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Real Estate Broker’s Guide For Retirement Planning (Part 3 of 3)

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The two most common ways to use SDIRAs in real estate are:

(1) Purchase an investment property (2) Fund a real estate loan

Purchase of an investment property:

A real estate agent listed an REO fourplex that was in pretty bad condition. The owner prior to the lender getting it back from the foreclosure proceedings drained the property, did no repairs or maintenance, just collected the rents from the tenants as long as he could. Eventually two of the tenants moved out because of the poor conditions and the other two quit paying rent because they learned the owner was going to lose the property to foreclosure. They called the owner’s bluff and quit paying and the owner disappeared from sight. About 12 months after the notice of default was filed the lender now owned the property and listed it with a local real estate agent. The agent upon listing the property gave the two remaining tenants “cash for keys” and both tenants packed up and vacated their units. The property was now 100% vacant.

A Buyer’s agent had the perfect buyer for it. He had been working with John for a couple of years. John was self-employed owner of a computer company. John couldn’t fix anything but his childhood friend was a general contractor and was able to do all the needed work on John’s previously acquired properties. John did have experience owning rental properties, all of which were bought in similar condition to the fourplex. Over the years John had taken advantage of the opportunity to set up an IRA and always contributed the maximum to it. John was not aware that he could use his IRA to invest in real estate, something he understood and loved being involved in. John had been very fortunate with his IRA investments by investing in mutual funds that had performed real well. When his knowledgeable real estate agent shared with him that he could set up a Self Directed IRA and invest in real estate, he knew this was the perfect situation for him. He contacted one of the Custodians from the list I provided and completed the paperwork that enabled the new Custodian to have his existing IRA rolled over into a SDIRA. His timing was perfect, two months later the stock market did its meltdown. John had $177,000.00 now sitting in his SDIRA in which to invest in real estate.

John and his agent were very selective; they didn’t jump at any deal. They waited over a year until the right deal came along. A deal that John could use his skills to maximize his return on investment.

The property was listed for $275,000. John and his agent knew that this fourplex had sold for $200,000 more than the list price three years earlier. John’s agent presented an offer for full price the first day it hit the market. John had already been preapproved for a 55% loan to value non- recourse loan with the bank that he had been doing business with for years. Within a SDIRA the loan has to be non-recourse so don’t expect any loan to be more than 65-70% loan to value. Don’t forget that the law requires the property to be the only collateral. There can be no personal guarantee which allows the lender to come after the SDIRA holder in event of foreclosure.

John had estimated the rehab of the property would be at least $15,000 with a worst case cost of $20,000. In his proposal he used the worst case figure knowing that with a $125,000 down payment and $5,000 closing costs he would still have $27,000 left in his SDIRA. The remaining funds could be used for holding costs as he was rehabbing the property and screening for good tenants. John’s contractor friend estimated that he would have the property in A+ condition within a month.

Within three months John with the help of his real estate agent had four quality tenants each renting a unit at $850/month. John is now receiving in excess of $1,200 per month that is going into his SDIRA.

Monthly Operating Statement:

$3,400.00-Monthly rents of $850.00 X 4 units

-$200.00-6% allowance for vacancy

-$1,000.00-30% operating expenses. John’s agent does management

-$900.00–$150,000 non-recourse loan for 30 years at 6% interest

Bottom-line is $1,200.00+ per month is going into John’s SDIRA. Each month the management company sends the Custodian a check, John never handles any of the funds. John’s SDIRA is only earning 8% per year, but John has already turned down two offers in excess of $370,000 to sell his A+ fourplex which is one of the most desired properties in town.

What excites John the most is that if he decides to sell the property he doesn’t have to do a 1031 Exchange to defer taxes. The sale proceeds will go directly into his SDIRA and will be deferred until he starts withdrawing funds after he turns 59 1/2.

John’s real estate agent has shared John’s success story with a couple of his existing clients as well as three solid referrals who would like to form a business group with John for future projects. Some of the investment funds will be from SDIRAs and some will not be. Properly set up this is allowable. They have a couple exciting possibilities that they are making offers on.

Fund a real estate loan:

This is my favorite area of SDIRAs. I started arranging private investor loans in 1997 and was given the opportunity to see the power of controlling your retirement through SDIRAs. As I started meeting private individual investors and I brought potential loans to them I was amazed that many of them had millions of dollars to fund real estate loans. Often when it came time to vest the loans (the beneficiary name on the loan) it was vested in part or in whole in a SDIRA.

Over the years as I developed my investor relationships I enjoyed the investor’s stories of their financial successes. Many of the investors started having their SDIRA invest in real estate loans back in the 1970′s. When they originally started they were usually buying seller carry back notes at a discount. Eventually that changed to broker arranged real estate loans as the laws changed in the early 1980′s. Broker arranged loans created an opportunity to be in compliance with usury laws. Of course they still bought discounted carry back notes as the opportunities appeared. The broker arranged loans were the type of loans that I was presenting to them. They typically were a loan that for various reasons needed to be funded by a private money source. Loans where:

(1) Borrower had lots of equity and needed quick loan (2) Borrower was in foreclosure (3) Borrower has an unusual type property (4) Borrower had poor credit (5) Borrower needed funds for tenant improvements to lease out the property

The list was endless with reasons borrowers needed a private investor funded loan. It was very challenging and exciting to arrange these loans. The guidelines on the loans were often unique to the particular situation, but the loan to value very seldom changed:

Single family owner occupied 70% Maximum loan to value

Single family non owner occupied 65% Maximum loan to value

Commercial 60% Maximum loan to value

Industrial 55% Maximum loan to value

Land 35% Maximum loan to value

Of course certain situations dictated higher or lower loan to values. As an example a residence in Newport Beach, CA would definitely generate a higher comfort level and higher loan to value than a house in a less desirable part of South Central Los Angeles. Every loan would have its own pluses and minuses which would factor into the rate/terms and loan amounts.

The recent passing of the SAFE Act in 2008 has had the effect of inspiring many new laws on both the state and federal level that have a great impact on single family loans.That is why it so important to do business with professionals. Work with people who know the laws, are members of the proper industry professional groups such as California Mortgage Association in California, have experience and a proven track record. The last thing in the world you need is a real estate loan that violates the law.

Recently my company had a loan request for a warehouse building brought to us. The building was free and clear in a nice industrial section of Southern California. The owners of the building had recently inherited it and were not in need of a large amount of cash, which in this case the buyer/borrower didn’t have. The owner was willing to carry back a 2nd trust deed if the buyer/borrower could arrange a loan. The buyer/borrower had very poor credit due to the rapid expansion of his business and the constant need for cash that he wasn’t paying back on time. The buyer/borrower had been turned down by every lending institution in town. Frustrated because the building would be perfect for his expanding business and with the possibility that the seller would be willing to help with the financing this was an opportunity that he couldn’t lose.

The sales price was $1,700,000 which appeared to be a very fair price, but as always we ordered an appraisal from an appraiser who specialized in this type of property. There is too much at stake to guess on the value of a property. The potential liability in event of something going wrong with the loan later on because of an “inflated value” presented to us by either the borrower or mortgage broker is a very high price to pay. We also required an environmental report due to the type of property. Don’t skip any steps, do your due diligence.

The appraisal did come in at the $1,700,000 sale price. We agreed to make a loan for $1,000,000, which was about 60% loan to value. My investors were happy to get 10.25% monthly interest only payments for five years with a two year prepayment penalty. My investors were very secure with a 1st trust deed on a nice warehouse in a fairly decent area of Southern California.

The buyer/borrower was very happy because he was able to acquire a great property for his growing business without expending valuable cash reserves. He was well aware with his poor credit and the need to get a stronger financial statement it was going to be at least two years before he was going to a bank loan.

The seller of the property was also very pleased because they received a million dollars and a monthly payment check from the $700,000 second trust deed that they carried back from buyer. 100% financing didn’t provide the needed protection for the seller of the property. They also got a personal guarantee from buyer as well as cross collateral on another property owned by the buyer.

Privately funded real estate loans are an important part of real estate financing, especially in today’s tight real estate finance market. Through your SDIRA you can participate in them.

I can hear you thinking, “I don’t have that kind of money to fund loans”. I don’t either, yet my investors and I would do these loans. You are allowed to pool your SDIRA (or other investment funds) with other investors to make loans. Often this is accomplished with a loan pool or with a private money lender that is skilled at grouping investors together. The group of investors would take title to the loan as “tenants in common” and have an undivided interest per their percentage of the loan. It wasn’t uncommon to have six to eight investors on one loan.

By the use of grouping investors together to fund a loan I received a statement today for my share of a $150,000 loan that goes into my SDIRA. I did this loan with two other investors six years ago. The loan amount of $150,000 is secured by a $650,000 lovely single family vacation home(non owner occupied) in a great part of Southern California. The loan pays 12% interest and the monthly payment from the borrower always arrives on time. 12% sure beats the wild swings of the stock market lately. You that are familiar with the Rule of 72 know that 12% will double your investment in six years.

Take this opportunity to use your real estate skills or the skills of a real estate professional to take control of your future. Use SDIRAs to create an abundant retirement for you and your family.

The Key Role of Internet Service Providers To Their Subscribers

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There are so many people who are addicted in using the internet all day long. It needs them to get access with any internet service providers within their area. The youthful individuals were also beginning to expose themselves in using the computer at home or school. It enables the teachers or professors to include the internet as part of their curriculum and discussions. We were given an opportunity to provide documents for our studies with the power of internet. As students, we can search and download any information we want in the internet. This will be impossible without acquiring the services of our ISPs.

The internet appeals to almost everyone and provides a point of contact within the outside world. For people with disabilities who cannot leave their homes, they might get contact with the outside world. The ISP structure is a server group that includes data exchange and transfer of small computer groups. The internet has the ability to have multiple contacts while in flight mode. The group structure came from various sectors including private, military, academic or medical. This team has a huge impact on the involvement of computer, and may include a wide range of services. Smaller groups and organizations are having features like link bandwidth distribution and customer or business services.

They are able to provide service customers in various small and large businesses across the country. The internet has some elderly social assistance which can’t leave the house normally. Many websites are created for specific groups of people offering support and friendship. Older people can meet other seniors online and share their burdens. The internet a place to meet people without leaving home. Many third world countries also use internet. The internet is used to provide assistance to third world countries and other charities. The group of organizations that compounds known as the ISP. Without them, there will be no internet. In order for you to access the internet, you must have at least one prepaid or monthly subscription.

Most of their contracts may last up to 18 months. Some ISPs are offering free gaming systems and laptops for those who sign their respective contracts. The competing ISPs are offering more attractive packages, with the lowest cost to date. In the 60′s, it began as a military project where internet has grown in popularity. Almost all home owners are having full access to the internet. The growing popularity of the internet has made when you walk the streets, and not just one or two homes have internet access. Although you cannot use internet at home, some libraries are offering free internet access to students and internet cafe stations that you will pay a standard fee per hour to pay.

We may also use the internet from various gadgets like computers, tablets and mobile phones. For most of the households, internet was considered to be an important part of their lives. The high-speed internet has made an impact to our household activities. We can do a lot of things like electronic payments, download digital files, social networking and a lot more. We considered that these online services were designed for us to make money online. This is where the internet has the key role for all types of customers or subscribers like me.

Technology Adoption – How Technology Markets Evolve

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When you are trying to sell an innovative technology, it is important that you understand how people integrate technological innovation into their lives because it is the source of energy driving market growth.

Established markets resist change. In 1900 a lot of people owned horses and buggies. Most technological innovations require people to change their behavior to embrace the benefits of the applied technology. Markets don’t grow until people believe the potential benefits of the new technology outweigh the risks and effort of change.

The more “discontinuous” an innovation, the longer it takes the market to adopt it. Discontinuous innovations are new ideas, products, services, etc. that require us to change our current behavior to something very new and different – the automobile, telephone or personal computer. By contrast, continuous innovation doesn’t require a change of behavior, because it is merely a better way of doing what we are already doing – the automatic gearshift, the cell phone or the next generation of word processing programs. A new technology representing a discontinuous innovation is one that has the greatest potential to create wealth. It is also the hardest kind of innovation to sell because it means you have to convince people to dramatically change their behavior.

The laws of physics teach us that it takes a lot of energy to overcome inertia. Human inertia is what keeps people from adopting your new technology. It takes a lot of energy to get people to change their behavior. So if you want to sell into an early market, you must find and use market energy.

S-curve Adoption Theory

The S-curve adoption model helps you figure out who will adopt when, so you can focus your sales efforts and harness the energy created by market evolution. It also helps you find new opportunities and approach prospects before your competition does.

S-curve adoption theory has three principles:
1. Traditionally, innovations move very slowly into niche markets, then mushroom into the mainstream. Early markets often develop slowly – the more “discontinuous” the innovation, the harder it is for people to figure out how to apply it. The car was around for 30 years before you saw very many on the road.

2. It typically takes the same amount of time for a product to reach 10% acceptance as it does to reach 90% acceptance. Widespread market adoption often happens very quickly. In the fourteen years between 1914 and 1928, household adoption of the automobile grew from 10% to 90%.

3. Once a new technology reaches 50% market penetration, it starts to noticeably impact the economy and productivity. Propelled by the incredible productivity of the assembly-line revolution pioneered by Henry Ford in 1914 and by installment financing offered by General Motors in 1920, the wide-scale adoption of the automobile fueled the booming economy of the Roaring Twenties.

Since technology markets tend to consolidate as they grow, early market share is very important to the long-term viability of your solution and your company. As technologies mature, the market tends to weed out many of the smaller players in favor of one or two major alternatives. This helps the market to standardize on one approach, which makes using the technology much easier. Once the market has chosen a market leader – Microsoft Office, Cisco Routers, Apple iPhones – it is almost impossible to unseat them. The benefits of market leadership are longer product lifecycles, repeat business and economies of scale, all of which serves to reinforce their market dominance over time.

Easy To Get Student Loans

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College students today are lucky. When scholarships savings aren’t enough students today can get various types of student loans.

As students proceed through college student loans do not have to be paid until the student graduates from college or quits.

Using a private loan can be extremely expensive to pay back at a high interest rate. To ease the burden on students upon graduation Federal student loans are available.

Private Student Loans vs. Federal Student Loans

The best thing to do is get a Federal student loan. Federal loans have lower interest rates and are readily available to students. Private loans are more expensive to pay back and are not recommended if they can be avoided.

The reason Federal student loans are so available is because graduates of college will usually make a lot more money than other people.

This gives the lenders confidence that their money will be repaid. The top education student loans are available through Sallie Mae.

Sallie Mae Student Loan

Sallie Mae is a financial institution than handles Federal student loans. Student loans given are from the government or Federal sources have more favorable terms than private loans.

Sallie Mae offers a combination of student loan options that can meet the type of financing needs of a student all in one place.

For example, the Federal Stafford loans are the most common. They have a fixed rate and low interest. These student loans are very available to undergraduate students.

To receive this loan the student must be attending an accredited school at least half time. The Stafford loan is the most common student loan used today

Generally speaking, student loans are easy for students to receive. Because of their fixed rates and low interest, the Federal Stafford Loan is the recommended one first.

A student loan can make the difference for students to graduate from college so more students are able to complete college today than anytime in the past

Elementary Home Schooling – Can This Be the Way to Go?

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There’s an interesting movement taking place across America these days.  While all over the world tensions are heating up over wars and saber rattling, while the collective economies worldwide are in shambles and while most of the rest of the world, it would seem, are on their Internet blogs, a small, but growing number of parents are beginning to home school their children.

A survey released in December of 2008 done by the U.S. Department of Education’s National Center for Education Statistics reported that in the Spring of 2007, over 1.5 million children were being home schooled.  And that was up over 400,000 kids from just four years earlier.  And almost double the figure from 1999. What’s going on?

The top three reasons parents gave for home schooling were:

  1. They had concern about the school environment.
  2. They wanted to provide more religious or moral instruction.
  3. They had dissatisfaction with the academic instruction available.

Most of the concern in reason number one is centered around violence, the threat of violence or the way students were allowed to interact with each other while at school.  As we all remember, there were always bullies and snide little girls who both found a way to play tricks, talk badly about us or in some cases actually cause us minor harm in some way.  Some schools have gone a long way past that sort of behavior these days.  Kids have been injured or killed and not just in the mass slayings so much in the news these days.  We’re talking about daily acts of purposeful harm or threats to students by other students.  Maybe it’s the violence in the media and movies or the latest gansta hip-hop song lyrics or even fast food; no one knows for sure.  The simple fact remains that it gets harder to deal with every year.  And it’s not just the kids making this a difficult matter to deal with.  Teachers have told me it’s much worse sometimes to deal with the parents of those kids.  Some parents blame the teachers themselves for the way their kids are and the way they act.  It’s as if there’s been a paradigm shift in some people’s minds that the school system should raise the kids and teach them right from wrong and how to conduct themselves around other people.  What had normally and rightly been a duty and responsibility of parents has now somehow  been shifted toward the school systems.  And in the litigious society we live in, we all know that kind of thing would even be impossible to do even if they wanted to.  Something is indeed out of whack.  It’s actually surprising more parents aren’t home schooling.

The second reason to home school given above really needs no explanation.  Parents merely want more structure and faith to enter into their children’s education.  That’s their prerogative.

And the third reason is actually self-explanatory also.  Parents just don’t feel their school systems live up to their expectations for a quality education.  They would rather sacrifice their time and money than short their child’s education.  A noble expression of love.

Elementary home schooling, preschool homeschooling and even high school homeschooling are on the rise in America.  And for all the right reasons.

Become A Booz Management Consultant

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Booz & Company has a storied history, having the greatest longevity of all existing consulting firms still in business today, and having participated in many of the biggest business deals of the last 100 years. From major mergers to saving automotive giants from bankruptcy, Booz has been there since 1914. While the business has shifted since its beginnings, especially since the 2008 restructure that saw the government services business branch off from Booz’s main operations, Booz & Company remains a strong market competitor and prestigious place to work.

Booz is one of the top management consulting firms in the world alongside firms, such as McKinsey, Bain and AT Kearney.

Recruitment at Booz is not unlike the recruitment process at other leading consulting firms. Undergrads and graduate students are recruited from the top 20 to 30 schools nationwide. They also accept applications from students at other institutions.

Booz looks for people who have a track record of being the best at whatever they do. On their website they state that they look for people who have done things that are very difficult to do and have done them very well. Whether it’s been running in a marathon or starting your own business from the ground up. They look for people who want to be the best at whatever they do, but do it just for the sheer satisfaction of being the best. Internal motivation and drive is a huge characteristic Booz & Company values very highly.

Like other management consulting firms, you had better be strong at case study interview questions. These questions are used by Booz recruiters to test your analytical and problem solving skills. Some people are more naturally inclined and gifted at answering case study questions, but it is a skill set that can be learned and improved just like anything else. Booz associates recommend that any interested applicant learn the art of mastering case study questions in order to have a chance at being hired at Booz.

There is a litany of case study information in a variety of mediums that you have at your disposal on the web or in bookstores that you need to leverage in order to develop a passion for case study questions. The most successful candidates and associates spend hours thinking about case studies and craft specific problem solving strategies that they can draw from when being interviewed.

Management consulting professionals must possess a very high level of intelligence and academic achievement. This is a requirement at Booz. They do like to hire undergraduate business majors and MBAs, but they do hire people from a variety of backgrounds. They also hire mid-career professionals. An important characteristic Booz looks for is a strong and commanding personal presence. That means you need to make sure you have an air of confidence, competence and composure when you walk into the interview.

Study the corporate culture, history, style, practice areas and core values. Study the website and speak with existing management consulting professionals on their team, and with recruiters.

Booz also looks for people who can independently think, yet be a viable member of a team. Another skill set they highly value is compelling and professional presentation skills. In other words, they want their associates to have an assortment of business and personal skills in their toolkit that can be utilized at any given time. When preparing to apply for Booz and company make sure you are very well prepared for the case study questions, have an outstanding track record of academic and personal achievement, and can convey very clearly why you would be a good fit.

Online Reputation Management: Proactive Vs. Reactive

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Online reputation management can make or break your company’s image. There are now 2.4 billion internet users across the globe, and that number is rising. Facebook CEO Mark Zuckerberg further accentuated the move toward whole global internet usage by announcing the establishment of internet.org – a consortium with handset makers, browser companies and network infrastructure manufactures that will allow Facebook to connect the world via the internet, despite economic hurdles.

Zuckerburg cites internet connectivity as a “basic human right,” and says that the next century will bring about a shift from an industrial, resource-driven economy to a knowledge-driven economy. Even with the current numbers, the internet stands as a driving force within our U.S. economy. Those connected to the internet are actively seeking out information regarding the companies and brands they support. This legion of purchasers are more informed and aware that their buying decisions can make a difference, therefore establishing relationships and paying close attention to online reputation can be the key component to being profitable.

What is Online Reputation Management?

Put simply, online reputation management studies your company’s reputation and branding online, using that information to create proactive engagements and quickly handle any bad press or reviews. The internet gives everyone the power to publish, so it is easier than ever for a disgruntled consumer or former employee to voice their opinions of your products or services. In the past, word-of-mouth could hurt a bit, but the viral nature of the internet has made word-of-mouth reviews a powerful weapon – and the way that your company responds can actually create the largest impact. Good online reputation management is an ongoing process backed by the best in customer service. Superb products and great customer service are the best defense against bad reviews and negative postings. When it comes to this area of reputation management, little has changed. When those who know your brand and believe strongly in your products and ideals are able to back you up, it is easy to dispel rumors and keep negative reviews from spreading.

Reputation management was originally a public relations function aimed at combating negative press articles or television exposes. One of the largest, and most studied, cases is the ABC News PrimeTime Live expose involving Food Lion stores. Back in 1992, long before the mainstream availability of the internet, ABC sent undercover cameras into a Food Lion store to broadcast gross mishandlings of food. The show was extremely powerful – during the week of the broadcast, Food Lion shares fell by $1.3 billion and profit losses nixed Food Lion’s expansion plans and led to the closing of 88 stores nationwide. Again, this was before the internet age and social media. Can you imagine how much more devastating the story would be today?

With the mainstream nature of the internet and the viral nature of social media, reputation management has become online reputation management and the story’s “reporters” are now everyday consumers – many armed with the hidden video equipment in their smartphones.

Reactive Online Reputation Management

Most companies wait for a crisis to strike before they employ reputation management strategies. Reactive online reputation management is a lot harder, however. If your company does not have a solid basis built before a crisis strikes, there is little “reputation” to fall back on and internet rumors will become rampant. Reverse SEO is one of the strongest weapons in the war of reactive online reputation management.

Using basic search engine optimization techniques, reverse SEO is aimed at creating content that will drive negative online mentions down in search, making it more difficult for the average person to find them when they research your company. Done successfully, reverse SEO techniques can help manage a company’s online reputation after a crisis by burying the negative news under company provided material. The first listing in Google’s organic search results receives 33 percent of all traffic, according to a recent Chitika study. The same study found that the second position garners 18 percent of all traffic and combined third and fourth place listings receive a resounding 20 percent. This means that 71 percent of all people only view the first four search listings. Taken further, 92 percent of all traffic from the average search focuses only on page one results. If your company can optimize content to dominate search, it is far less likely that the negative results will be seen.

Reactive online reputation management through reverse SEO is very difficult, however, because no internet marketing firm or company is able to control search. Results will be completely dependent upon the validity and source of the negative information that is being combated.

Proactive Reputation Management

Proactive reputation management is an ongoing process and a best practice within the field of marketing. The proactive nature relies upon building a strong base of followers and providing meaningful interactions that will build brand image. To be effective, proactive reputation management relies heavily on monitoring, giving marketers insight into any problems that may be lurking and allowing them to build meaningful conversations with outspoken members of social media that are already supporters of specific products.

Many internet marketing firms provide proactive online reputation management services, but most companies fail to make use of them. Instead, they wait for a crisis to strike and then fall into a pattern of reactive strategies – which are far less beneficial. An active social media presence can be one of the biggest allies in a proactive reputation management campaign. By giving your consumers an approachable way to interface with you and your brand, your company can easily stave off negative viral reviews. But, presence on social media is not enough. A company must be an ongoing, active participant within a variety of social media realms to be genuinely proactive with their online reputation.

Where to Start

The best place to begin online reputation management is research and a basic SWOT analysis. Knowing potential hazards and building a plan to combat negativity will put your company far ahead of the competition.