Episode Transcript
Speaker 0 00:00:00 Welcome to the Investor Agent Podcast. I'm Steve Seymour, your host, where we help transform the human mindset from scarcity and lack to abundance of wealth, one conversation at a time. I'm Steve Seymour here with the Investor Agent Podcast. Today our guest is Chris Las Beta. Chris, thanks for being on today,
Speaker 1 00:00:19 Steve. Thanks for having me. I'm was honored.
Speaker 0 00:00:22 You asked. Yeah. So, uh, yeah, Chris, tell us a little bit about your background in real estate and accounting. Sure. Taxes.
Speaker 1 00:00:31 Sure. So I started in private accounting very quickly, got into public accounting and what I liked about public accounting was working with any type of business owner. Didn't matter what, but probably about 10 years ago we really started to focus on real estate, you know, through a different connection, uh, connections that we made. And we started doing a lot with real estate clients. Um, that's kind of how we met through a mutual connection. So, so a lot of our business now is focused on, uh, clients that have real estate, whether they are, uh, owning a operating business, but they own the property, whether they're investors and syndications, whether they're multi-family, single family. And a lot of what we're doing now is not just doing the tax returns, cuz that is a necessity, but, you know, someone, other advice, other consultation and everything. I'll give you an example of something depreciation. Everybody kind of hears the term bonus depreciation and they want to talk about the benefits of that. And we talk about cash flow and taxes. And so we're pretty busy with our real estate investors talking about all those topics.
Speaker 0 00:01:44 Yeah. Focusing more on strategy, right?
Speaker 1 00:01:46 Because tax strategy, you don't want to be
Speaker 0 00:01:48 Just bookkeeping and account. Well,
Speaker 1 00:01:50 You don't want to be the person that just says, Hey, what do I owe? When am I getting back? Each year? You need to be thinking forward like, okay, if I, if I do this deal and for example, should I get a cost segregation on the building, what would that, okay, what's that gonna cost me? What's that gonna save me? Am I looking to pay less tax now and kind of kick the can down the road, you know, the, the dollar's worth more today than it is tomorrow. So, you know, and the more money I can save from the government and now I have more money that I can keep investing, you know, and just keep investing. And you know, that's what, you know, that's a lot of what we're trying to talk to people about because it's just not doing the one deal. It's, it's kind of thinking ahead. It's not always about, you know, should I buy or sell this building? What's the tax ramification? Yes, that's a lot of it, but you gotta think forward and you gotta think ahead as to why, you know, you, what's, what's the future implication of that? Not just what you currently have, but what, what, what's gonna happen in the future and should I have made this decision or, or not?
Speaker 0 00:02:52 Sure. Yeah. What do, what would you say, I kind of like to start off with like some big mistakes that you see that people make. Like what do you think are some of the biggest mistakes that real estate agents right, or real estate investors make in terms of leaving a lot of money on the table?
Speaker 1 00:03:08 Uh, I would say, let's start with the agents. Uh, cuz typically agents are, let's say they're self-employed individuals and not to go crazy with Schedule C and some of the self-employment tax, but, but sometimes with agents it's a matter of, you know, which is the right entity for them. So for example, if you're an agent and you're just like a single member LLC or just in yourself and they're self-employment tax implications, however, you know, maybe you should have formed an S corp and maybe we need to, you know, cuz what we're trying to do is we're trying to save money on self-employment tax. And the other thing with, with agents, it's, it's, they're not on top of paying their taxes on a quarterly basis. And what they're doing is they're getting to the end of the year and then with cash flow and, you know, sometimes the market's great and you're selling all the time and sometimes it's, it's not so, you know, then you start in current interest in penalties and, and payment plans and you're kind of always falling behind. Yeah. The other thing is thinking of retirement, you know, yes, it's a tax savings, however, you know, agents are more one man, one woman operations where they don't have employees most of the time. So they can get very, uh, aggressive with their retirement planning. And sometimes I think when they're not, you know, thinking of these things or working with the right person that they're just, they're just missing out on this stuff. And then they, when they do find that person, then they're just playing ketchup for the first couple years.
Speaker 0 00:04:38 So they're, they're playing, they're, they're um, they're not maximized, they're not using their qualified plans. Right. They're utilizing different options.
Speaker 1 00:04:46 Especially when you are one person plan the options of how you invest that money is, is a lot greater because you don't have employees to worry about, you know, when you're an employee employer with multiple employees, there's only certain types of plans you can offer. Yeah. I mean you can't do the whole, you know, as, you know, self-directed IRAs and, and self-directed retirement plans because you can't just offer them because you have employees. So, so sometimes you could think about, you know, everyone thinks retirement plan, I have to invest in the market, I have to invest in that. And it's like, that's not necessarily correct.
Speaker 0 00:05:23 Mm. Gotcha. Yeah, that's, that's big. Um, so, you know, I hear a lot in that what about, um, how, can we talk a little bit about the real estate professional election? Is it Sure. Is it 4 69 in the tax code?
Speaker 1 00:05:36 Yeah. 4 69 c uh, yeah, so it's a very interesting one cuz it comes up a lot and you know, unfortunately, or fortunately having been through one of those audits with a client, you kind of get an idea of what the irs what documentation they're looking for. And yes, they're looking for, uh, they're looking for a log with the proper amount of hours to be considered a real estate professional. And there are certain hours that they don't particularly care for when they're looking at these logs like bookkeeping.
Speaker 0 00:06:08 Let's start with at a high level though, what is, what is the real estate professional election? What is the benefits? Right?
Speaker 1 00:06:13 So the benefit of the real estate professional election is you're not limited by the passive loss rules. So what happens is, under normal circumstances, if your income's a hundred thousand dollars and you have 50,000 in rental losses, you can only take 25,000 in that year. If you're considered a real estate professional, the losses are not capped. So it's, and it's, and it's a very important thing when, you know, with, especially with a married couple where maybe one person's W2 and the other one's a real estate professional and now they're able to take all those losses against the ordinary income. So it becomes very powerful. Yeah. Obviously you have very, it's a very big hot button because, you know, how do you qualify and it's basically 750 hours and no,
Speaker 0 00:07:02 So that's 750 hours per
Speaker 1 00:07:04 Year. Per year, but those hours, you can't have another activity that exceeds that. So you can't say, oh, I'm a 2080 hour W two employee and I did 750 in real estate. Right. I'm a real estate professional. It's like, no, your real estate professional hours have to,
Speaker 0 00:07:21 You have to actually meet the requirement, right. You have to meet that requirement. You're a real estate professional.
Speaker 1 00:07:25 And, and the the second thing that I think kind of gets glossed over is, especially when you have properties, is the whole material participation. You know, and again, it's, it's just one of those things that, you know, we probably wouldn't dive deeply into here, but it's one of those things, it's kind of like, I always kind of consider it a and b, like, okay, are you a real estate professional first and then let's talk about the material participation rules because,
Speaker 0 00:07:51 And, and is it 500 of the 750 hours you have to materially participate,
Speaker 1 00:07:55 Right? And then there's different ways you can materially participate, but you know, again, it's something you have to think about. And cuz sometimes you could group activities to get to the 500 hours or a hundred hours per property. Just giving you some examples. So it's, it's one of those things that, you know, you can't just think of one way without thinking of it the other way. Because if you do, you know, I've seen where the IRS is like, great, we agree you're a real estate professional, however we don't think you materially participate in, so then it's kind of like all that work Yeah. And all that effort and strategies at the window.
Speaker 0 00:08:30 And what are the things that they clearly, you know, agree upon that is material participation, usually
Speaker 1 00:08:35 Managing the own property, managing, managing the property, reviewing leases, negotiating with contractors,
Speaker 0 00:08:41 Is managing contractors, is that the
Speaker 1 00:08:43 All Yeah, that's, that's a big one. Okay. You know, inspection, uh, leases like, like those are the things they like to say. Not everybody's gonna pick up the hammer and do the work. I get that. I'm probably yeah. The one that lease could do that myself, but it, that's the part where that's what they want to see. They want to see either that you're working, when you're working in the property and doing the work yourself, it's easy. But when you have contractors, you know, you're managing that, you, you're doing all that stuff. What they don't want to see is, you know, bank deposits and bookkeeping and travel. So the, the famous, I have my property at the beach that I rent and I did 12 trips down there. Right. Yeah. They don't want to allow
Speaker 0 00:09:20 For that. They take out all the administrative and travel.
Speaker 1 00:09:23 Right. So that's why a lot of times that, you know, when we're advising it, it's like
Speaker 0 00:09:27 We're giving but the but the leasing aspect. Yeah. Screening of tenants. Yeah. Showing the property, you know. Yeah.
Speaker 1 00:09:33 Inspections.
Speaker 0 00:09:33 How about, you know, if you're in a continual acquisition mode, you know, if you're going out when you're evaluating new properties, is that considered
Speaker 1 00:09:42 It? I think so. I think, I think you do have to be careful when you look at, when you look at the hours, like, you know, we're very, you know, we're very aware of the time and the different activities there are. So like for example, if that was a small percentage of my log and I was defending, or I say defending, I don't, that sounds very, uh, <laugh>, you know, if I was arguing a taxpayer's position, you know, as long as I didn't think that was overly uh, extensive Right.
Speaker 0 00:10:14 Part of it, 499 hours
Speaker 1 00:10:16 Of right.
Speaker 0 00:10:17 Uh, property acquisition. Right.
Speaker 1 00:10:19 I would, I would say, hey, obviously
Speaker 0 00:10:20 Three to five hours here and there, right?
Speaker 1 00:10:22 I'd say obviously, yeah, you're not gonna do every deal. You know, there's gonna be due diligence done on deals that never get consummated. So, so I think you have to, uh, have that as part of it. But we do, you know, we do look at that because you know, a lot of times logs will come back and that, and we don't typically see logs. We advise that they have them, however, you know, the ones that we happen to see, you know, a lot of times we will have discussions about, you know, which, which hours we need to kind of focus on. Just like we were talking about.
Speaker 0 00:10:54 Yeah. And going back to, you know, the benefits of this, I think a lot of the agents and a lot of agents and investors were, were mainly always focused on going and making more money, right? Versus maximizing the income that we net, which ultimately is, you know, <laugh>, how much do you bring in, how much your expenses and what's your taxable, you know? Right.
Speaker 1 00:11:17 Well that's the, I mean that's the thing too with investing in general and even just work in general, it's like if you wanna work 2080 hours or 2,800 hours and you want to show and sell a thousand houses, it's like okay, all that's requiring you to perform that work. So you work parter, you work more, you can make more. However, it's the worst type of income you can have because it's earned income, it's subject to self-employment tax, it's, and even if you were a W2 employee, it's still employment taxes. That's fine. It's the worst one you can get. And the, the whole thing about investing is it, it is giving you an avenue to make money or even build equity without the effort. And the more you build equity, I mean, some of the things you do now aren't because you're trying to generate an extra two, $300 a month.
Speaker 1 00:12:09 No, you're trying to build equity down the road because what you're trying to do is build assets. So when you don't want to be working as hard on the earned income, you have assets that are either now cash flowing or have appreciated to the point of now you can sell them. And if you're not working and you're selling assets, well maybe you're in a lower tax bracket, maybe it's, it's now more favorable. So those are things that, you know, not as on everybody's mind today, but it's important things to kind of think about as people try to do, you know, what their planning is. And it's never too early to plan. Like, so for example, you know, my kids are 18 and 15 and some of the things I know now I wish I knew at 22. And one of my things is, you know, I want to start teaching them some of, some of what I've learned from clients that are investors, you know, things I've done myself and just try to try to get them to understand like, I get it, you know, not everybody can be self-employed and not everybody can do that, but you know, as you earn money, think about how you're investing it and what you're investing in and how to diversify.
Speaker 1 00:13:19 And one of the reasons I love real estate is because, you know, it's, it's one of those assets that when someone's market adverse, you know, and it, and it cycles just like anything else, but, but you can see over time what the benefits of investing in real estate
Speaker 0 00:13:36 Are. Yeah, absolutely. So going back to, you know, leaving principles and helping your set your kids up for a financial independence in the future, what would you say, like out of, cuz you work with some pretty heavy hitter real estate, you know, investors, what would you say are like the top three things that you would wanna make sure that you drill into your kids' minds? That it's like, do this, do this, do this. You'll be, you'll be set.
Speaker 1 00:14:01 Well I think part of it is the first thing is having a savings plan. So you always have to be aware of what those opportunities are. So like for example, when someone has a W2 job, you know, they need to know what they need to put in because the company might match a certain percent. If you don't put that money in and they don't match it, it's like gone. It's free money. It's free money. So you need to know some of those things. You also need to know you how I should be investing it. So when I use the term four ohk, everybody probably knows that if I say regular or Roth, probably the, some people know that and some don't. And sometimes, you know, everybody wants to pay less taxes, but when you're younger, you're not making as much money, you're in a lower bracket, you know, they should be thinking Roth exclusively. Yeah. I mean they should just be thinking about that,
Speaker 0 00:14:53 Thinking long. So, so thinking long term, what you're gonna invest in, right.
Speaker 1 00:14:57 Long term, what you're gonna invest in, because I get it, like right now you start investing in a Roth today and it's 6,000 or 7,000, whatever the limit is, I get that that's not super exciting. But you do that for a couple years and then maybe you are able to get into a self-directed syndication or investment or private lending with your Roth dollars. And now it's becoming more and more powerful where, you know, the, the norm is, okay, I'm gonna have a Roth ira, it's gonna be in a bank cd or it's gonna be in the market exclusively. Mm-hmm. <affirmative>. But I mean some of these investments, you know, as you know, and see, it's like some of these things have very high yields to it.
Speaker 0 00:15:35 Yeah. Massive growth opportunities. Yeah.
Speaker 1 00:15:37 It's, it's, it's almost like you're sometimes with the market you're kind of capped. I mean if you look at the market over time has its ups and downs and it has a steady percentage, but with real estate, you know, I'm not saying every deal's gonna be a winner, but you have better potential to do greater returns in real
Speaker 0 00:15:55 Estate. Yep. Yeah. That's, that's great advice. And for anyone listening that doesn't know what a Roth or a traditional, uh, one of the qualified plans <laugh>. Yeah. But, but big, big picture, you know, you're paying taxes on the seed, not the crop. Right. Versus, you know, with the Roth, you're paying taxes, uh, you're investing after tax dollars into a Roth. Right. But as it grows, when you pull it out, it's not taxed.
Speaker 1 00:16:21 Right. And then again, versus did they change the law Sure.
Speaker 0 00:16:24 Versus taking the tax deduction now. Right. On a qualified plan and then letting your account grow really big tax. But then when I preferred, but then when you, not tax
Speaker 1 00:16:33 Free
Speaker 0 00:16:33 Tax deferred. Yeah. But then when you start pulling it out, you know, when you take distributions, they're gonna be taxed. Right. And, and you don't really know what they're gonna be taxed at.
Speaker 1 00:16:40 You don't know what they're gonna be taxed at. Could you have other income? And the other thing when you were talking about Roth is, you know, if somebody's like, well I've already put my money into the regular, I, I, you know, well you can do Roth conversions. Now I'm not saying they're for everybody, but if I was a real estate professional and I had $75,000 in losses and I converted $75,000, I basically would pay no tax on it.
Speaker 0 00:17:02 That's a pretty smart strategy right there. Right?
Speaker 1 00:17:04 Yeah. Like I gotta think like that I gotta, yeah. And a lot of these things, you know, you gotta know what strategies you have to do within the calendar year and which ones you can do after the calendar year. So, so that's kind of important too, because if I see you had a $75,000 loss and I said in February or March, it's like, oh, I wish I knew I would've suggested this. It's like, well, can't we just go back and do that? And it's like this thing you can't,
Speaker 0 00:17:27 No. Yeah.
Speaker 1 00:17:27 It's gotta be done in that calendar year. Yeah. So
Speaker 0 00:17:30 That's, that's great. Um, so what are some other, you know, options? I know, I know you mentioned investing in syndication of fund or you know, um, where do you recommend people when they say want to invest in real
Speaker 1 00:17:44 Estate? Um, well I think the, the issue that probably most people have, and it it's a goal for, for them to get to is credited investor. So a credited investor, you know, a million dollars in net worth excluding your home, or you make 300,000 joint or 200,000 as an individual. I don't know if they change that or, you know, those things could always change, but, so sometimes people get frustrated or discouraged cuz it's like, well I'm not an accredited individual and I can't do that. And, you know, all the good opportunities are for accredited individuals. And I would say to that is, well that's that. I don't disagree with that, but maybe look at your situation and figure out, hey, where am I at? Like, how close am I to being accredited and you know, maybe there's steps that I can take on here. And, and so, you know, those other, if you're not accredited, yes, there's other opportunities.
Speaker 1 00:18:36 There's a, there's opportunities for accredited invest other accredited investors. So like for example, you don't have to be an accredited investor to buy a multi-family or a single family unit. Right. You can anybody can do it. Yep. But not everybody knows how to do it. Like they just think, I'm just gonna look, I'm gonna buy the property and you know, this is what my payment is. But a lot of times anybody that comes to me, and I did have an example of a childhood friend that came to me. We grew up together and he says, you know what, I wanna get into real estate. And he, he was kind of doing his own thing and I just kind of directed him to somebody that I knew that does mentoring. A lot of, a lot of real estate people do get into mentoring because it's a valuable service. And after he was mentored, I think he had a whole different approach to it, you know, so like within one year he is got five properties. Wow. And it's, it's like, and now it's like,
Speaker 0 00:19:30 It's a game changer. Right.
Speaker 1 00:19:31 It's a game changer. Yeah. And he kind of now understands exactly what the deal is. And you know, the, the funny thing is we just did our first deal together, him and I, because, you know, he just wanted a partner on a, on a certain deal and you know, it's, it's, there's opportunities are there no matter what, you know, no matter what your status is, anybody can do them.
Speaker 0 00:19:54 Yeah. That's, that's really awesome.
Speaker 1 00:19:56 And anybody can private lend by the way. I mean as long as you have a self-directed ira, you can private lend so you don't need to be accredited and private lending, everybody's looking for lending the capital. Yep. I mean everybody's looking for it and there's more available than you would think
Speaker 0 00:20:12 And it's a great way to passively invest. It's much more passive than holding a rental property.
Speaker 1 00:20:17 Sure. Yeah. It's a much easier, you know, if you said to me, Hey, would I rather be owned and stick some bricks or private lending, I'd say, Hey, for me, private lending would be Yeah. You
Speaker 0 00:20:26 Know, now with private lending, there's no real tax advantages for that specific strategy.
Speaker 1 00:20:32 No,
Speaker 0 00:20:33 It's, unless it's in a self-directed,
Speaker 1 00:20:35 Well, I mean that's what I like Roth account Right about it. If it's in a Roth account and it's, it's in a Roth ira, then that income never gets taxed. So I, I mean that's the perfect scenario. I'm not, not saying you can't do it in a regular ira. Sure. Um, but in times like this, when you're uncertain about the market and you know, you could be looking at, you know, experienced money lenders, I mean currently, I don't know if it's 10, 12, 15% some points. Yeah. I
Speaker 0 00:21:01 Would say there's, it's at least, you know, 12 and two, right?
Speaker 1 00:21:04 Right. So at least, right. So it's like, and then you have extension fees, you have, you have collateral going in and most private lenders I think are 70% loan to value, if not lower.
Speaker 0 00:21:15 Yeah. So you're getting a great return with a very passive strategy. Uh, let's talk about like marrying the two of those together. Buying, buying bricks and sticks. Right? So you get the depreciation, the leverage aspect. Right. You know, appreciation cuz you're not getting appreciation on the notes. Right. So you get all those be benefits of buying, you know, let's say an a small apartment building, you know, a small multi-unit Right. Or, or a single family. You get those tax advantages potentially coupled with the real estate professional election to help offset your, your active income. Right. And then while passively utilizing a qualified plan, potentially a Roth right. To have passive income coming in that doesn't have the tax advantages, but because of the vehicle that you're doing it in, you are no, you know, you're growing, um, a Roth account that you won't have to pay taxes on when you take the distributions in the future. That's, to me that's kind of like you get the best of both worlds
Speaker 1 00:22:14 There. Yeah. I, I mean e in the single family world and, and the, the rental property, you know, most people don't understand the whole concept of depreciation. I mean it's basically a reduction of income, you know, based off of the, the price of the house and the useful life and, and that, but so a lot of times what you're looking at there is cash flow, you know, what is the property cash flowing and it's like everybody will have a different opinion, but if you have a property that's negative cash flow, you know, we, we got a question if that investment's good if you're jumping into deals True. If you're jumping into deals that are already like a single family unit, if it's already cash flowing two to $400, you're like, well hey, this is unbuilding equity. Yep. Um, you know, granted maybe there's some types of units that don't have the ability to appreciate as much as others.
Speaker 1 00:23:02 And I understand that you have areas and different things like that. And I, I think the, uh, the other thing with investing that you kind of just made me think about is, you know, you can invest anywhere. You know, you don't have to be limited to like the, the, the neighborhood that you're in and things, the areas that you know, might not be the best areas to invest in, whether it's high taxes, things like that. And you, you have to look at, you know, these areas, uh, other than the places that you're familiar with because there could be good opportunities, you know, in other, in other parts of the country because lower taxes, you know, job growth, other statistics that indicate that, you know, housing is growing Right. In certain certain
Speaker 0 00:23:48 Markets. And you might even, you know, I don't know if, I know it's not a hot topic now because you know, but it was years ago, uh, opportunity zones. Right. And there's still advantages, right. You know? Oh sure. I mean it's still in play
Speaker 1 00:23:59 There, you know, that's still in play. Uh, yeah. There's still things in play. I mean we don't see many like kind exchanges anymore, but you know, like kind exchange is still a good thing. Where if, if you're, you know, just going to move property to property and you keep like kind exchange, exchange it, you keep deferring tax, that's very powerful. You just have to be, I always advise if you're gonna like kind something, do it because you want the property, not because you wanna say you had a likekind exchange because what, what if you have an empty property?
Speaker 0 00:24:30 Right. Make sure for six
Speaker 1 00:24:31 Months or
Speaker 0 00:24:31 Make sure the deal still makes sense.
Speaker 1 00:24:33 Yeah. The deal's gotta, the deal always has to make sense. I mean, and I think that's where, uh, newbies probably don't understand or they jump into things cuz it's like, hey listen, if the deal doesn't make sense, walk
Speaker 0 00:24:44 Away. Yeah. So what I'm hearing is it's like if you have a good deal and you have a good strategy, almost that goes for a great investment Right. Com combining the two. Right. You know, and if you have a so-so deal and a good strategy, it, it may not even be worth it.
Speaker 1 00:24:59 Right. Like Yeah. I mean you can't just do a deal because you're thinking that it's gonna appreciate like things have to work in the deal. You're financing, we just talked about private money. I mean all that has to work in the deal. Yeah. You know, and you know, if you're like another, another strategy that some people aren't doing is, you know, using the home equity in their home to do some of these deals because you know, you're using an asset that otherwise you're just kind of sitting there. Now, if you were using that asset to keep paying down credit card debt, building it up, paying it down, well then yeah. You're just treating it as, you know, a line of credit or like a bank. But if you're using that to, to get into investments and you know, what you're doing is you're kind of leveraging, you know, other assets to increase, you know, increase your net worth, increase the assets that you have. And I get it, interest rates are high, nobody wants to do it. You know, some people will just have the opinion at interest rates are probably where they should be, you know, and and the other thing is most people have been like, don't let the interest rates affect the deal. It is what it is. Yeah.
Speaker 0 00:26:03 As long as you can still have the asset pay for the debt. Right. Right. If, and it covers it and you know, you have some level of cash flow. Um, so you're saying like utilize a home equity line of credit to, you know, redeploy that capital to an investment.
Speaker 1 00:26:16 Yeah. If you wanted to, to do an investment, and again, the numbers have to make sense and you have to Sure. But sometimes you don't want to have all your capital, uh, for example, if you're buying, um, um, you know, single family units, it's not like you always want to, you know, get, you know, a regular conventional mortgage on that. Like sometimes I think once you have four properties, sometimes they look at that as more of a hey, we'll lend on the portfolio. Yeah. And, and we'll do things like that. So you gotta you gotta think
Speaker 0 00:26:45 Ahead. We can use some commercial financing, you know, use the equity in your home as a down payment. Right. And then utilize a, you know, buying in an LLC with some commercial lending. Right. We have options for things like that. But, um, with, with going into that, you know, one thing that, you know, I would like to ask you what your thoughts are, but a lot of people get stuck just on like, oh, well, okay, let's say it just breaks even. Right. You know, you, you borrowed money outta your line of credit, so by the time you pay the interest on the line of credit, you know, and then the new loan. Right. But let's say you get a deed in your name and it just breaks even. But let's say you're chipping away equity, right. Let's say it is in an area that's most likely gonna appreciate a little bit, right. Let's say you get the tax benefits from the depreciation. Right. You know, and, and essentially let's say you didn't use any of your own money because you used the line of credit from the bank, right? Right. So it didn't come outta pocket, let's say. Right? Yeah, sure. But let's say it breaks even at the beginning. But you know, you believe there's rental increases over time. Sure.
Speaker 1 00:27:50 Right. Which is, which is an area that, and you see, you guys probably see it on the, the, uh, transactional side where properties are, are for sale and their multi-families and they're asking a certain price for it. And then you ask about what the rental income is and the most common response seems to be, well, they're below market value, but you can increase them. It's like, well wait a minute, I'm only gonna pay for what the value is if I increase them. Uh, but again, that that kind of Yeah, that's kind of a little bit outside of what you were asking, but it, it just brought that to mind
Speaker 0 00:28:24 Like Yeah. Oh absolutely.
Speaker 1 00:28:25 Cause you can always do rent increases, those
Speaker 0 00:28:27 Rents are low. You gotta be very careful on that speculation. Sure. Cause there might not be the same rent growth that we've seen the last few years. I mean, it's been crazy the rent growth. With that said, I guess the, the point that I'm trying to nail home and see what your thoughts are on it is a lot of people get stuck on just like the face value of the deal, right. Versus looking at it all those other benefits. Like did you factor in the depreciation? Right. Because if it's offsetting your taxes Sure. Especially if you're a real estate professional, what, what does that look like? Right. You know, did you make an extra five grand a year in tax tax
Speaker 1 00:28:58 Deductions? Right. Because there's a difference between cash flow and taxable income.
Speaker 0 00:29:01 Sure. So, you know, that's, that's where I think a lot of people have to look at, you know, what, what, what's your goals? Are you, are you, do you need that immediate cash flow? Right. Or what would, what would your finances look like 10 years from now? Had you bought an additional property
Speaker 1 00:29:16 Year? A lot of times, a lot of times there's like tables that I've seen people, you know, use where it'll, it'll show you, you know, obviously you're doing assumptions, but you're assuming the value going up and you're showing the debt going down so you can see the equity that you're
Speaker 0 00:29:32 Creating. Correct. Yep. Yeah, that's, which is, that's what I look at. I look at it in totality and usually nine times outta 10, if the property breaks even or cash flows a little bit in a two to three year period that soso or good investment starts to look like much better. Right. You know, as long as it doesn't have too many repairs and cap and vacancy
Speaker 1 00:29:52 And I mean those are things,
Speaker 0 00:29:53 There's a lot of factors,
Speaker 1 00:29:54 Right? I mean, those are the things that probably scare newbies the most is, you know, repairs and things like that where more seasoned investors are probably more like, Hey, I want to get in, do the rehab work and then go get the refinancing when the property's gonna appraise for more. Where I think sometimes newbies are a little bit more scared of that and they're more, uh, turnkey. They want to be more just say, Hey, I walk in, I start collecting rent and I don't have to worry about too many potential, uh, problems, you know, in the, in the first couple years.
Speaker 0 00:30:28 Yeah. Yep. So we talked about buying rentals, lending different, you know, vehicles to do that into reduced taxes. Uh, how about, you've mentioned syndications, right? Investing in syndications, are there some tax benefits? Could there potentially be and then investing in a fund?
Speaker 1 00:30:47 Yeah, I mean with syndications, uh, it depends, but I can tell you that with, sometimes with syndications you can get depreciation benefits. So sometimes you do have that where you're investing in the syndication because there could be a bonus depreciation. There could be, you know, a lot of times I'll say to a client that says, I'm thinking about investing in the syndication and they're telling me about the first year. And I'll say, well, tell me what's the approximate depreciation right off in the first year? So then I can start seeing like, oh, you invested a hundred thousand dollars, we're gonna be able to write off 70,000 of loss in the first year. Like I can see where that benefit benefit helps them. Right. Got it. But not all syndications are about that. Some of them just become about, Hey, am I just getting a fixed rate return?
Speaker 1 00:31:35 Sure. Am I getting a fixed rate return plus a share in the profits? Uh, and a lot of times you look at the syndicate themselves, you know, cuz you want to, you want to know that, you know, not everybody, not everything you see on LinkedIn, oh yeah, you're gonna do the syndication for, but, um, you know, the one that I did, it was, it was, it was kind of funny because I had clients that were getting these K one s from this certain syndicator and I saw what they were doing and when the next deal came up, I said, I won in <laugh>. You know, so
Speaker 0 00:32:06 You gotta see it firsthand on the tax side.
Speaker 1 00:32:08 That's firsthand. And of course when I, when I did that, the syndicator was very specific to me and said, look, not every deal's the same. Sure, sure. Not this and that. I was like, well, yeah, yeah, I understand. But I've, I've seen what I like what I've seen, and so I didn't, you don't always get into it because of like, for me had no benefit because it wasn't a big write off, there wasn't a whole depreciation thing. I was just looking at it from looking,
Speaker 0 00:32:30 You were looking at the
Speaker 1 00:32:31 Return from greater return. Okay. And, and the exit
Speaker 0 00:32:33 Strategy. How about in a fund? Is there typically, do you see any funds that offer any tax strategies or tax benefits I should say?
Speaker 1 00:32:41 Um, I mean typically it's the cost se appreciation. That's really what it
Speaker 0 00:32:45 Is. So similar to a syndication. Yeah.
Speaker 1 00:32:47 I mean that's really what you're, what you're looking for for that fund investment is you're looking for that right off. Uh, another example, it's not real estate, but yeah. The whole atm, the whole ATM machine investments, you know, again, it's the same similar thing that you're looking for the bonus depreciation. You're not, and again, you're looking at what the cash flow is and what your rate of return is and all that, but most investors are like, what's the first year depreciation? Because that's, they're
Speaker 0 00:33:15 Looking for that worried about the tax benefits. Yeah,
Speaker 1 00:33:17 Exactly.
Speaker 0 00:33:18 So if anyone's listening and you're like completely overwhelmed, we just, we were speaking in Greek, uh, no, we, uh, we appreciate your time. Hopefully there was some benefit to this. Chris, just to wrap up, any last words of wisdom, uh, for anyone looking to maximize their efficiency with their tax strategies? Well,
Speaker 1 00:33:37 I think it's important that people work with, work with a professional. And the reason I say that is there's a lot of professionals out there that, uh, you know, you have to watch what services they're offering. Some just want to do tax returns, some, but some wanna look at the whole picture. And, you know, when I go on social media, there's, there's plenty of, you know, there's plenty of people to work with. There's plenty of, um, investors that need that guidance. I mean, you have to look at your situation as, hey, just like you do a doctor, you know, or just like you do a lawyer like, hey, I need to really, you know, not just
Speaker 0 00:34:15 Taxes do specialize in,
Speaker 1 00:34:16 Right. Not just taxes, but
Speaker 0 00:34:18 Don't go to a foot doctor Yeah. For brain surgery. What
Speaker 1 00:34:20 I want to, what am I looking to do five years from now? What am I looking to do 10 years from now? Does this fit in those strategies? So,
Speaker 0 00:34:26 So working with someone that really understands your business and, and your goals
Speaker 1 00:34:30 And sort of, and sort of saying, Hey, you know what, I want to cons, you know, I want to have quarterly consultations or I want to do this. Where some people are like, well, I don't really need that. It's like, well, that's how you, you know, just like, you know, you get business coaching or you get things like that. It's like you gotta look at the big picture and figure out what you want to do and where you want to go and use the resources at your disposal to do that.
Speaker 0 00:34:55 Yeah, I can, uh, I'll definitely second all that information. So <laugh>, so Chris, um, for anyone out there that might want to reach out to you to find out if they're a good fit for you or for if you're a good fit for them, right? How would they get ahold of you?
Speaker 1 00:35:08 Uh, the, the best way is probably, you know, our website is, uh, dl cpa tax.com and on that website, you know, you can hit the, you know, uh, submit a referral request. Uh, you know, you could just call, you know, 3 0 2 4 6 8 43 80. And a lot of times what our team does is, you know, we try to get, you know, we try to get an idea of what somebody wants, and then we set up an initial consultation. I'm just completely honest with people is, you know, if we can help, we can. If, if I feel like, you know, we can't, then, then I think it's important when you're in any type of business, just to be honest with people.
Speaker 0 00:35:46 Yep. And what areas do you cover?
Speaker 1 00:35:49 You mean
Speaker 0 00:35:50 Geographically? Yeah, in terms of returns. Uh, like re what, what states do you,
Speaker 1 00:35:54 Oh, so, so the way business has worked now is we're working with people all all over the place. So, you know, we have clients in Florida, Georgia, California. It's just that, that's just the way the business has evolved with, I mean, some of it's covid Yeah. Everybody does Zoom. Yeah. Nobody meets, but you know, you're doing a lot of, um, virtual things. So a lot of times it really doesn't matter where somebody is, uh, because that's not
Speaker 0 00:36:20 A, so file returns in any space pretty
Speaker 1 00:36:22 Much anywhere. Now, if somebody called me and said, Hey, I'm a Canadian citizen, and, you know, then we kind of start to, I gotcha. You know, start to take pause and say, I'm not sure we can do that.
Speaker 0 00:36:32 Well, I can personally endorse Chris. I've worked with him for several years now, and, uh, appreciate everything you've done with me in terms of strategy. It's, it's nice to be able to talk to someone that understands real estate, understands what, what the longer term goals are and doesn't just give me a one size fits all
Speaker 1 00:36:49 Solution. Right. Because that's, it'll never be, it'll never be that way just because everybody, and that's what I like about the business is everybody's involved in something different. Yep. It's not one size fits all. It's not everybody's doing multi-family. It's a, everybody's finding different ways. And I find it just interesting when I hear about it because, um, just something that I think has value and I think more people should be looking at real estate as an investment.
Speaker 0 00:37:15 Awesome. Well, thanks for being on today, Chris. All right, thanks. And thanks for listening. Thank you for tuning in to The Investor Agent podcast today. We hope you found it valuable. Please tune in weekly@theinvestoragents.com.
