The Best Way Creating Liquidity Value of Your Art Collection – Borrow

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Unlocking the Value of Your Art Collection

Art collectors have high value inaccessible in their art collections.  If they need to access of this value, they do not have to sell their art to create liquidity – Borrow.  They can borrow funds and retain possession for their art.

There are big advantages to borrowing – avoiding selling cost, capital gain and taxes.  It could be up to 65+ percent.  These combination can make it VERY expensive to sell.

What is the alternative to access its liquidity?  Borrow.

For example:  A collector sells his art for $US 10 million. Assuming selling costs of 20 percent (20 percent of $US 10 million = $2 million) and an original cost of $US 1,000,000 for the art.

  • Funds realizes a before-tax profit: $US 7 million.
  • Net to collector:  $US 4.2 million  (this profit is subject to capital gains tax. Assuming a rate of 40 percent (28 percent federal plus 12 percent state), the collector pays $2.8 million in capital gains tax, and nets $4.2 million.
  • Net to heirs:  $US 2.1 million (these net proceeds are subject to estate taxes at the collector’s death. Assuming a 50 percent rate, the heirs receive only $2.1 million — on art sold for $US 10 million! This represents a loss of 79 percent across a single generation, and underscores the cost of selling art.)

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By selling during his lifetime, the collector pays 2 levels of tax: capital gains and estate. By borrowing to create liquidity, the collector can keep the art during his lifetime and have his estate benefit from a step-up in tax basis. This enables collectors to pay just one level (estate tax) rather than two. In this example, the collector could borrow as much as $US 5 million (up to half the art’s value) and keep his art. Art collector would be responsible for debt service on the loan, but he would also benefit from any appreciation on his art.

What art collectors do with the proceeds?  These are few:

  • Entrepreneurs frequently borrow against their art to invest in their existing businesses or new ventures
  • People also borrow against their art to make charitable contributions, pay medical expenses, and fund divorce settlements.
  • An art-based loan is a low-cost option for art collectors in need of cash flow who can enjoy their art while making scheduled payments.
  • In these uncertain economic times, art collectors also borrow to avoid the risk of having their art “bought in” (or “burned”) at auction, which makes it difficult to sell for years to come.
  • Faced with estate taxes that must be paid within a short time frame, executors frequently liquidate art collections quickly. But borrowing funds to pay estate taxes and administration costs makes it possible for executors to maximize the value of the estate’s assets by selling the art over time, thus avoiding a “fire sale.”
  • Many arrange lines of credit and term loans to invest more art.
  • Some whose wealth is concentrated in art borrow funds to invest in other asset classes, such as stocks, bonds, real estate, oil, gas, private equity, and hedge funds, thereby diversifying their holdings.

Consult your financial adviser, accountant, attorney, or estate planner while making these decisions.

  • Does art collector want the flexibility of a line of credit or a term loan of 3-10 years?
  • Does art collector want a six-month loan to fund short-term liquidity needs?
  • Or an advance against art that art collector plans to sell later this year?

CONTACT US… Collectors interested in arranging financing should contact us for free consultation.  We will assist to identify the borrowing need, determine what type of financing makes the most sense, and facilitate the appropriate lender.  Please note minimum appraisal report is at $US 5 million.

Related resources at Amazon Corner:

  1. Fine Art and High Finance: Expert Advice on the Economics of Ownership
  2. Structured Finance and Insurance: The ART of Managing Capital and Risk
  3. The Art of Buying Art: An Insider’s Guide to Collecting Contemporary Art
  4. The Art Business
  5. Art as an Investment
  6. Risk and Uncertainty in the Art World
  7. The Explosion of the Art Market in the 21st Century

If you would like to inquire about our Concierge Services, please sign-in our free consultation

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DAJK GROUP is the place where investors, business owners and entrepreneurs can research and find useful information, insight, resources, advice, guidance and inspiration for acquiring funds for their project, acquisition for their net lease commercial real estate, increasing their assets and running their profitable business.

Our group of expert Oil Trader, Commercial Real Estate Specialist, Asset Management, and Business & Financial Analyst, can help to answer all your questions and to provide you with investment alternative and options catered to your investment strategy.  Sign-up for a free 30-minute consultation with us now!

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Embrace the June 2015 Call to Action (You Could Win $US 50 Amazon Gift Card!)

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We are halfway through 2015!  Can you believe it?

It seems like just yesterday we were excitedly welcoming in a brand new year—nervous to get planning on your financial, net lease investment and business development goals we’d resolved to accomplish over the following 365 days.

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Are you confidently marching toward your financial, net lease investment and business development goal—or could you use a little motivation to resume the hard work?

If you’re in the latter, don’t stress.

We’re all human, and it’s totally normal to deviate off track every once in a while. The key to success, however, is learning how to refocus your efforts and racing toward your goals.

Which brings us to our June call to action: Have you ever revive a New Year’s resolution you’d given up on halfway through the year? If so, how did you go about refocusing to accomplish it by December 2015?

Maybe you favorite photo of those fabulous ocean in a prominent place as a reminder.

Or perhaps you copy of a check $US 100,000 written to yourself

Or you join a business mastermind program, a net lease investment or investment seminar with other competitive friends – to earn a spot at the top of the weekly leaderboard.

Whatever it is, we want to hear about it in the comments below—and you’ll be entered for a chance to win $50 Amazon Gift Card! Please make sure to sign-in using your email address when you comment—it won’t be visible to other users—so we can notify you if you win.

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DAJK GROUP is the place where investors, business owners and entrepreneurs can research and find useful information, insight, resources, advice, guidance and inspiration for acquiring funds for their project, acquisition for their net lease commercial real estate, increasing their assets and running their profitable business.  Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation.  DAJK GROUP and any third parties listed, linked to, discussed, identified or otherwise appearing herein are separate and unaffiliated and are not responsible for each other’s products, services or policies.

7 Points to Consider When Seeking Business Financing

Business Finance

Preparation is key to many things in life. Business financing is no different. In order to properly prepare and position yourself for the journey, make sure you are very familiar with the following 7 steps that may determine your ability to get the financing you seek.

DEFINITION of ‘Financing’ the act of providing funds for business activities, making purchases or investing. Financial institutions and banks are in the business of financing as they provide capital to businesses, consumers and investors to help them achieve their goals.

  1. Personal credit score. Everything in today’s headlines is about credit and if it’s still available to the small business owner. This affects start-ups (less than 2 years in business) as well as experienced companies. Be familiar with the information stored about you on all three reporting bureaus, TransUnion, Equifax and Experian. Understand the FICO range, 300-850, and know your score. Strong credit is generally considered 720 and above. Many leasing companies will consider applications with minimum scores of 650. Make sure you know what your credit history says about you before applying.
  2. Collateral. Collateral is widely required for many financial products, unless you are specifically seeking an unsecured financial solution. Collateral becomes even more important if your credit is not strong. Lenders are generally credit or collateral based; you must be strong in one area of the other. The $125,000 equipment you are looking to lease may not even qualify as stand-alone collateral for the lease or loan; additional collateral may be required, such as real estate or additional equipment already in your ownership.
  3. Ability to repay debt. It’s great that you’ve determined how much you need, but how will you pay the debt? Businesses often take months before they generate enough revenue to completely cover debts. Lenders know this. They’ll want to analyze your current revolving debt amount from your credit history, your business bank statements, personal financial statements, as well as your most recent profit and loss statements. You should review this information prior to making application to ensure you can make the necessary payments.
  4. Proof of ownership. Be prepared to disclose 100% ownership of your business, although you may only need to provide financial information on anyone who owns 20% or more of the business. IRS documents are normally used to verify business ownership.
  5. Planned use of equipment or cash. It’s simply not good enough to say you want the equipment or that you need the cash for your business. You must be able to show the equipment is essential to your business or how the additional capital will help you purchase inventory to grow your business or consolidate your debt. Be prepared with detailed equipment listings from the vendor, including product specifications, intended location of use and delivery dates.
  6. Understand the terminology. Personal injection is not a self-induced vaccine shot. It often refers to the down payment or investment amount the business owners bring to the financial transaction. To fully understand your lease payment alternatives, you must know the difference between FMV and $1 out option. Do you know the difference between interest rates and a money factor or how to calculate your loan to value (LTV) ratio? Most terms can be easily researched on the Internet, but if you unsure of how a term affects your transaction stop and ask the financial professional you’re working with to explain each unknown term to you.
  7. Finally, remember it is just business, nothing personal. No one will ever be as passionate about your company or business idea as you. If your financial broker or lender doesn’t get the same emotional feeling about your products and services as you do, it’s because they’re not supposed to. Lenders are primarily interested in evaluating transactions as risk factors against the likelihood of them getting fully paid on their investment. A good financial partner may even need to remind you of this to better prepare you for submission of your credit application.

Resources at Amazon Corner

  1. Business Finance
  2. Corporate Finance for Dummies
  3. Entrepreneurial Finance, Third Edition
  4. Finance Basics
  5. Focus on Personal Finance
  6. Multinational Business Finance

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Fair Market Rents – Section 8 Tenants – Update May 2015 – ALL States

HOME HUD

Fair Market Rents are established by HUD each year for the Section 8 Program. For more information about the annual calculation of Fair Market Rents, visit the HUD’s Office of Policy Development and Research.

HOME Rent Limit data are available from FY 1998 to the present.

Per 24 CFR Part 92.252, HUD provides the following maximum HOME rent limits. The maximum HOME rents are the lesser of:

  1. The fair market rent for existing housing for comparable units in the area as established by HUD under 24 CFR 888.111; or
  2. A rent that does not exceed 30 percent of the adjusted income of a family whose annual income equals 65 percent of the median income for the area, as determined by HUD, with adjustments for number of bedrooms in the unit. The HOME rent limits provided by HUD will include average occupancy per unit and adjusted income assumptions.

In rental projects with five or more HOME-assisted rental units, twenty (20) percent of the HOME-assisted units must be occupied by very low-income families and meet one of following rent requirements:

  1. The rent does not exceed 30 percent of the annual income of a family whose income equals 50 percent of the median income for the area, as determined by HUD, with adjustments for smaller and larger families. HUD provides the HOME rent limits which include average occupancy per unit and adjusted income assumptions. However, if the rent determined under this paragraph is higher than the applicable rent under 24 CFR 92.252(a), then the maximum rent for units under this paragraph is that calculated under 24 CFR 92.252(a).
  2. The rent does not exceed 30 percent of the family’s adjusted income. If the unit receives Federal or State project-based rental subsidy and the very low-income family pays as a contribution toward rent not more than 30 percent of the family’s adjusted income, then the maximum rent (i.e., tenant contribution plus project-based rental subsidy) is the rent allowable under the Federal or State project-based rental subsidy program.

The FMRs for unit sizes larger than 4 bedroom are calculated by adding 15 percent to the 4 bedroom FMR for each extra bedroom. For example, the FMR for a 5 bedroom unit is 1.15 times the 4 bedroom FMR, and the FMR for a 6 bedroom unit is 1.30 times the 4 bedroom FMR, and so on…

  • 5 BR = 1.15 x 4 BR FMR
  • 6 BR = 1.30 x 4 BR FMR
  • 7 BR = 1.45 x 4 BR FMR
  • 8 BR = 1.60 x 4 BR FMR
  • 9 BR = 1.75 x 4 BR FMR
  • 10 BR = 1.90 x 4 BR FMR
  • 11 BR = 2.05 x 4 BR FMR
  • 12 BR = 2.20 x 4 BR FMR

These HOME rent limits are effective June 1, 2015, and are applicable to new HOME leases and lease renewals after that date.

Attached is an update for state of California.  For other states, please sign-in and request for a copy for your state.

HOME_Rent Limits_State_CA_2015

Resources at Amazon Corner:

  1. Real Estate Investment
  2. Real Estate Finance for Residential and Commercial
  3. Buying Real Estate Without Cash or Credit
  4. Buying First Home: Tips, First Home Owners Grant & First Mortgage Guide, Home Buying Process

For further question, please sign-in for our free consultation.

A Great business consultant must see a white space around the black dot…

Biz Consultant

A business consultant’s job is to consult. Nothing more, nothing less. It’s that simple. There’s no magic formula or secret that makes one consultant more successful than another one.

But what separates a good business consultant from a great business consultant is a passion, drive for excellence and creativity. And–oh yes–a great business consultant should be knowledgeable about the subject he or she is consulting in. That does make a difference.

Creativity is not only helps a Great business consultant can “see” things surrounding of his client’s issue,  but it also provides right guidance and assists with precise and correct solution.  For illustration, place a small black dot on a blank piece of fresh paper represents your client’s issue. It could be involved human resources, account receivable, account payable, expansion funds, equipment, budgeting, personnel, or even community relations. It is your client’s black dot.

Unfortunately majority of good business consultants will see ONLY the black dot.  Their eyes will focus and become fixated on it.  As a great business consultant, you must see all the white space around the black dot.  Fill the white space with all the positive recommendations and solutions. Start to make notes.  Keep thinking and writing.  A great business consultant is constantly searching for right solutions to solve his client’s issue.

Within no time the white space will fade, and the dot will become unnoticeable. Your client’s issue will become workable. Furthermore, involve team members or partner with your client’s black dot. A fresh set of eyes may be all you need to make the impossible, possible. By taking on your client’s issue in pieces and parts, you can develop strategies to chip away at it. In the end, the seemingly insurmountable black dot no longer exists―you have made progress. As a great business consultant you have found ways to cope with and improve your client’s situation.

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Top 10 Consulting Businesses Thriving Today

Although you can be a consultant in just about any field these days, the current top 10 consulting businesses include:

  1. Accounting:Accounting is something that every business needs, no matter how large or small. Accounting consultants can help a business with all of its financial needs.
  2. Advertising:This type of consultant is normally hired by a business to develop a good strategic advertising campaign.
  3. Auditing:From consultants who audit utility bills for small businesses to consultants who handle major work for telecommunications firms, auditing consultants are enjoying the fruits of their labor.
  4. Business:Know how to help a business turn a profit? If you have a good business sense, then you’ll do well as a business consultant. After computer consulting, people in this field are the next most sought after.
  5. Business writing:Everyone knows that most businesspeople have trouble when it comes to writing a report–or even a simple memo. Enter the business writing consultant, and everyone is happy!
  6. Career counseling:With more and more people finding themselves victims of a corporate downsizing, career counselors will always be in demand. Career counselors guide their clients into a profession or job that will help them be both happy and productive as an employee.
  7. Communications:Communications consultants specialize in helping employees in both large and small businesses better communicate with each other, which ultimately makes the business more efficient and operate smoothly.
  8. Computer consulting:From software to hardware, and everything in between, if you know computers, your biggest problem will be not having enough hours in the day to meet your clients’ demands!
  9. Editorial services:From producing newsletters to corporate annual reports, consultants who are experts in the editorial field will always be appreciated.
  10. Executive search/headhunter firms:While this is not for everyone, there are people who enjoy finding talent for employers.

You decide which type of business consultant you want to be – I choose to be a GREAT one.

Resources

Amazon Corner’s Books

Publications

  • Consultants News
  • Business Consultants Directory, American Business Directories Inc., 5711 S. 86th Cir., Omaha, NE 68127

Growing – Evolving – Pushing Forward

How to minimize the risks of joint ventures with governments

Contractual Agreement Review:

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Lessons from Rio’s Mongolian adventure

13 March 2015

If Rio Tinto could start again with Oyu Tolgoi (OT), a $12.6bn copper and gold mine in Mongolia, what would it do differently?

The question is addressed in an academic paper that examines ways to reduce the risks resource groups take when investing in frontier markets.

Oyu Tolgoi, which has already cost more than $6 billion, is expected to be one of the biggest copper producers in the world and to last for decades. However, development has stalled as the Anglo-Australian mining group and the Mongolian government argue over how to pay for the second underground phase.

Rio is refusing to proceed until disagreements over cost overruns and taxes have been ironed out, while the cash-strapped Mongolian government wants to cut its 34 per cent equity stake in the project in return for higher royalties from the mine.

Rio Tinto_Mongolia Govt

Much is at stake for both sides. For Rio, the expansion of OT will bulk up its copper business and reduce its dependence on iron ore. For Mongolia, it needs cash quickly from the mine to meet spending commitments.

So what can be done to prevent this situation happening again? The paper, written by Henry Steel, a special adviser at Rio, and Stefano Gatti, of Bocconi University Milan, focuses on the investment agreement between Rio and the Mongolian government as a key source of tension.

Under the complex arrangement, the Mongolian government will not receive dividends from OT until a loan, used to finance its 34 per cent equity stake in the project, has been repaid. According to the report that could take almost 20 years. That is because the loan is being repaid using cash flow from the mine.

“This has been a great source of contention in Mongolia, where a dispute over the cost escalation has delayed the project, further exasperating the problem,” says the paper, which has been reviewed by the Financial Times.

In fact it arguably renders the government’s 34 per cent stake in OT close to worthless — and presumably explains why the Mongolian government is to keen to swap its stake for higher revenues and why Rio is not interested.

A spokesperson for Rio Tinto said: “The document is an independent academic report. It was not commissioned, contributed to or reviewed by Rio Tinto and in no way represents the views of the company.”

To better align interests the report examines a number of other approaches. One idea is to have host governments swap their project level equity for shares in the developer — in this case Rio Tinto.

“Whilst the host government may not obtain great influence over a project through the holding of a minority position in top level equity, we believe that the benefits of such a proposal outweigh the losses of such a structure: a host government will no longer have to take on project risk,” says the paper, titled “Risk management for multinational corporations in high risk jurisdictions”.

“Further, using top level equity to acquire assets . . . would be preferable to a host government because the top level of cash flows consist of a more diversified portfolio of . . . assets, allowing an improved ability to plan a sustainable government budget,” the paper says.

To prevent that government from selling its shares, the report says a lock-up period could be included as well as a clause that would allow the shares to be cancelled if the agreement is changed by the host government. This could be determined by an independent arbitrator.

Whether sovereigns are willing to accept shares in a multinational mining company, where they would be exposed to stock market fluctuations and have no control over dividend policy, is open to question. Equally, mining companies would probably be wary of giving equity to host governments that cannot be prevented from selling their shares for ever.

However, what the paper shows is two things:

1) the importance of getting the investment agreement right and

2) also getting cash to governments as soon as possible.

Failure to address these issues results in disagreements and delays. It could also increase the risk of “resource nationalism”, which is as much of a problem for global developers as commodity prices or challenges at the mine face.

If we can help you reviewing your contractual agreement, please do not hesitate to contact us.

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