00:00:00:00 - 00:00:36:39

Kevin Schneider

Welcome to another episode of the Hidden Money podcast. We are starting today, a real estate series. Now, you've heard us talk about real estate in the past, but really we are going to section this off into bite sized chunks, because when you start investing in a real estate, it can get overwhelming. You don't know how to structure things.

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00:00:36:39 - 00:00:56:47

Kevin Schneider

I don't know, interest rates, tax law, all of this kind of plays differently. And so what we're going to do is just kind of take it podcast by podcast, step by step. How to get into real estate. We're going to have some guests on hopefully to talk about specific segments of real estate, but we're going to focus today on the entity creation.

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00:00:56:47 - 00:01:16:09

Kevin Schneider

Just how do I start investing and why and why do I want to get into real estate for tax purposes? Because from a tax standpoint, there's major reasons to get in there. And we always preach, you know, don't just buy real estate to save taxes. That's kind of foolish. You want to find a good property that's cash flowing, that's going to grow in value over time.

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00:01:16:09 - 00:01:23:01

Kevin Schneider

But if we can find that property, that kind of hits that sweet spot, there's ways to get tax benefit on it as well.

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00:01:23:08 - 00:01:44:35

Mike Pine 

Yes, that's the hidden money in real estate. We all know real estate. We see people make money on real estate. You make money on the appreciation of the real estate. You make money on rents or operating the real estate. But there's hidden money, big, big hidden money in real estate, mainly in the form of depreciation. And I assume most of our listeners know what depreciation is.

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00:01:44:35 - 00:02:10:04

Mike Pine 

Just for the few that don't. Depreciation is something the government makes you do. Let's say if I'm a taxi cab driver, I go buy a $10,000 taxi cab because I have that cab has a useful life of more than one year. The IRS says I can't deduct all $10,000. I have to depreciate it over its useful life. So oversimplified it here, but I could depreciate $2,000 per year.

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00:02:10:09 - 00:02:32:46

Mike Pine 

Thing is, with that taxicab, you know when you take any car off the lot, brand new car, used car, it depreciates in value the second you drive it off of the lot. Depreciation in real estate is magical. It's powerful because when you buy that property, unless you're buying in some very rare, horrible place like maybe Detroit, Michigan or something.

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00:02:32:51 - 00:02:53:51

Mike Pine 

It's going to go up in value. So depreciation is magical in real estate because you're getting to take tax deductions for depreciation on an asset that's appreciating up in value. That is magical. And it helps you leverage and snowball your investments in your growth and depreciation. We'll get more into the tax aspects of it here in a minute.

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00:02:54:05 - 00:03:14:06

Mike Pine 

But there's a lot of different ways to invest in real estate. You can invest in a syndication. You can invest in your own single family property. You can invest in a short term rental. Long term rentals. Do. Plex is multifamily, big multifamily. But before you invest in any real estate, you got to cover your assets.

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00:03:14:06 - 00:03:34:34

Kevin Schneider

Yes. So we are not licensed attorneys. We are not allowed to practice law. We're just not. We are CPAs. We've been in rooms with attorneys and we know what they're going to say typically. But everyone's legal situation and financial situation is so different. So take what we say in the next few minutes with a grain of salt.

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00:03:34:34 - 00:03:36:45

Kevin Schneider

I would consult your own attorney if you don't have

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00:03:36:45 - 00:03:39:30

Kevin Schneider

one instance. Yes for sure.

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00:03:39:30 - 00:03:52:23

Kevin Schneider

So when you're structuring real estate some and we can get into the lending aspect because some lenders, if you've never invest in real estate, you can't just go get an LLC and be like, hey, I'm going to put this property in an LLC. Some lenders may frown on that.

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00:03:52:28 - 00:04:10:21

Kevin Schneider

Just because there's no history with them, there's no history of a business. They're an LLC, so you might have to buy it personally. But generally what we recommend is our clients put in their real estate into an LLC. Now, this could become an administrative headache if you have ten rental properties. And there's creative ways to even structure that.

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00:04:10:36 - 00:04:30:51

Kevin Schneider

But from let's just keep it simple. You buy one rental property. Typically you want that one rental property in it's own LLC, because if someone slips and falls because of a faulty handrail, or they are dumb and they jump off the roof into the pool and they're trying to do tricks or, you know, and then they could sue for any number of reason, well, the roof wasn't the shingles.

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00:04:31:02 - 00:04:34:38

Kevin Schneider

I would have landed that if, you know, they could sue you for anything.

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00:04:34:43 - 00:04:35:21

Mike Pine 

So

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00:04:35:21 - 00:04:37:02

Mike Pine 

be in the wrong to have a lawsuit

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00:04:37:02 - 00:04:37:34

Mike Pine 

Well

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00:04:37:34 - 00:04:43:40

Mike Pine 

attached to you to have a jury. Do you guys remember the McDonald's coffee at

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00:04:44:55 - 00:04:53:24

Mike Pine 

Someone got McDonald's coffee at the McDonald's drive through, spilled it on their leg in the drive. They spilled the coffee. And it was I think it was like

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00:04:53:24 - 00:04:53:45

Kevin Schneider

Yeah,

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00:04:53:45 - 00:04:55:04

Mike Pine 

million lawsuit.

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00:04:55:18 - 00:05:15:19

Mike Pine 

So you always need to be covering your assets, cover your liability. So again, we're not attorneys. But the basics are if you have a business operating in a limited liability company or a corporation or partnership, there's a bunch of different avenues. And Kevin's going to explain why we like LLC to start with. But

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00:05:15:19 - 00:05:29:01

Mike Pine 

if you have a business operating in it, if that entity gets sued, as long as you follow all the rules, of maintaining your corporate veil of protection, the lawsuit can only take stuff out of that LLC.

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00:05:29:14 - 00:05:35:39

Mike Pine 

They can't go take your own home. They can't take your other investments. That's the basics, Kevin.

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00:05:35:39 - 00:05:54:26

Kevin Schneider

Yeah. Hence the name limited liability company. You are limited in your liability. So if your rental property is named in a lawsuit because of that faulty handrail, they're not going to sue you individually. They're going to name the LLC. Now, the other attorney more than likely is going to do discovery and say, hey, is this LLC really separate?

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00:05:54:26 - 00:06:05:50

Kevin Schneider

Maybe you're not operating a different bank account. So just because you have an LLC, you still need to kind of play by the rules here because a good attorney is going to try to pierce that LLC and go to your personal assets, because that might be where your wealth is.

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00:06:05:50 - 00:06:24:32

Mike Pine 

Co-mingling is one of the biggest ones. And again, seriously, if you're going to do this, don't just take our advice. Go find an attorney. Ask them, how do I maintain my corporate veil protection? But one of the biggest I see with our new clients that are brand new in real estate, they created the LLC, but they're collecting the rent checks in their personal bank

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00:06:24:39 - 00:06:25:51

Kevin Schneider

It's like what's the point of an LLC.

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00:06:25:51 - 00:06:26:21

Mike Pine 

No

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00:06:26:21 - 00:06:29:38

Mike Pine 

the Alesis bank accounts to buy their own groceries.

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00:06:29:43 - 00:06:35:54

Mike Pine 

That is called Co-mingle. And you do that when you get sued. The plaintiffs attorneys are going to have a heyday with you.

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00:06:35:54 - 00:06:56:21

Kevin Schneider

Yeah, yeah. So from the onset, you know, I want you to kind of speak to the lending side. Just because it's all well and good to get an LLC. And a lot of times what happens is you might you might be listening and you might already have 4 or 5 rental properties that you own personally. So we kind of need to do some restructure hearing and getting with an attorney to get those properties.

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00:06:56:21 - 00:07:08:21

Kevin Schneider

If risk is the thing, if you're out there, the LLC, I would say that's a common misconception in in with LLCs is I need one at the dot, like, hey, I'm going to start a business. Should I start an LLC to deduct things

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00:07:08:21 - 00:07:12:18

Mike Pine 

There are CPAs out there on their podcast that say you have to have an LLC to get

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00:07:12:23 - 00:07:32:05

Kevin Schneider

Where, whereas yeah, where is that in the earth? It's not. So you do not have to have an official entity structure to deduct things. It's just not true. So the LLCs are straight liability protector. And so we always want to get our properties in there. But you may already have 4 or 5 rental properties. There's ways to get that and get your train on the right tracks.

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00:07:32:10 - 00:07:33:26

Kevin Schneider

But it's going to take some due diligence.

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00:07:33:26 - 00:07:34:01

Kevin Schneider

And

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00:07:35:04 - 00:07:51:50

Kevin Schneider

let's say I'm just buying my first rental property though, and I'm looking to get into the investment game, whether short term or long term, but and I want to structure this from a short term or from a liability standpoint, I want to structure it. Can I go get an LLC out of the gate and then go close inside of my LLC?

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00:07:51:50 - 00:08:02:16

Mike Pine 

You absolutely can. But you got to be talking with a lender that knows how to work with LLC or commercial lending business lending, not just going out and buying your own personal home lending.

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00:08:02:16 - 00:08:24:51

Mike Pine 

Those mortgage brokers that just do personal and primary homes, they're going to have problems with the LLC generally, you know, when you go out and buy your own home, if it's under $1 million or whatever the jumbo loan value is these days, you can put 10% down if you're buying a operating real estate property, a rental, let's say a single family home, you're not going to be able to get that 10% down.

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00:08:24:53 - 00:08:32:47

Mike Pine 

Generally, there's some lenders out there still offer, but generally you're going to tell them, I'm buying a property to rent it, to run it as a business.

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00:08:33:59 - 00:08:46:39

Mike Pine 

They're going to require you to usually put at least 20% down, sometimes 25% down. But you tell them from the beginning your LLC, the name of your LLC, the eon of your LLC, and you can close in that LLC and be the lender.

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00:08:46:44 - 00:09:07:46

Mike Pine 

Here's the deal, though that liability protection is all great if someone sees you, if it's your first rental property, or even your first few rental properties, the lender is going to make you sign a personal guarantee. So you're going to start to guarantee the debt on that property. But the property itself is inside and the mortgage is inside that LLC, which your attorney will be very thankful for if you ever get sued.

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00:09:08:01 - 00:09:26:10

Kevin Schneider

Yeah. And this is actually you know, we in the in the past we kind of disagreed on that. Right. Like using debt to get, assets or, you know, you want to be debt free. And we kind of when we first started working together, we kind of butted heads on that. And you're like, man, it's not me. Dave Ramsey.

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00:09:26:18 - 00:09:26:55

Kevin Schneider

Yeah.

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00:09:26:55 - 00:09:34:15

Mike Pine 

still Dave Ramsey fan, and I called into a show once and just outside of college. I'm debt free. I believe in debt free for the most part.

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00:09:34:15 - 00:09:34:31

Mike Pine 

Yeah.

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00:09:34:31 - 00:09:34:55

Kevin Schneider

But

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00:09:34:57 - 00:09:58:22

Kevin Schneider

This that's different. And so let's this is why this debt is a little different. And when you go to a lender, some people are like, oh, and Dave preaches this and I'm not saying it's bad financial advice. I'm just saying it's not probably applicable to most people to buy rental properties down in cash, because the whole point of buying real estate is you're going to buy an appreciating asset, and that debt is going to be tied to that asset.

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00:09:58:22 - 00:10:15:41

Kevin Schneider

So your asset is going up in value, and hopefully your debt is being paid down by tenants. So your debt is decreasing. But let's say this property's not performing and you're covering the debt personally. You could dump the asset. And more than likely if you did your due diligence and bought in the right spot, that asset sale is going to cover the debt.

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00:10:15:41 - 00:10:41:15

Kevin Schneider

So it's secured debt. The interest is tax deductible. And the beautiful part is you mentioned it earlier, leveraging. If you buy $1 million property, whether you put 20% down, you're out $200,000 or you buy that the Dave Ramsey way 100 or put a million down, let's say you're going to get the same tax deduction. Either way, tax deductions aren't relied on your cash in this instance.

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00:10:41:15 - 00:11:02:00

Kevin Schneider

That's why typically as a as a as a taxpayer you're going to be cash basis. And all that means is every time money comes out of my pocket I'm going to get a tax deduction for it. This is an interesting part in where you finance an asset that is $1 million. We're going to get deduction on the million dollars even though your cash is only out 200,000.

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00:11:02:05 - 00:11:13:34

Kevin Schneider

And then we can accelerate and plan and get so much of that depreciation of $1 million asset. Yes. And that's why debt in this instance not scary to me.

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00:11:13:34 - 00:11:35:20

Mike Pine 

benefit. So let's take the same example. You go buy a house and you put $1 million down. Five years later you sell it for 1.5 million. If you put a million down and paid cash, you made 50% on your money. That 500,000, you made 50%. Now go the other way. Let's say you put $200,000 down five years later, you sell it for 1.5 million.

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00:11:35:24 - 00:12:09:22

Mike Pine 

You turn 200,000 into 700,000. So you got a 250% gain on that same asset instead of a 50% gain. That's where the leverage in real estate makes sense. And again, like Kevin said, it's not like you're going out and borrowing a bunch of money on your credit card, a high interest to go gamble or go on vacation. You're borrowing money, and I preach not everyone does this, and there are good arguments against this, but I strongly believe you should always get a fixed rate mortgage.

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00:12:09:27 - 00:12:30:40

Mike Pine 

Interest rates go up, interest rates go down. All of the 2010 through 18, no one got fixed rate because it was cheaper mortgage if you had one. But they were hate life in 2022 and having to dump assets because the interest rates go up. Get a fixed rate mortgage, make sure it's something that your your operations, your tenants can service that debt.

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00:12:30:40 - 00:12:48:26

Mike Pine 

Make sure you have a rainy day fund for the vacancies that are going to happen in real estate. But this is debt that in general, like Kevin said, worse comes to worse. You lose your job. Some horrible thing happens in your life. You need to liquidate the debts going to be paid off by the asset.

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00:12:48:26 - 00:13:14:10

Kevin Schneider

Yeah. And I don't know if you know Dave Ramsey story, but essentially he he leveraged real estate all in his younger years. And so he had millions of dollars of debt. So there is risk to and we don't hear us and say there's no risk in doing this. And leveraging don't over leverage. But what happened was I guess his bank that hold all the notes, they sold the notes to a different bank and the bank's like, who's this young guy that owns owes us $10 million?

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00:13:14:10 - 00:13:21:03

Kevin Schneider

They start calling the notes. And so they were foreclosing on his properties, and so he went bankrupt because of it. So there is risk doing this.

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00:13:21:03 - 00:13:39:20

Mike Pine 

that was a different kind of debt too. If it's a true mortgage instrument there's a there's a contract between you and the lender. And even if the lender sells your note to someone else, that contract carries through. So it can't be. You got to be careful. And again, you get an attorney to read those documents, read that lending agreement.

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00:13:39:34 - 00:13:46:50

Mike Pine 

They can't. If you get a good one, they can't force you to sell just because they don't like you. There's got to be other reasons you got to miss payments.

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00:13:47:02 - 00:14:05:28

Kevin Schneider

So the debt is one when you're buying any real estate at the very onset. That's going to be a conversation you need to have. And some analytics you need to run. What's my interest rate. We recommend a fixed rate just so you the market isn't just killing you. The variable rates don't balloon anything. I mean just get a standard fixed rate, tried and true mortgage payment.

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00:14:05:42 - 00:14:23:43

Kevin Schneider

Your mortgage payment is going to be predictable so that you can cash flow and manage this rental to make sure you're rentals. Right. Like if you have a variable rate and, you're meeting your mortgage payment one month and then the rate goes up, you can't raise your rent if it's a long term rental. So that's why the, the, the fixed rate is so good is it's predictable.

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00:14:23:43 - 00:14:26:39

Kevin Schneider

And you can cash flow on that, a little easier.

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00:14:26:45 - 00:14:45:34

Mike Pine 

That's party the right. And believe it or not, even though Kevin generally I'm the aggressive one. Kevin's a conservative one. When I bought a rental property two years ago, interest rates were high, super high. I couldn't get the best interest rate I got, was somewhere between 7 and 7.5%, and the house. I know it's a good house, and I know it'll make money in the long run.

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00:14:45:34 - 00:15:04:49

Mike Pine 

A lot of money, but I, I ended up putting 45% down because I wanted to be guaranteed that even in slow times, even if I had two months of vacancy every year, I'd be able to service the debt and I close it. So when you put 45% down, they lower the interest rate, but I close at 7%, which used to be a terrible rate.

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00:15:04:49 - 00:15:25:01

Mike Pine 

That was the best rate I could get at that rate. With that money down, I guarantee as long as I can rent that place ten out of 12 months a year, the rent is going to pay the debt. So do your underwriting. Do your calculation. I don't like putting 45% down. But I wanted that property, and it was a good property and a dang good investment.

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00:15:25:01 - 00:15:27:46

Mike Pine 

And, I put 45% down.

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00:15:27:46 - 00:15:46:39

Kevin Schneider

Yeah, that's very smart. And, you know, I've even seen strategies to where fixed rates aren't terribly lower than your variable rate. You can and let's say your variable rate's 9%. And fixed rates at the time are like 7 or 8. You could get in a variable rate. And then when the fixed rates go down to 5 or 6 refinance.

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00:15:46:44 - 00:16:06:42

Kevin Schneider

That's a risky move because your variable rate could even go up further. So that's unless you're really attuned to the market conditions of real estate. I don't recommend getting in the variable to play to hope like, well, I don't want a 7% fixed. I think it's going to go back down to 3 or 5. Well, it could, but so the only way to do that is, you know, you can always refinance also from a fixed rate.

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00:16:06:46 - 00:16:17:22

Mike Pine 

That's all we preach fixed rates from the get go. As you get learn more about the business then you can maybe start playing in that area. Is in an educated way, not a risky

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00:16:17:22 - 00:16:20:30

Kevin Schneider

Right. So we talked about the LLC structuring there.

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00:16:20:35 - 00:16:21:25

Mike Pine 

There's

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00:16:21:25 - 00:16:27:49

Mike Pine 

So some people, we've seen clients come in and they have a corporation or an S corporation. Why is an LLC important?

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00:16:27:57 - 00:16:28:52

Mike Pine 

their flexible.

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00:16:28:52 - 00:16:48:27

Kevin Schneider

They're easy and cheap and they work. It's tried and true in court. This thing has passed under the iron like under the fire right. It passes if you run it right. So there are ways to utilize corporations even your retirement account. You can invest in real estate in your retirement account, which we I would love to get into as well.

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00:16:48:31 - 00:17:06:29

Kevin Schneider

But from an LLC standpoint, you could self form it. You could do it yourself with the Secretary of State of where you were at. Just be careful of what state you're in. And then really, it's easy to operate the filing fees every year or the upkeep, the paperwork to keep your LLC in business. Not that hard. In Texas, it's a franchise return.

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00:17:06:29 - 00:17:10:12

Mike Pine 

And the IRS gives you the option of how to tax that LLC,

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00:17:10:12 - 00:17:11:00

Mike Pine 

It's flexible.

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00:17:11:00 - 00:17:27:27

Mike Pine 

if you're the only owner or you happen to live in a community property state, and you and your spouse are the only owners, we can treat it as a disregarded entity, meaning you don't have to file another tax return, meaning your tax preparer doesn't get paid that extra fee for filing a whole nother tax return for that one property.

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00:17:27:27 - 00:17:46:45

Mike Pine 

You got to consider your operating costs. You're holding costs of a property, when you're doing your underwriting because it gets expensive to file a tax return every year. So now let's see can be disregarded entity or you can turn it into a partnership. But then you have to file another tax return as a LLC, whether it's a partnership or a disregarded entity.

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00:17:47:00 - 00:18:05:46

Mike Pine 

It's what we consider a flow through entity and tax. That means you don't file separate return. It just shows up on your tax return on a schedule of your personal 1040. So that's simple. And if you're getting tax benefits from it, you get it. Here's where we have this client. What's happens 2 or 3 times a

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00:18:05:46 - 00:18:08:30

Kevin Schneider

Yeah. More often than not I know exactly what you're going

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00:18:08:30 - 00:18:17:14

Mike Pine 

get a new client comes in. They got all this property and it's in an S corporation. And we get all these reasons why usually it's a CPA. Told him to do it I

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00:18:17:39 - 00:18:28:14

Mike Pine 

Don't get an S corporation. They've got debt on the property. They are able they should be able to take a bunch of that depreciation from those properties and reduce their current tax bill.

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00:18:28:14 - 00:18:44:38

Mike Pine 

But they can't because it's in an escort for it. Have been in an LLC. An LLC taxes and LLC is a disregarded entity a partnership. No problem. But they can't do it in an escort. When you doing this in a C Corp, you don't get any of the tax attributes. And then if you're making money in that C corp, I want to take some of the money out.

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00:18:44:38 - 00:18:45:46

Mike Pine 

You're paying two taxes

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00:18:45:46 - 00:18:47:48

Mike Pine 

double taxation. So LLC.

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00:18:47:48 - 00:18:48:14

Kevin Schneider

Maybe

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00:18:48:14 - 00:19:07:00

Kevin Schneider

the the only time I would ever recommend any sort of real estate inside of a corporation is if your main business, if you're a business owner and you self rent your own building. If you have a commercial property and you own it, you might want to put that in. The more likely or not, you wouldn't co-mingle your business in your property.

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00:19:07:05 - 00:19:12:45

Kevin Schneider

But from a tax standpoint, it would not be nice to have it all in one. But really.

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00:19:12:45 - 00:19:30:29

Mike Pine 

few other areas, like I would say, in my 25 years of doing this, I've probably recommended 15 or 20 times for people to put their real estate and ask if they're paying all cash if there's no debt. I mean, there's a few different reasons that might make good sense, but 90, if not 99, 98% of the time, LLC.

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00:19:30:36 - 00:19:47:21

Mike Pine 

And here's the deal. If an LLC turns out to be you're one of those 2% where you shouldn't have an LLC, you can elect to have your LLC taxed as a escort, as a partnership, as a C corp, you can always make that election. In a lot of cases, you can make that election retroactively after you've talked to the good tax strategist.

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00:19:47:30 - 00:19:48:46

Mike Pine 

So LLCs our number one

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00:19:48:50 - 00:20:11:19

Kevin Schneider

LLC is yes. And then if you start bringing in partners you could look at limited partnerships LPs. But generally even LLCs are just tried and true. If you're kind of a syndicator raising money, that is a different beast, which we're going to get into. We're going to do a syndicator series. So if you are looking to raise money to buy big multifamily or hotels, then LLCs aren't your tried.

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00:20:11:23 - 00:20:17:23

Kevin Schneider

They're not going to be your default. They could be, but they're depends on the goals of the of the partnership. So

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00:20:17:23 - 00:20:31:05

Kevin Schneider

that would be a different series. But for we're speaking in this one just for your individual investors is wanting to branch out more than likely you're in an LLC. More than likely you want that fixed rate mortgage, fixed fixed rate debt, seeing cash flow underwrites.

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00:20:31:05 - 00:20:49:02

Kevin Schneider

And how much am I going to put down? So how much am I going to receive in rent? What's my other overhead. You know, because you're gonna have utilities, maybe not utilities. Depends on your deal with your tenant. But, you know, lawn care repairs kind of build that in there so that you're making money. And really, what I tell my clients and what I, my viewpoint.

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00:20:49:02 - 00:21:10:45

Kevin Schneider

And you could disagree with me here if my rental properties net neutral cash flow. I'm cool. Someone's paying the debt. There's a benefit that you're getting. So even if you're making nothing on that property cash flow take home, someone's paying down the debt on your appreciating asset. I'm okay with that deal. Where else? Where else is someone going to pay down a debt of an asset that I own?

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00:21:10:45 - 00:21:18:51

Mike Pine 

I'd rather have cash flow. I'd rather positive cash flow, but absolutely, as long as it's not take as long as I'm not having to write a check out of my W-2 every month for that debt

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00:21:18:51 - 00:21:19:11

Mike Pine 

Yeah,

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00:21:19:11 - 00:21:22:15

Mike Pine 

or for the operations that LLC, it is a good

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00:21:22:15 - 00:21:22:38

Mike Pine 

I.

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00:21:22:47 - 00:21:42:19

Kevin Schneider

Yeah. Because the real estate, you know, depending on the area like we're in North Texas, north Texas, our real estate's been going up like 8 to 15%. Everyone's moving here. Where else am I going to get 8 to 15%, if not more of my money? Real estate's a really good move here. Like if so, that's why. Make sure you're with the right team and real estate agent.

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00:21:42:19 - 00:21:45:10

Kevin Schneider

If you're going to be buying because you want to be in a good market.

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00:21:45:10 - 00:22:03:23

Mike Pine 

Yes. So also you don't. There's one other time an LLC makes sense too, in my opinion. And again, consult with your attorney. But here's what my attorneys told me. Sometimes you're buying into a syndication or a partnership of like a multifamily housing unit or a storage unit, and you're just as a passive investor, you're buying into it.

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00:22:03:38 - 00:22:25:35

Mike Pine 

You absolutely can do it as an individual. My attorney is convinced me who happens to be your attorney, too, that you're better off putting it in an LLC for a multitude of liability protection reasons, even if I'm trying to get the tax benefits from that investment in that partnership on my personal return, I can do that through an LLC.

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00:22:25:39 - 00:22:27:56

Mike Pine 

So that's the entity creation. Let's

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00:22:27:56 - 00:22:42:32

Kevin Schneider

One more thing real quick before we move on. If you also want to be looking at the future, like if you if your goal is to, hey, I want one rental property a year, or if I want two a year, and I want to do this for ten years. So you know, in ten years from now you're going to have 10 or 20 rental properties.

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00:22:42:37 - 00:23:02:15

Kevin Schneider

You got a plan for that? That might look like a little different. That's why getting with your own attorney and tax advisor is so important, because your goals may be way different. You might want a holding company that has a series or a series LLC, which we didn't even talk about. But you could want a holding company, an operating company, and you might want each property in its own LLC.

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00:23:02:19 - 00:23:11:53

Kevin Schneider

And then you got to talk about insurance. We haven't talked about insurance. You're going to have a homeowner's policy on these things. But an umbrella coverage. Yeah. Or renter's policy. You might want an umbrella policy on top.

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00:23:11:54 - 00:23:13:20

Mike Pine 

Should say landlords policy. But

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00:23:13:20 - 00:23:25:44

Kevin Schneider

And let's say you have a pool you're renting. That's a huge liability. If you have a pool in any kind of vacation rental or a long term rental, you might want additional coverage there. So every situation is different, but be thinking about these things.

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00:23:25:44 - 00:23:57:38

Mike Pine 

before we end this episode, let's talk about the tax benefits of real estate. Whether you're buying a single family house, multifamily, whether you're buying a strip mall, whether you're buying, a storage unit, any kind of real estate, as we mentioned in the beginning, has a beautiful, beautiful tax attribute called depreciation. And again, this is a tax deduction a paper deduction not a real deduction a paper deduction on your tax return that can reduce your taxable income while your asset is appreciating in value.

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00:23:57:50 - 00:24:23:02

Mike Pine 

You can get that. And it's a beautiful thing. Now there are rules like if you're like me and Kevin we have a full W-2 job and we're not in real estate. We can't qualify as real estate professionals. So any depreciation I get from a real estate professional type property can't offset my active income or his active income, but it sure, I can offset my other passive income, no doubt.

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00:24:23:06 - 00:24:43:41

Mike Pine 

There's other loophole. We're going to have a whole episode on short term rentals. We've talked about them before. We'll keep talking about them because it is the one surefire way someone like Kevin or I or you who have a full time job and can't qualify as a real estate professional, can take that awesome depreciation and offset your W-2 income or your business income.

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00:24:43:45 - 00:25:00:45

Mike Pine 

That's a beautiful thing. And then it's an act of deduction. You don't have to just offset it against passive depreciation is great. Let's say my in-laws and this happened before they moved down here. I lived up in Coeur d'Alene, Idaho, which is a beautiful place. I want to travel up there once a year. I do it anyways already.

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00:25:00:56 - 00:25:18:24

Mike Pine 

I also think it's a good hot real estate market. If I buy a real estate rental or a single family rental up there to own, to operate, to keep, the IRS allows you to go check on your business assets once in a while, and you can deduct that at cost or at least part of that cost going out there.

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00:25:18:33 - 00:25:24:40

Mike Pine 

There's a lot of tax benefits in real estate. We say don't ever let your

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00:25:24:40 - 00:25:31:53

Mike Pine 

tax tail are your business dog. Don't do that. Buy good real estate for to make money. But dang it, it is a nice kicker.

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00:25:32:19 - 00:25:49:33

Mike Pine 

I mean, when you really think about it, if if the income, especially a short term rental where you're offsetting your W-2 income, if the deduction you get from that thing can give you money back in your pocket, the IRS is basically subsidizing your investment in real estate.

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00:25:49:33 - 00:25:50:12

Kevin Schneider

Yeah,

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00:25:50:12 - 00:25:51:57

Mike Pine 

I how can you not want to do that?

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00:25:51:57 - 00:26:08:51

Kevin Schneider

The market's just craving right now real estate tax experts. And that's what I think we really are. We've we've we do a lot more than real estate. But I think we've really have a cornerstone of our practice that is real estate. Just because there's such a need in the market that we've seen from our competitors where we're fixing their mess.

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00:26:08:56 - 00:26:29:51

Kevin Schneider

And I'm not tired of fixing the mess. I'm tired of seeing shoddy work out there that's hurting people, and they're paying more than they would with us to get it right the first time. So we actually started a new product this year. It's for exactly real estate investors is pinpointed directly. We go, we were going to help you choose the right structure, entity type.

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00:26:29:51 - 00:26:49:51

Kevin Schneider

We didn't talk about, you know, community property states, husband and wife going into business together. There's so many ways to do this. You have children, there's so many deductions. And we if you have children, there's ways to legally pay your kids out of the business and get a tax deduction out of your tax bracket and them not paying a lick of tax because they don't have another job.

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00:26:49:56 - 00:27:09:59

Kevin Schneider

We haven't gone through. And we are next episode right after right after this episode, we're going to get into short term real estate. But our real estate package covers everything from the start. Then we're going to cover short term real estate, all the tax and all the tax benefits related to that. Then long term real estate. If you're into long term real estate, then exits.

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00:27:10:13 - 00:27:30:22

Kevin Schneider

We're going to talk about how to exit a rental property or income generating property wisely because all of this is good. But when you sell an appreciated asset, you're more likely going to have depreciation recapture and capital gain. How do we mitigate that. So this is exactly what our our real estate plan attacks is from everything from A to Z.

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00:27:30:27 - 00:27:49:09

Kevin Schneider

And we would love to just educate you and get you on the right path towards your real estate adventure. Just because we can see the fruit in our clients, I can see the cash flow. I could see the immediate tax deductions that they're getting off this, strategy. And so we would love to talk with you. Go to revo taxpayer.com.

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00:27:49:22 - 00:27:58:59

Kevin Schneider

And you can schedule a free strategy session with Mike or I. I would love to tell you more of this real estate plan applies to you. But there's tremendous benefit out there.

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00:27:58:59 - 00:27:59:09

Mike Pine 

So

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00:27:59:09 - 00:28:18:19

Mike Pine 

much benefit. And just I mean, real estate in itself is a great investment. But when you wrap in the tax benefits, and for us, we talk about them every day. We know them well. But honestly most CPAs don't I, we, we keep seeing people underserved. If you can wrap in and leverage those tax benefits, you're getting a multiplier.

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00:28:18:19 - 00:28:34:27

Mike Pine 

And if you're if you're doing this for a period of time for 10 or 15 years investing in real estate, and you're adding another 10 or 15% to your annual ROI because of taxes, suddenly in 10 or 15 years, you have three, four, five times the amount of a nest egg than you would if you weren't utilizing tax.

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00:28:34:28 - 00:28:58:12

Mike Pine 

So please check us out. Hidden money.com or revo taxpayer.com. Ask for a consult and we'll give you a free one.

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