money while in one, but also because it’s just a little too easy to dip into.

Keeping it in stocks, bonds, REITs, or other alternative investments makes them less liquid. Having to process a transaction and wait for the transfer builds in some natural friction to curtail dip slips. (Hey, it happens to the best of us).

Financial hack 2: Automate your nest building with robo investing

In fact, paying yourself first is so important, you may want to take some extra precautions to eliminate room for human error. Enter: Robo deductions. What a time to be alive.

If your bills are set up on auto-draft, no reason why your nest building shouldn’t be, too. Set up a monthly automatic deduction that goes straight into your net worth.

If the insurance company and your landlord get their cut of your paycheck, your long-term portfolio value deserves an auto-draft too.

HappyNest offers monthly deductions from your funding account and redirects the funds into your investment account.

Financial hack 3: Cut the zombie subscriptions and redirect funds into your nest egg

Ever get notices that a magazine subscription you’ve been meaning to cancel for 10 months just renewed? Or that a video editing app you downloaded one time to cut out that would-be career-ruining contraband that rendered an otherwise hilarious video unpostable over a year ago and never bothered to cancel?

As life itself moves to an increasingly subscription-based model, be sure to do a scrub of memberships and auto-renewals. These sneaky expenses can really pile up over time. All those those “try it for free” sign-up forms or free trails are fully counting on you to forget about them where they can quietly drain your portfolio undetected. Too much weight makes the boat go slow.

To implement this financial hack, review your bank and centralized payment accounts such as PayPal or ApplyPay. These central payment stations offer the best birds’-eye view of auto nest killers.

Better yet, cut a few dead-weight subscriptions and tally the total monthly savings. Then, redirect that draft amount into an investment account for nest building. This action has a net impact of zero on your day-to-day spending.

Be sure to check in on your subs at least twice a year. Take the time to comb through for annual renewals too – those sneaky scoundrels will creep up out of no where with a hefty draft that leaves you feeling violated.

Beat them to the punch.

Financial hack 4: Sleep on it before you buy it

The internet is a fluid place, and one thing can rapidly lead to another. Next thing you know, your out a few hundred bucks on some impulse buys that sounded life-changing at the time but just lead to more clutter in your pad.

It can be hard to fight the “you deserve it” devil on your shoulder on a late-night treat yourself. The truth is, you do deserve it, and heaven knows we all need a little self-love and care. We all do it – there’s no judgment here.

The best tool in your financial hacks toolbox for separating the quality “treat yoselfs” from the empty depths of mindless consumerism is to sleep on it.

If you really do deserve it – and you probably do – you’ll still deserve it in the morning.

All the glory, none of the guilt.

Financial hack 5: Get your children’s financial beaks wet early

Can you imagine how much money you would have saved if you had been properly taught about managing finances? You know, the things you learned the hard way – whether that means cleaning up a bad credit score, climbing your way out of student debt (not terribly unlike climbing out of the pit in Buffalo Bill’s basement), or even the helpful things you learned on your own time via late-night YouTube binges of Rich Dad, Poor Dad videos? You can give your kids a head start by teaching them what you learned in the school of hard knocks.

Before they swan dive into the real world, give them some floaties. But if you just can’t get around to it, maybe the collections agent will be interested to hear about the Alamo, which was, of course, covered extensively in the classroom.

Spare your kids the same fate.

Feeding two birds with one scone: Because we all know someone’s got to pay their way for the first round of the world slapping them up with late fees and the joys of collection accounts. Odds are, as their parents, you’ll have to bail them out of at least one or two of these financial boobie traps. That makes investing in your child’s financial literacy early on a win-win for both of your nest eggs.

Building up your financial literacy is a years-long journey. These five financial hacks are good starting points to get the ball rolling.

7 advantages REITs have over owning investment properties

Jul 21, 2021

By Tanja Fijalkowski

The advantages of REITs greatly outweigh those of owning investment properties.

Own an investment property, collect rent on it, let your equity stake appreciate over time, be someone’s landlord (‘landlord’ has a royal ring to it, doesn’t it?) – it all sounds great – on paper.

But owning property comes with a lot of responsibility, hidden costs, and fine print catch-22s that most beginner landlords often don’t consider at the outset.

These pitfalls can be expensive by many measures including time, money, and stress.

Enter REIT investing, where you get all the upside of real estate investing (and then some) while foregoing the drawbacks.

Here are seven reasons REIT investing is a better alternative than buying investment properties.

REIT Advantage 1: No mortgage required

Most of us don’t have a few hundred grand to drop on investment properties. That means in order to finance one, we need to get a mortgage.

Mortgages aren’t cheap.

A $350,000, 30-year mortgage with a 3% interest rate (doesn’t sound so bad, right?) will cost you over $180,000 in interest over the lifetime of the loan. That’s more than 30% of your capital – or ten years’ worth of mortgage payments – evaporating into thin air.

By contrast, every dollar you put into a REIT boosts your equity stake and dividend payout.

REITs sometimes finance properties when they acquire them, but usually only if it’s strategic in optimizing returns.

Oftentimes, they have enough capital to buy the property outright, saving hundreds of thousands in mortgage interest rate costs.

As a REIT investor, those savings get passed right on back to you.

REIT Advantage 2: Shorter path to profitability

It might seem like as long as you have a tenant whose monthly rent is higher than your mortgage payment, you’re in the green.

That’s only partially true.

The rent on your investment property needs to not only cover your mortgage payment, but also costs of home insurance, HOA fees, property taxes, possibly water and trash, maintenance (which can be an unwelcome dark horse), and property management fees if you’re not managing the property yourself.

But, maybe you’re a P&L expert who can successfully calibrate your rental rate just right. Every month, you effectively cover both the mortgage payment, and all the side expenses, without interruption.

In these ideal circumstances, your first truly ‘in the black’ profit will be when your mortgage is paid off.

The average mortgage term in the U.S. is 30 years – 15 if you’re on the fast track. If you start today, and everything goes swimmingly, 2051 will be a great year.

If things don’t go perfectly for 30 years straight, maybe 2055 will be a great year? Time will tell.

As a wise woman once said: “Ain’t nobody got time for that.”

Say you were considering buying an investment property for $350,000. You’d need $70,000 for the down payment, plus a few thousand for other closing costs. You are now the proud owner of a mortgage, and just 29 years and 364 days away from profitability.

Alternatively, you could invest that capital into a REIT like HappyNest and at current rates, make approximately $1,575 return per quarter, starting about three months from now. That’s 29 years and 275 days sooner than buying an investment property.

REIT Advantage 3: Passive income

If a landlord receives rent payment but immediately hands it over to the bank, was the payment ever really income at all?

It’s a head-scratcher. Luckily, you can avoid this conundrum by investing in REITs instead.

Most REITs pay out dividends monthly or quarterly. Instead of that $350,000 property you were considering, you could instead invest the would-be downpayment and start collecting a $1,125 dividend every quarter.

Best of all, no need to turn right around and give it to your mortgage holder – because there isn’t one. That money is free to tuck away for retirement or go to Vegas and put it all on red at the roulette table.

Alternatively, you can reinvest that dividend and witness the wealth-building

magic of what Albert Einstein once called the ‘8th Wonder of the World’: Compound interest.

You see, if you practice delayed gratification, you could add that $1,100+ to your nest egg so that your next quarterly dividend payment would be approximately $1,200. Keep that going for a couple years and you’ll get yourself a nice little egg going.

Personal finances are dynamic – your needs can change over time.

With a financed, private investment property, your mortgage needs to get paid whether or not your primary residence needs a new roof.

But you can elect to have REIT dividends deposited directly into your bank account to help cover unexpected expenses, then go back to reinvesting as your financial situation stabilizes.

It’s passive income at its finest.

REIT Advantage #4: Liquidity

There comes a time in every investor’s journey in which they’ve reached their financial goals (or need the money) and are ready to cash out.

As the owner of a private investment property, there are some hoops to jump through to make that happen.

The real estate market conditions are a variable – no one wants to sell in a downturn. You’ll probably have to shell out a percentage to a realtor, possibly fund buyer contingencies, and pay for a lawyer to review documentation (who aren’t exactly known for their thrifty rates).

With a REIT investment, that’s not the case. If you’re invested in a public REIT, you could have the funds in your account in a matter of days. (But consider the pros and cons of investing in a publicly-traded REIT in current market conditions).

Withdrawals from a private REIT usually take longer compared to publicly traded REITs and generally require a written request.

Still – no realtors, lawyers, or contingencies required, all of which eat into your profits.

REIT Advantage 5: Access to better resources

How does a Sunday morning call about a broken toilet sound? You shelled out $150 for it last week, but the guy you hired didn’t do the job right and now he’s not answering. You’re going to have to hire someone else.

Your tenant is laid off from their job and has to break the lease four months earlier than expected. Can you go a few months without their rent? Do you have the time to find a new tenant?

Someone slipped and fell on your property. They’re suing you. Hopefully, the attorney you paid for out of pocket can get the settlement down to below your insurance policy’s liability limits.

If the above scenarios sound like something you’d enjoy, then private ownership of real estate investment property is for you. Or you could outsource these responsibilities to someone else – but of course, it’ll cost you.

Any of the above scenarios could fall onto your plate, and more often than not, will do so unexpectedly.

If that doesn’t sound like a good time, you might be a ‘hands-off landlord. And REITs are a hands-off landlord’s dream come true.

That’s because REITs allocate a portion of their funds to handling these situations.

Additionally, because of their scale, they often have access to better contractors, lawyers, realtors, accountants, and property management companies. Tenants won’t even know your name, let alone phone numbers – every hands-off landlord’s dream come true.

REIT Advantage #6: Access to otherwise out-of-reach investment properties

In addition to saving you time, REITs provide the opportunity to invest in properties that are completely out of reach for the 99.9%. That includes apartment buildings, commercial real estate, and industrial properties.

These kinds of properties often have a higher return on capital than your garden variety rental property. But the cost of entry is prohibitive to most individual investors.

Because REITs pool capital from many investors, they are able to add these investment jewels to their portfolios. Shareholders get to reap the benefits of high return on investment properties that would have been out of reach.

REIT Advantage #7: Invest as much – or as little – as you want

In addition to the responsibilities and liabilities that come with being a landlord, buying an investment property privately is a huge financial commitment.

Whether buying the property with cash or by financing it, buyers commit to the property’s sales price – and then some.

REITs offer investors flexibility in terms of how much of their capital they want to commit to investing. HappyNest, for example, lets investors get started for as little as $10. That’s less intimidating than committing to hundreds of thousands, if not millions of dollars.

Investors can add one-time boosts to their nest eggs, or skip adding to their principles if financial challenges come up. Mortgages and tenants aren’t quite so flexible.

That makes REITs an attractive investment for smaller-scale investors who may have some disposable income to invest, but aren’t trying to make huge financial commitments.

Investing in the right REIT

For all the time, money, and commitment REIT investing saves, return on investment is a direct function of the performance of the properties in its portfolio and its management.

Don’t skip your due diligence: Check out the REITs portfolio properties, lease terms, and tenants, and consider their long-term prospects.

HappyNest, for example, has two commercial properties and tenants with 8- to 10-year commitments. That means rental income is unlikely to be interrupted.

Even if the tenants break the lease early, there would be an advance notice to find a new tenant and avoid income interruption.

The good news is, once you find the right REIT, growing your nest egg becomes fairly hands-off.

All the glory, none of the work.