i was just googling this and wanted to find out if anyone has ever thought of investing their company's profits in stocks/bonds/other type of securities to make money for their company? Is that even legal? Just curious...
Jul 19, 15 4:52 pm
Is it legal ????
yes.
Companies buy stock of other companies all the time. Microsoft does it. IBM does it.
There is no reason an architecture firm can not do so. I am unaware of any states prohibiting that, these days. It might have been close to a century ago and with AIA ethics rules at the time. I don't recall them doing that these days.
So if you guy stock in Apple, google, Microsoft or other companies with growth or secure strong, reliable stock... it is fine. There are risks with stock so choose wisely. Think about who would reliably be around in 10-20 or 30 years. That is where long term stock portfolios should be in. Other are short term, wealth generators where you buy low, sell when its higher and you repeat the process to build capital. It's legal. Just pay your dues to IRS and state revenue department as required by law.
Miles Jaffe
Jul 19, 15 5:00 pm
You'd have better odds in Vegas.
wurdan freo
Jul 19, 15 5:01 pm
Forget the stocks and bonds... you're so close to real estate, it is a no brainer. Generate cash, invest in real estate, retire on your own terms.
Carrera
Jul 19, 15 5:11 pm
+++wurdan
Stocks are for dummy’s, why do a 2-6% (if you are good and lucky) when you can do 15%?
Jul 19, 15 5:15 pm
I'm not suggesting stocks is the best option. I'm mainly saying it is legal. They have risks so choose wisely. There are many options and all have their validity if done properly.
archanonymous
Jul 19, 15 5:15 pm
corporations are people now, they can do anything.
Miles, that's funny. Putting your money into a low-cost index fund is the most certain way of growing it with minimal risk year-to-year, but I get that it fits much better into your jaded world view to write off the stock market as gambling.
Jul 19, 15 5:31 pm
If I had one stock of Microsoft in 1987, I would have a lot of money today. So there is value if you invest a little strategically. You can imagine the growth from a small company into a mega corporation. Now, I can't expect that kind of gain ~30 years. This is because it has grown as large as it would get and only real growth will be in inflation which will make very modest gain but the stock is stable for a long term holding stock.
Some stocks will have rapid growth and are great ways to turn $100 into $1,000 or more.
Carrera
Jul 19, 15 9:16 pm
Richard, think my point was to invest in what you know, don’t think a stock broker would invest in real estate (a smart one might) any more than an architect should invest in the stock market, it’s using what you know to your advantage.
Jul 19, 15 9:50 pm
Only problem in investing in only what we know is that real estate goes up and down in a relative cycle with the cycles of boom/bust of our field. It helps but goes only so far. Other fields do not have these issues as frequently but also if you know and pay attention to what is happening before the market busts on your stocks drops like a rock. I believe the trick is not have all eggs in one basket.
midlander
Jul 19, 15 9:54 pm
Also consider what the best use of your companies profits would be. Re-invest in growing the business? Savings to get through the next down cycle? Extra profit to later pay dividends / bonus to the business owners?
Architectural business drops off with the down stage of the real estate development cycle, so you might not want your company's savings tied up in real estate if it's also your rainy day fund. Likewise stocks, as that market usually drops in sync with real estate. OTOH they could be great ways to multiply your profits if you are comfortable with the business at its current scale.
quizzical
Jul 19, 15 10:00 pm
One question - after retaining an appropriate cash reserve (as determined by operations) and assuming an appropriate portion of the profits were distributed to staff as performance bonuses, why would you want to keep the remaining "excess cash" inside the firm for investment purposes, as opposed to distributing that cash to the firm's owners so they can invest it according to their own individual needs and capabilities?
Frankly, I see more problems than benefits arising from keeping this "wealth" inside the firm.
Jul 19, 15 10:06 pm
midlander,
Some stocks drops with real estate but not always the case because some stocks are not as hinged on real estate. I'm not saying they are totally immune as in this recession but they are immune to smaller but also some stocks do not drop as drastic as others. Some, it is just because some people are using their stock portfolio as a cushion during this recession or some smaller recession cycles... to ride it out even when laid off to keep the lights on and food on the table BUT they don't always ride out long and only punt the effects for a month or two for some.
It is a point to be made.
Just because the dow jones or whatever shows a drop doesn't mean it is effecting everybody the same way and all companies.
awaiting_deletion
Jul 19, 15 10:18 pm
when I was young and only saw numbers stocks made sense....
but now that I've been in the business - real estate makes more sense, since we actually have our finger on the pulse and we can contribute directly to the profit.
go with something you know.
Jul 19, 15 10:25 pm
My only argument is not to represent stock market as bad. Aside from those issues, I have no argument with the rest of the point. If you don't understand stock market then it is best you don't deal with it. It is something that has risks and significant loss of money is possible.
Carrera
Jul 19, 15 11:01 pm
The value of income producing real estate is based on the value of the income, if the economy tanks the value doesn’t change unless it goes vacant and the value isn’t an issue unless you sell…take a lesson from Warren Buffet - stick to things you know, things that produce income and stay in for the long haul. Had a lot of stock that went to zero, but never a building.
Remember too that you can always borrow against a real estate asset if needed.
Quiz makes a good point…today it’s all taxable at the end of the year, no advantage to keep it in the firm…the problem with dispersing to partners is they sometimes do stupid things with it and you can’t always get it back in hard times.
If you are consistently profitable consider taking shares in the projects you design, doesn’t have to be the whole fee, but it adds up and is fairly liquid. It’s not a taxable event (technically is, but untraceable); if you accumulate enough you could go solo on a rehab on a 1031 Exchange and never pay taxes. Just remember not paying taxes is the greatest income producer of all time – 35%.
Consider – if you have say $10,000 to invest, cut the fee on one of your projects for that amount, use the 10 for operating and take a 10 share in your clients building…then you’re in…no banks.
BTW - Don’t believe in bonuses because in the year you can’t afford one everyone hates you.
quizzical
Jul 19, 15 11:52 pm
Carerra: yes, it's true that individual partners can do stupid things with their own money.
At our firm, we required each partner to maintain a minimum net worth, the amount being tied to each partner's percentage ownership in the firm. Each partner was required to submit a balance sheet to the firm twice each year and certify as to the accuracy of that statement.
This may seem extreme, but we did this because we all had personal guarantees on leases and lines of credit and we all were potentially liable for cash calls if the firm ran short of cash. If a partner's net worth dropped below the minimum amount associated with his/her percentage of the firm, then that partner ran the risk of having his/her shares diluted.
We took seriously our economic obligations to each other -- and we had binding agreements in place to ensure that those obligations could be met.
Carrera
Jul 20, 15 12:18 am
Good strategy
Jul 20, 15 12:25 am
quizzical,
Are you a partnership, LLP, LLC, or a corporation?
Sounds interesting, though.
quizzical
Jul 20, 15 12:32 am
C-corp
Jul 20, 15 1:49 am
Oh.. ok. Technically they just be called shareholders or sometimes the board of directors especially in small corporations.
shellarchitect
Jul 20, 15 11:01 am
dad is a financial advisor, have had many arguments with him over the value of investing in real estate vs stocks.
his argument is that the returns on "general" stocks are far higher and more consistent than "general" real estate. the obvious benefit of stocks is that the average person can fairly easily invest in a large cross section of the market. its only somewhat recent that we've been able to do the same with real estate.
I think we prob all know a lot more about real estate that stocks,
Real estate, harder and local = more risk = more reward
Stocks are easy = low risk = low reward
quizzical
Jul 20, 15 11:32 am
The main problem with architects investing in real estate arises from the fact that we never really look at a building as anything other than "architecture" and what we might do to make it better, whether those changes improve the ROI or not.
However, with equities one rarely has a reason to buy a stock for any reason other than economic gain (APPL being the notable exception).
Carrera
Jul 20, 15 7:13 pm
Shu, thanks but dad might be observing real estate through performance of trusts or RIET's, not local brick and mortar, not to argue, but I always lost money in stocks and always made money with real estate…think it was because I knew more about the latter.
Janosh
Jul 20, 15 7:20 pm
There are arguments to be made for either real estate or securities, but for those starting out it is worth remembering that real estate is very difficult to diversify. Lots of friends went bankrupt during the last recession trying to make money on a speculative project...
Jul 20, 15 7:23 pm
True. If you have an understanding of any field from a business perspective then you'll have a better understanding to make wise decisions with stocks. The biggest thing is waiting until your stock portfolio value is less than you spent in the first place. Always buy stocks right after a split or in a company where there is growth factor and sell when your stocks have multiplied and have a value more than you spent by a significant margin even enough after broker fees and taxes taken into account. When the stock in a company is double what you spend or greater than you are gaining and growing capital. This means you need to research and understand a field. Stick to only what you know does not allow to grow what you know.
There is pros and cons to stocks and any other investment.
Jul 20, 15 7:30 pm
Janosh brings a good point. Alot of contractors have went bankrupt or otherwise out of business during the recession.
In Oregon, developers generally have to have a CCB license as a developer license or have a contractor's license and they are responsible for a lot of the restoration and renovation and 'flipping' of buildings as well as new housing construction.
There is a number of them but some have got themselves into some financial problems.
alphabits
Jul 20, 15 8:00 pm
deleted
Jul 20, 15 8:10 pm
long story short... real estate can be problematic when you get a market crash like we did.
Carrera
Jul 20, 15 9:07 pm
This is probably a moot subject – Architecture is a slow business, it’s like a barbershop, one head at a time, by the time you accumulate enough to invest in something a recession will come along and wipe the slate clean……concentrate on speeding up the process.
(The picture is just to make you feel better)
Pritchard Stalkins, FUFEE
Jul 20, 15 10:46 pm
Barbers can provides services posing possible threats to residents of Oregon, such as with chemicals or sharpness thus must substrict to legal guidelines as other regulated professionals. This would limit the investment possibles of stock in barbers if they get fired or lose their permits to not complying with cosmetological principles unless they are exempt for having ceilings under twenty feet high.
In short organizing of your barber shops like a building designer office are a must-do. This refers to your equipment as well as to your records which should be on paper. When you line up your supplies it is much easier to find what you need quickly to continue profitableness of business. That means people aren't waiting around so you can serve more clients. The clients to see you as efficient which contributes to a positive profit thus investibility. Check your books and do so often to catch errors that could cost you, than to find areas where more efficiency is necessary.
awaiting_deletion
Jul 22, 15 11:13 pm
wait, are FUFEE's allowed to talk about finances?
Pritchard Stalkins, FUFEE
Jul 22, 15 11:32 pm
Assoc. UFEEs cannot discuss about finances unless supervised by their sponsor and having completed prescriptive continuing education. Fellows are permitted to discuss finances and economic astrology when wearing a FUFEE pin or displaying the keyring upon request. I have the orange keyring, it's a bold statement.
i was just googling this and wanted to find out if anyone has ever thought of investing their company's profits in stocks/bonds/other type of securities to make money for their company? Is that even legal? Just curious...
Is it legal ????
yes.
Companies buy stock of other companies all the time. Microsoft does it. IBM does it.
There is no reason an architecture firm can not do so. I am unaware of any states prohibiting that, these days. It might have been close to a century ago and with AIA ethics rules at the time. I don't recall them doing that these days.
So if you guy stock in Apple, google, Microsoft or other companies with growth or secure strong, reliable stock... it is fine. There are risks with stock so choose wisely. Think about who would reliably be around in 10-20 or 30 years. That is where long term stock portfolios should be in. Other are short term, wealth generators where you buy low, sell when its higher and you repeat the process to build capital. It's legal. Just pay your dues to IRS and state revenue department as required by law.
You'd have better odds in Vegas.
Forget the stocks and bonds... you're so close to real estate, it is a no brainer. Generate cash, invest in real estate, retire on your own terms.
+++wurdan
Stocks are for dummy’s, why do a 2-6% (if you are good and lucky) when you can do 15%?
I'm not suggesting stocks is the best option. I'm mainly saying it is legal. They have risks so choose wisely. There are many options and all have their validity if done properly.
corporations are people now, they can do anything.
Miles, that's funny. Putting your money into a low-cost index fund is the most certain way of growing it with minimal risk year-to-year, but I get that it fits much better into your jaded world view to write off the stock market as gambling.
If I had one stock of Microsoft in 1987, I would have a lot of money today. So there is value if you invest a little strategically. You can imagine the growth from a small company into a mega corporation. Now, I can't expect that kind of gain ~30 years. This is because it has grown as large as it would get and only real growth will be in inflation which will make very modest gain but the stock is stable for a long term holding stock.
Some stocks will have rapid growth and are great ways to turn $100 into $1,000 or more.
Richard, think my point was to invest in what you know, don’t think a stock broker would invest in real estate (a smart one might) any more than an architect should invest in the stock market, it’s using what you know to your advantage.
Only problem in investing in only what we know is that real estate goes up and down in a relative cycle with the cycles of boom/bust of our field. It helps but goes only so far. Other fields do not have these issues as frequently but also if you know and pay attention to what is happening before the market busts on your stocks drops like a rock. I believe the trick is not have all eggs in one basket.
Also consider what the best use of your companies profits would be. Re-invest in growing the business? Savings to get through the next down cycle? Extra profit to later pay dividends / bonus to the business owners?
Architectural business drops off with the down stage of the real estate development cycle, so you might not want your company's savings tied up in real estate if it's also your rainy day fund. Likewise stocks, as that market usually drops in sync with real estate. OTOH they could be great ways to multiply your profits if you are comfortable with the business at its current scale.
One question - after retaining an appropriate cash reserve (as determined by operations) and assuming an appropriate portion of the profits were distributed to staff as performance bonuses, why would you want to keep the remaining "excess cash" inside the firm for investment purposes, as opposed to distributing that cash to the firm's owners so they can invest it according to their own individual needs and capabilities?
Frankly, I see more problems than benefits arising from keeping this "wealth" inside the firm.
midlander,
Some stocks drops with real estate but not always the case because some stocks are not as hinged on real estate. I'm not saying they are totally immune as in this recession but they are immune to smaller but also some stocks do not drop as drastic as others. Some, it is just because some people are using their stock portfolio as a cushion during this recession or some smaller recession cycles... to ride it out even when laid off to keep the lights on and food on the table BUT they don't always ride out long and only punt the effects for a month or two for some.
It is a point to be made.
Just because the dow jones or whatever shows a drop doesn't mean it is effecting everybody the same way and all companies.
when I was young and only saw numbers stocks made sense....
but now that I've been in the business - real estate makes more sense, since we actually have our finger on the pulse and we can contribute directly to the profit.
go with something you know.
My only argument is not to represent stock market as bad. Aside from those issues, I have no argument with the rest of the point. If you don't understand stock market then it is best you don't deal with it. It is something that has risks and significant loss of money is possible.
The value of income producing real estate is based on the value of the income, if the economy tanks the value doesn’t change unless it goes vacant and the value isn’t an issue unless you sell…take a lesson from Warren Buffet - stick to things you know, things that produce income and stay in for the long haul. Had a lot of stock that went to zero, but never a building.
Remember too that you can always borrow against a real estate asset if needed.
Quiz makes a good point…today it’s all taxable at the end of the year, no advantage to keep it in the firm…the problem with dispersing to partners is they sometimes do stupid things with it and you can’t always get it back in hard times.
If you are consistently profitable consider taking shares in the projects you design, doesn’t have to be the whole fee, but it adds up and is fairly liquid. It’s not a taxable event (technically is, but untraceable); if you accumulate enough you could go solo on a rehab on a 1031 Exchange and never pay taxes. Just remember not paying taxes is the greatest income producer of all time – 35%.
Consider – if you have say $10,000 to invest, cut the fee on one of your projects for that amount, use the 10 for operating and take a 10 share in your clients building…then you’re in…no banks.
BTW - Don’t believe in bonuses because in the year you can’t afford one everyone hates you.
Carerra: yes, it's true that individual partners can do stupid things with their own money.
At our firm, we required each partner to maintain a minimum net worth, the amount being tied to each partner's percentage ownership in the firm. Each partner was required to submit a balance sheet to the firm twice each year and certify as to the accuracy of that statement.
This may seem extreme, but we did this because we all had personal guarantees on leases and lines of credit and we all were potentially liable for cash calls if the firm ran short of cash. If a partner's net worth dropped below the minimum amount associated with his/her percentage of the firm, then that partner ran the risk of having his/her shares diluted.
We took seriously our economic obligations to each other -- and we had binding agreements in place to ensure that those obligations could be met.
Good strategy
quizzical,
Are you a partnership, LLP, LLC, or a corporation?
Sounds interesting, though.
C-corp
Oh.. ok. Technically they just be called shareholders or sometimes the board of directors especially in small corporations.
dad is a financial advisor, have had many arguments with him over the value of investing in real estate vs stocks.
his argument is that the returns on "general" stocks are far higher and more consistent than "general" real estate. the obvious benefit of stocks is that the average person can fairly easily invest in a large cross section of the market. its only somewhat recent that we've been able to do the same with real estate.
I think we prob all know a lot more about real estate that stocks,
Real estate, harder and local = more risk = more reward
Stocks are easy = low risk = low reward
The main problem with architects investing in real estate arises from the fact that we never really look at a building as anything other than "architecture" and what we might do to make it better, whether those changes improve the ROI or not.
However, with equities one rarely has a reason to buy a stock for any reason other than economic gain (APPL being the notable exception).
Shu, thanks but dad might be observing real estate through performance of trusts or RIET's, not local brick and mortar, not to argue, but I always lost money in stocks and always made money with real estate…think it was because I knew more about the latter.
There are arguments to be made for either real estate or securities, but for those starting out it is worth remembering that real estate is very difficult to diversify. Lots of friends went bankrupt during the last recession trying to make money on a speculative project...
True. If you have an understanding of any field from a business perspective then you'll have a better understanding to make wise decisions with stocks. The biggest thing is waiting until your stock portfolio value is less than you spent in the first place. Always buy stocks right after a split or in a company where there is growth factor and sell when your stocks have multiplied and have a value more than you spent by a significant margin even enough after broker fees and taxes taken into account. When the stock in a company is double what you spend or greater than you are gaining and growing capital. This means you need to research and understand a field. Stick to only what you know does not allow to grow what you know.
There is pros and cons to stocks and any other investment.
Janosh brings a good point. Alot of contractors have went bankrupt or otherwise out of business during the recession.
In Oregon, developers generally have to have a CCB license as a developer license or have a contractor's license and they are responsible for a lot of the restoration and renovation and 'flipping' of buildings as well as new housing construction.
There is a number of them but some have got themselves into some financial problems.
deleted
long story short... real estate can be problematic when you get a market crash like we did.
This is probably a moot subject – Architecture is a slow business, it’s like a barbershop, one head at a time, by the time you accumulate enough to invest in something a recession will come along and wipe the slate clean……concentrate on speeding up the process.
(The picture is just to make you feel better)
Barbers can provides services posing possible threats to residents of Oregon, such as with chemicals or sharpness thus must substrict to legal guidelines as other regulated professionals. This would limit the investment possibles of stock in barbers if they get fired or lose their permits to not complying with cosmetological principles unless they are exempt for having ceilings under twenty feet high.
In short organizing of your barber shops like a building designer office are a must-do. This refers to your equipment as well as to your records which should be on paper. When you line up your supplies it is much easier to find what you need quickly to continue profitableness of business. That means people aren't waiting around so you can serve more clients. The clients to see you as efficient which contributes to a positive profit thus investibility. Check your books and do so often to catch errors that could cost you, than to find areas where more efficiency is necessary.
wait, are FUFEE's allowed to talk about finances?
Assoc. UFEEs cannot discuss about finances unless supervised by their sponsor and having completed prescriptive continuing education. Fellows are permitted to discuss finances and economic astrology when wearing a FUFEE pin or displaying the keyring upon request. I have the orange keyring, it's a bold statement.