Podcast Summary
Balancing offense and defense in real estate investing: Find a mentor authentically, understand tax strategies, communicate effectively with spouse, and pivot when necessary in real estate investing
Successful real estate investing requires a balanced approach between offense and defense, and it's essential to have clear goals in mind. In today's BiggerPockets Podcast episode, David Green and Henry Washington answered various questions from listeners, providing practical advice on topics like finding a mentor, tax strategies, and communicating with your spouse about real estate decisions. They emphasized the importance of setting up mentor relationships authentically and offered insights into handling depreciation and tax strategies. Additionally, they discussed the significance of knowing when to pivot your real estate approach and how to approach such conversations with your spouse. Overall, this relatable episode covers a range of topics that many real estate investors face and offers valuable advice from experienced investors.
Asking 'how' instead of 'can' when hiring professionals: When hiring professionals, focus on those who can provide solutions and guide you towards achieving your objectives. Look for individuals who can paint a clear picture of how to reach your goals, rather than just confirming that it's possible.
When choosing professionals to help you achieve your goals, whether it's in real estate, finance, or any other field, it's more productive to ask "how" something can be done rather than "can" it be done. The best professionals are those who can provide solutions and guide you towards achieving your objectives. They add value by offering insights and expertise that you may not be aware of. When evaluating potential professionals, consider those who can paint a clear picture of how to get you from where you are to where you want to go. These individuals will help you make informed decisions and ultimately lead you to greater success. So, instead of looking for the cheapest option, invest in professionals who can provide valuable guidance and help you navigate the path to achieving your goals.
Invest in real estate with little money down through Rental Retirement: Rental Retirement offers turnkey rentals and investor loans for low-money down real estate investment. Potential tax savings for self-employed individuals exist by becoming a full-time real estate professional.
If you're looking to invest in real estate with no or low money down, Rental Retirement may offer an opportunity through their turnkey rental properties and investor loans. However, it's crucial to double-check their offerings and requirements. Meanwhile, for those subjected to self-employment tax on rental income, becoming a full-time real estate professional might allow the use of depreciation from rental properties against other real estate income, potentially offsetting the tax. But, as always, it's essential to consult a legal or tax professional before making any decisions.
Tax loss harvesting in real estate: Real estate entrepreneurs can use losses from underperforming properties to offset taxes on successful ones, potentially saving significant amounts. Requires large real estate investments and professional guidance.
As full-time real estate professionals, my husband and I can use unused depreciation from underperforming properties to offset taxes on income from other successful properties. This strategy, known as tax loss harvesting, can result in significant tax savings and even make losing money on some properties worthwhile. However, it requires buying a large amount of expensive real estate and leveraging it effectively. This strategy is encouraged by the IRS to incentivize real estate entrepreneurs to take risks and contribute to the economy. While the concept is simple, the execution can be complex and may not be suitable for everyone. It's important to consult with a tax professional to understand the specifics and potential benefits of this strategy in your unique situation.
Understanding Depreciation for Real Estate Tax Benefits: Real estate investors can use depreciation to reduce taxes, but determining value and maximizing benefits requires consulting a CPA. A $1M property allows for $36K annual depreciation, and becoming a real estate professional can enhance tax savings.
Depreciation can help shelter income from taxes, especially for real estate investors. However, the process involves determining the depreciable value of a property, which can be complex and may require consulting a CPA. The amount of depreciation allowed depends on the value of the property, and it can vary significantly. For example, a $1,000,000 property would allow for $36,000 in annual depreciation. The goal is to ensure that the depreciation amount exceeds the income generated from the property, allowing for unused depreciation that can be applied to other properties or future income. Becoming a real estate professional is also a consideration for maximizing tax benefits. It's important to note that the interpretation of tax laws can vary, and seeking multiple opinions from trusted professionals is advisable. Ultimately, the key is to understand the potential tax implications and options for real estate investors.
Exploring legal ways to reduce tax liabilities: Consult CPAs for advice on salary payments from corporations and consider mentorship for real estate beginners
There are legal ways to potentially reduce tax liabilities by restructuring income and business entities. For example, a business owner may be able to pay themselves a salary from a corporation using depreciation as coverage, making it a legal and logical solution. However, it's crucial to consult multiple CPAs for their professional opinions before making any decisions. Additionally, for individuals looking to enter real estate with limited resources, building a relationship with a mentor or partner can be valuable, as they can provide knowledge and experience that can help accelerate success. The key is to identify what unique value you can bring to the table in these relationships.
Building successful real estate investing partnerships: Network with successful investors, offer value through deal sourcing or skills, and work with human nature for mutually beneficial partnerships
In real estate investing, finding deals and providing value to investors can lead to valuable partnerships and opportunities. This can be achieved by networking with successful investors, asking about their deals and strategies, and offering skills or resources that meet their needs. Additionally, working with human nature rather than against it can lead to smoother interactions and better outcomes. The law of reciprocity, which suggests that people are more likely to respond positively when they feel they are receiving value in return, can be a powerful tool in building successful relationships. To get started, focus on finding and engaging with active investors in your area and offering value through deal sourcing or other skills. Remember, the goal is to build mutually beneficial partnerships that can lead to success in real estate investing.
Focus on finding a mentor whose values align with yours: Instead of seeking unconditional love and support from a mentor, focus on finding someone whose values and approach align with yours, and identify how you can be of value to them in return.
People are naturally inclined to seek unconditional love and support, much like what they receive from their parents. However, when it comes to finding a mentor or seeking guidance in business or personal growth, this mindset can be counterproductive. The most successful individuals are often too busy dealing with complex problems and challenges to devote significant time and energy to mentoring others. Instead, it's essential to focus on finding someone whose values, integrity, and approach align with our own and identify how we can be of value to them in return. This approach not only increases the chances of a fruitful mentor-mentee relationship but also allows us to learn and grow in the direction we desire.
Approaching a mentor with value: To attract a mentor, identify unique strengths and offer practical value to build a mutually beneficial relationship.
Finding a mentor is not just about asking for guidance, but also about bringing value to the table. The speaker emphasizes that people often unconsciously seek a mentor who can fill the role of a caring parent figure. However, a mutually beneficial mentor relationship is built on shared goals and the ability to contribute to each other's success. To attract a mentor, one should identify their unique strengths and offer solutions to the mentor's needs. This could be in the form of deals, expertise, or labor, as demonstrated by the speaker's experiences with two individuals who approached him with practical offers. In summary, approaching a potential mentor with a clear value proposition increases the chances of a successful and mutually beneficial mentor-mentee relationship.
Learning from mutually beneficial partnerships in real estate: Forming partnerships in real estate can lead to valuable learning experiences when both parties bring value to the table. Ask yourself how you can help your partner in return to build a strong and mutually beneficial relationship.
Forming mutually beneficial partnerships can lead to valuable learning experiences for both parties involved in real estate investing. Henry, in the discussion, shared how he brought a person into a property deal as a partner, providing them a front-row seat to his approach to real estate. This person brought value to the table, helping manage the rehab and making Henry more successful. In return, Henry invested in this person. The key here is that both parties bring value to the table, and this approach can lead to successful partnerships and valuable learning experiences. When looking to learn from others in real estate, it's essential to ask yourself how you can help them in return. By bringing value, you'll not only learn from them but also build a strong and mutually beneficial partnership.
Evaluating when to pivot in investing: Stay focused on goals, assess asset performance, and differentiate between necessary pivots and emotional reactions for wise investment decisions
Being an investor involves making informed decisions about when to pivot or stick with a plan. Host Financial can help simplify the financial aspect of investing by offering easy loan qualification processes and flexible income consideration for short-term and long-term rental properties. When considering a pivot, it's essential to evaluate whether the asset is not meeting your goals or if it's just a process issue. Henry suggested setting goals for both your business and personal life and pivoting when the results from an asset do not align with those goals. It's also crucial to differentiate between a necessary pivot and an emotional reaction to a situation not going according to plan. By staying focused on your goals and assessing the performance of your assets, you can make wise decisions and find the middle ground between pivoting and doubling down.
Reassessing investment strategies: Regularly evaluate your investment approach to ensure it aligns with your goals. If not, communicate effectively to find a solution or make necessary changes.
When dealing with investments, it's essential to assess whether the current approach is meeting your goals or not. If it is, focus on solving other problems. However, if it's not, it might be time to pivot or make changes. It's crucial to remember that everyone's situation is unique, and what works for one person might not work for another. For instance, some might struggle with the "shiny object syndrome," constantly chasing new opportunities, while others might face challenges balancing different perspectives with partners. In such cases, it's essential to communicate effectively and find a way to marry the two mindsets. While the term "shiny object syndrome" might not apply to everyone, the idea of reassessing and adjusting strategies when necessary is crucial for long-term success in any investment endeavor.
Balancing offense and defense strategies in real estate investing: Assess market conditions, adjust strategies, communicate effectively, and maintain a well-balanced game plan in real estate investing
Successful real estate investing involves a balance between offense and defense strategies. The speaker uses the analogy of a football team to illustrate this concept, where offense focuses on making gains and defense focuses on protecting assets. In the context of real estate, this means constantly assessing market conditions and adjusting strategies accordingly. For instance, the popularity of short-term rentals was initially driven by the lack of inventory and cash flow in the long-term rental market. However, as regulations and market conditions change, it's essential to pivot and adapt to avoid getting caught off guard. The speaker emphasizes the importance of having clear goals and communicating effectively with your investing partner to make informed decisions and maintain a well-balanced game plan.
Balancing offensive and defensive strategies: In football and business, effective collaboration between offensive and defensive strategies requires considering the impact on both sides. In football, avoid exhausting defense and excessive blitzing. In real estate investments, balance expenses and cash flows by understanding depreciation's impact on cash flows.
Effective collaboration between offensive and defensive strategies in any endeavor, be it business or football, requires considering the impact on both sides. In the football context discussed, the importance of not exhausting the defense and avoiding excessive blitzing to protect the offense and limit risk was emphasized. Similarly, in business, such as real estate investments, finding the right balance between expenses and cash flows is crucial. By understanding the interplay between depreciation and cash flows, investors can make informed decisions to maximize benefits for all parties involved.
Investing in expensive properties can lead to greater returns: Expensive properties with potential for appreciation and higher rents can lead to greater long-term benefits through increased depreciation and refinancing opportunities, but it's important to ensure demand for rentals supports any improvements and consult a tax professional.
While cheaper properties may seem like a safer investment, they don't always provide the best returns. Instead, investing in more expensive markets with potential for appreciation and higher rents can lead to greater long-term benefits. This is because expenses like renovation costs and property improvements can increase the property's basis, allowing for greater depreciation and potential for refinancing. However, it's important to ensure that demand for rentals supports any additions to the property and that the area allows for such improvements. Additionally, while refinancing can help recoup costs, it's essential to understand the specific tax implications and consult with a tax professional to ensure proper handling of the transaction. Ultimately, there are many nuances to real estate investing, and it's crucial to consider all factors before making a decision.
Improving properties and adding ADUs in good neighborhoods: Focus on improving properties and adding accessory dwelling units (ADUs) for increased cost basis and cash flow, especially in Fayetteville where one attached and one detached unit is allowed per property.
Instead of focusing on making a bad property bigger, it's more beneficial to improve the property and add accessory dwelling units (ADUs) in good neighborhoods. The city of Fayetteville is particularly bullish on ADUs, allowing one attached and one detached unit per property. This improvement not only increases cost basis but also allows for substantial cash flow through Airbnb rentals. The ideal scenario is to add an upstairs unit, engineer-approved addition, and an ADU while converting the garage into a separate rental unit. This strategy adds significant cost basis and cash flow while potentially making you a local celebrity. If you're looking for a local partner, feel free to reach out. We appreciate your engagement and would love to know your thoughts on our content style. Leave us a comment on YouTube and subscribe to our podcast.
Navigating Real Estate Investing with the Right Team: Surround yourself with the right team and make informed decisions for successful real estate investing and personal growth.
Investing in real estate requires careful consideration and the right support system, whether it's a partner or a trusted team of professionals. The market may change, but the goal of financial freedom remains constant. To navigate the process successfully, it's crucial to find an investor-friendly agent who can help you make informed decisions and take confident action. David and Henry discussed the importance of partnerships in real estate investing, drawing parallels to marriage. They emphasized the value of sharing experiences and learning from others, especially when facing challenges. Henry encouraged listeners to follow him on Instagram (@thehenrywashington) or visit his website (thehenrywashington.com) for more inspirational insights. David emphasized the importance of thorough research and due diligence when selecting a real estate agent or any other professional advisor. He urged listeners not to make hasty decisions and to seek recommendations from trusted sources before committing to a partnership. In conclusion, the key takeaway is that building wealth through real estate investing involves more than just financial gains; it also enriches personal relationships and character development. By surrounding yourself with the right team and making informed decisions, you can successfully navigate the market and achieve financial freedom.
Listen to real estate investing podcasts for education, not financial advice: Approach podcast info with critical and informed mindset, don't rely solely on it for investment decisions
While listening to real estate investing podcasts, including Bigger Pockets LLC, can provide valuable insights and knowledge, it's important to remember that the information presented is for educational purposes only. The hosts and guests are not providing financial advice, and listeners should conduct their own research and consult with professionals before making any investment decisions. Bigger Pockets LLC also disclaims any liability for damages arising from the use of the information provided in the podcast. So, while you can learn a lot from listening to real estate investing podcasts, always remember to approach the information with a critical and informed mindset.
