For investors who want to do something a little different, a muni bond fund may provide an attractive alternative to traditional investments like stocks and ordinary bonds. Muni bonds funds are funds in which the primary investment vehicle is municipal bonds. Municipals (muni) are bonds issued by local governments like cities and other local governments to raise money to cover the costs of local government functions like schools or hospitals. The muni bonds are then backed by the credit-worthiness of the local authority. The prime attraction of the muni bond is that the income earned from it is usually exempt from federal and state income taxes. This has made the muni bond and the related bond funds a prized investment haven for big investors.
So how does the ordinary investor get in on this? One answer is the open-ended municipal bond funds that behave like mutual funds in that one can buy as many shares of the fund as you can afford. The other is closed end municipal bond funds. In these, a limited number of shares are offered to the public. These shares are then free to buy and sell on exchanges.
It is important to understand the risks for a muni bond fund. Unlike the federal government which can print new money to cover its shortfalls, cities and local municipalities can go bankrupt if the tax receipts or other sources of revenue used to pay the bondholders dries up, like during a severe recession, leaving municipal bond holders with nothing. In addition, many funds use loans, sometimes referred to as leverage to fund the purchase of bonds. If the income from the diversified portfolio is less than expected, payout may have to be suspended to repay the loans. However, for investors who are willing to conduct careful research into the basic bond portfolio, muni bonds and related funds may be a good way to beat the taxman.
With the upcoming end to the Federal First time Homebuyer tax credit, many people are scrambling to get their contracts executed and their loans secured prior to the fast approaching deadline. Sadly, many are finding that although they were initially told that getting a mortgage would not be a problem, the reality is that when it came down to the wire, getting a mortgage approved just was not possible. Those who had their heart set on taking advantage of this opportunity are wondering if there is another way. This has many asking, can the $8,000 tax credit apply to a lease option contract?
While you may see builders and investors advertising this option, you need to be very careful. A standard lease option contract or rent to own contract does not qualify you for the federal tax credit because no actual sale takes place. A sale under the eyes of the IRS must be present in order for you to legally claim the $8,000.
Does this mean that there is no option other than securing conventional financing? Absolutely not! There are still creative strategies that will help you get the tax credit and stay in good graces with the IRS.
The best way is to use an owner financing or contract for deed when structuring your purchase. The proper contracts will accomplish this while providing the present home owner all of the security that they would have with a lease option contract. This means that they don’t have to worry about you taking 10 years to qualify for a mortgage because there is a balloon in place that requires you to get a loan after a set period of time. Typically, most sellers like this time period to be between one and three years because their primary goal is to sell their house fast.