BiggerPockets Real Estate Podcast - 244: “Unfair” Taxes and Unfair Advantages with Linda Weygant, CPA

Episode Date: September 14, 2017

There are a lot of reasons to love being a real estate investor. One of the most impressive is the “unfair” tax treatment investors get by the US Government – and we mean that in a good way! On today’s episode of The BiggerPockets Podcast, we sit down with CPA Linda Weygant to learn more about those incredible tax benefits. You’ll also hear how she discovered the power of real estate through her clients, and how that led her to begin her own investing journey. Linda shares how she navigates the messy world of investing in properties that have HOAs, as well as how she uses her “unfair advantages” to succeed where others fail. Finally, as a CPA, we have a special “tax-focused-Fire-Round” where we talk about LLCs, deductions, and much more! In This Episode We Cover: How Linda got into real estate Why the government likes real estate investors What her first deal looked like What to look out for when using credit cards for rehabs Should you be debt free before investing? Debt to income ratio Why she chose a townhouse as a first investment Her HOA story The landlord vs HOA mentality How she got her positions in the HOA boards Rent-By-The-Room apartments How to manage Rent-By-The-Room Investing with family and getting an LLC How one should handle their business Where she’s headed in the next 10 years And SO much more! Links from the Show BiggerPockets Forums Sept. 27, 2017 NYC Meetup w/Brandon Turner (Darren’s Event) BiggerPockets Calculators Partnerships, Landlording, and Getting Started in Real Estate with Meghan McCallum Meghan McCallum’s BiggerPockets Profile BiggerPockets Meetup Events Brandon Hall’s BiggerPockets Profile Books Mentioned in this Show Set for Life by Scott Trench The Book on Rental Property Investing by Brandon Turner Finding and Funding Great Deals by Anson Young The Book on Tax Strategies for the Savvy Real Estate Investor by Amanda Han and Matthew MacFarland The 4-Hour Workweek by Timothy Ferriss You’ve Got This by Will Matthews Fire Round Questions Writing off a firearm? Meet 750hrs on a Single Rental Property? Is education cost a tax deductible business expense? Tweetable Topics: “The costs to maintain a property go up every year.” (Tweet This!) “Always be open for something new.” (Tweet This!) “Always treat your tenants with respect.” (Tweet This!) Connect with Linda Linda’s BiggerPockets Profile Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast. Show 244. That was weak, Scott. Show! Show! Wow, there we go. Much better. So you can have great profits in your checkbook, but show losses on your tax return. And, you know, depending on where you fall, you know, income-wise, you can be realizing

some significant tax savings on your other income based on your paper losses in real estate. and I just thought, God, what a scam. That's great. And it's all legit and legal and the IRS approves it and, you know, can't go wrong there. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place. Stay tuned and be sure to join the millions of others who have benefited from BiggerPockets.com. your home for real estate investing online.

What's going on, everybody? This is Scott Trench co-hosts of the Bigger Pockets podcast here with my real host, Brandon Turner. Yeah, I never know. Yeah, I don't know how that all works. I don't know. Am I co-host? Am I real host when Josh is not here when he's off, you know, traversing the world?

I don't know. Anyway, good to have you here today, though. It should be a lot of fun. Yeah, how you doing, Brandon? Man, I'm doing good. I'm doing good. I actually was just looking and I'm going to be gone. the next like, I'm going to be gone five of the next six weeks almost entirely.

So I'm going to be on the road a lot the next few weeks. That should be fun. Where are you going? Everywhere. I think I'm going to California like three times. I'm going to New York. I'm actually speaking at Darren, you know, Darren Sager. He's a good buddy of BP.

He's got a meet up out there in New York. I'm going to be just doing a speech or whatever you want to call it there, a little thing there for him. That'll be fun. So if you're in the New York City area, come hang out with me. I think it's at the end of this next month, actually. End of the very end of September, maybe the, 20th. 20 something.

Anyway, look it up on biggerpockets.com. Such events. I'll be there. Your life is so exciting. Oh, my gosh. Yeah, lots of them. It's almost like I'm a big deal, but not quite because I got to pay for all my trips. I'm a big deal when people pay for my trips.

There you go. So anyway, Scott, what are you been doing? Getting hurt in rugby, you know? Getting hurt and rugby. I got a little black eye. I think we've mentioned that on the show. We do, we do. Immediately brought up as the first thing that, like,

I noticed. Yes. It's kind of hard to miss. I mean, it's kind of like you got punched in the face, it looks like, but we'll talk about that later. In the meantime, why don't we get to today's quick tip? Quick tip. Good job. You want to take it? All right. So today's quick tip is to go out and analyze a deal. I like it. Go out and analyze a deal. Use the bigger pockets calculator and run the numbers on something that you might be thinking about as an investment. Run those numbers and the bigger pockets calculators have little helpful hints to help you come up with estimates for various expenses, rents, that kind of thing. Scott, I'm not a pro member.

Oh, that's okay. Free members get up to five free uses of these calculators and they're really great tools. There's no substitute for them in like Excel or anything else because guess what? You might miss an input or you might not know how to correctly compute an input. So go run a few deals in these. And if you have questions about any of those inputs, you have questions about how much CAPX should be or what your rent, how to calculate rent or taxes or anything like that. We have a big, helpful, friendly forum community. You can go post your question right there and get responses or opinions

from many local investors. Yeah, I love it. I love it. Great, quick tip. You get to that by going to bigger pockets.com slash analysis. Well, with that, let's bring in Linda. Linda, what's Linda's last name? I wrote it down here. Oh, wow. Oh, I'm not even going to try. Way, wait, waitant. Oh, man, she's going to yell at me for getting her name wrong. I believe it's wagons. Oh, okay, good job. You made me look better or worse. Linda is a CPA in the Colorado market, and she's also a real estate investor and the board

of several HOAs. In fact, we talk a lot today about investing in like an HOA, which if you live in an expensive market, sometimes condos or townhouses can be the only or best way to get cash flow, but are they dangerous or not? You know, she talks about that and some of the things to be careful of and how to do that. She also answers our fire run today. she goes into LLC versus corporations and what you can deduct, what you can't deduct. We have a really, really cool fire round today.

So make sure you guys stick around for that. Anything you want to add before we bring her in, Trench? She's an accountant and she's working magic with the numbers because somehow she's making the Denver market work and has a nice portfolio here. So looking forward to hear it about it. You've upgraded how to buy properties. But did your insurance get the memo? When investors start scaling, insurance can't be an afterthought.

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Speed up your hiring right now with Indeed. And listeners of the show will get a $75-sponsored job credit to get your jobs more visibility at Indeed.com slash rookie. Just go to Indeed.com. slash rookie right now and support our show by saying you heard about Indeed on this podcast. That's Indeed.com slash rookie. Terms and conditions apply. Hiring Indeed is all you need. All right. Good deal. Well, let's bring Linda in. Linda, welcome to the bigger pockets podcast. How are you? I'm doing great. How are you? Good. I'm doing a lot better than Scott Trench here.

I see that. Yeah. It's like you got in a back alley fight. I got a little beat up last week. Yeah. Yeah. For those of you watching or listening, if you go watch the YouTube video of this, you'll see that I have an enormous black eye. I procured this at a rugby practice on Thursday, got a nice head to the face, and I have five stitches and a lot of multicoloring a lot of my eye. It looks almost like eye shadow, I guess, right? You know, it's very attractive. You should probably answer that question. I'd be like, you know, you should have seen the other guy. If you answer it that way, it makes you sound tougher. But, you know, rugby, I mean, come on, that's for, like, you know, six-year-old girls. So I don't think the other guy even knew he hit me.

Well, cool. Well, anyway, let's jump back into real estate, shall we? And Linda, tell us about yourself. And where did you, like, would you do before real estate had you get into it and talk about your kind of journey into your first deal? Sure. So I've been an accountant pretty much all my life since I was 16 years old. And part of what I was doing is tax returns for other real estate investors saw what they were doing and kind of how that all shakes out and got to live. look at the profits and I thought I want some of that. So in 2014, I bought my first property, did sort of your traditional burr with it where went through the whole process there, got that up and running, rented, refinanced, and then repeated over and over again. Very cool. It's

amazing how many like CPAs make this comment about, hey, I've got clients that have, that seem to all be wealthy or a huge proportion of them tend to have a lot of wealth in real estate. I need to look into this and go into that for myself. Can we dig into that a little bit and hear about like how that kind of came about? Yeah, like what do you what do you see? Like, what were you so impressed with? Sure. So the one thing that always intrigued me about it was, of course, you know, you go through and you see the cash flow. I mean, when you're helping your clients out, you see the increased bank balance, right? But they're not paying that much in taxes and you start getting into it and you're like, oh, this depreciation thing is pretty cool. So

you can have great profits in your checkbook, but show losses on your tax return. And, you know, depending on where you fall, you know, income wise, you can be realizing some significant tax savings on your other income based on your paper losses in real estate. And I just thought, God, is that, what a scam. That's great. You know, and it's all legit and legal and the IRS approves it. And, you know, can't go wrong there. That's funny. Oh, yeah. Well, I just wrote blog post like this morning like two hours ago and it was about like nine I think it was called like nine lessons I learned from nine real estate books and in there I talk about the book on tax strategies the that we put out a couple years ago and it might like lesson my like main lesson in

there was that when I first read the book my initial thought was like this is unfair in a really good way like I feel like I'm cheating as an investor and it's like the government really likes real estate investors I mean you take you take somebody who earns a hundred thousand dollars a year from a job and somebody who makes $100,000 a year from real estate and who's actually makes more money. I mean, hands down, if you got a good CPA anyway, hands down the real estate investor keeps way more money than somebody who's working that W2 job. Why do you think that is? Why does the government reward the actions that we take? You know, that's a really great question. You'd probably have to ask your congressman about that. You know, I think that, you know, real estate investor,

investors can actually take a lot of crap from neighbors who are, you know, homeowner occupants. And so, you know, from a social standpoint, we're not the most popular people on the planet. But I think that we can, as a group, stabilize a poor neighborhood. We tend to pay our property taxes more than, you know, other people who might be in a struggling situation. We tend to have more streams of income so that we can maintain. those types of debts and expenses. So I got to believe it's tied to that. I mean, the one thing that governments like is stability. So almost all of the laws that they put in place are going to

be about stability. That makes sense. Scott, what do you think? Why does the government support us? I've asked myself this question because I have the same feeling like, hey, this almost feels like cheating in a certain way because it's so much more advantageous than W2 income, for example. And I think it's probably a combination of everything that Linda said. And then also the fact that probably at some point, real estate investors have been very involved in local politics and then in national politics. And maybe some of the tax code and some of those laws are influenced by former wealthy real estate investors that have made the system to their advantage. I wonder if there's a way we can find out how many Congress people own property. Oh, that's a fascinating question.

Man, I don't know, but I'm going to look into that. I want to know, like, because, you know, I've heard studies, you know, like that most millionaires own real estate or most like, you know, billionaires own real estate. But, yeah, that'd be fascinating to find out how many congressmen own it. Anyway, okay, so I'm going to totally dig into that and see if anybody listening to the show right now knows that data or knows where to find that data, hook us up and let us know, just email, I don't know, support at biggerpockets.com and

or Scott at BiggerPockets.com and let us know because that would be a fascinating blog post. So, okay, so let's go back to that first. deal. Can you walk through like, where did you find? First of all, where is this located? Where was that first deal located? And how did you find it? So my first deal is a four-bedroom townhouse. It's located in Westminster. It's in an HOA. And I found it off the MLS working with my realtor. I was originally going to move into it as my own primary residence. So I improved it or over-improved it actually to my taste because I thought I was going to move in. And then circumstances changed. I ended up not moving in.

So I suddenly found myself with a rental. I had intended to buy rental property anyway, but just not this one. And so then as I was trying to Google search, you know, how do I do a lease? How do I find tenants? What is, you know, how does this all work? Bigger pockets kept coming up as the, you know, answer. So that's how I got introduced to bigger pockets. That's funny.

I hear it all the time for people. I always like to ask people, where did you find bigger pockets? I was like, I don't know. I just kept searching Google. and I just kept coming up over and over and over. And finally, that's kind of how I jumped in. That's how I found it originally back 10 years ago. So that's cool.

By the way, Westminster, is that Colorado? I think that's where you're from right. Yes. Yes. It's the north part of the Denver metro area. Okay. But here's the problem with that is you can't invest in real estate in expensive markets. So clearly you must be wrong.

I mean, because that's what people say. You can't invest in real estate in Colorado right now. It's just, you can't do it. What year is this? This was 2014. Okay. So things were a little cheaper. than they are now in Colorado.

That's for sure. Yes. So this particular one I picked up for our 113. Okay. Technically, I guess you could say that I put about $25,000, $28,000 into it and then refinanced it back out. It appraised at $156 refinancing back out. Those same floor models are now selling for $2.40.

Wow. Yeah, it's pretty crazy. And when I say I technically put that money into it, I kind of did and I kind of didn't. What I did is I stuck it all on zero percent interest credit cards. Okay. And then basically the rent paid off the credit cards. So I never really wrote a check ever. I just paid off the credit cards with the rental income.

And then after about 15 months, 18 months, I got cashed out of it after that. So did I hear you right? You said you, wait, the repairs were credit card or the entire purchase was credit card? The repairs. Okay, okay. I just want to make sure I didn't miss that. I did put the cash in for the down payment. Yes, absolutely. I did that. So then when I refinanced, I pulled basically my down payment plus some back out.

Okay. Left the credit cards alone and then used that money to buy my second one. Okay. Very cool. So let's talk about that for a moment because I think a lot of new investors buying their first property, they have this trouble with getting the financing piece, especially for rehabs. And there's a lot of ways it sounds like to do a rehab without having to get into that expensive hard money loan. obviously a credit card with zero percent interest could be one of those but I'm sure there's some downsides to that such as those rates begin to spike up after a year or two right so do you have to be really careful when you start pulling credit cards into the mix I was lucky I had I had credit card offers that had a 3% cash advance fee and then zero percent interest for 15 months or 18 months or

24 months depending but if you don't get that paid off in that in that time period that they give you the interest rate can go up to like 20%. So you have to be careful what you're doing. Make sure that you're managing it exactly properly. Some people, I think, get into the track where they'll make the minimum payments going along, and then all of a sudden at the end of the term, they're stuck with coming up with a huge amount of money.

What I would do is just take the term that I had and divide it in equal payments and make sure I was paying the same amount every month. So I was never surprised with this huge, cash spike. That makes sense. So I just want to tell a quick story like that happened to me in this exact thing. So when I got started like reinvest in real estate, flipping houses, all that stuff, I didn't have the money for repairs. So I started putting it on credit card, especially like the Home Depot, no interest, six months or whatever it was, no interest, no payments. And yeah,

it all worked fine until like, you know, I couldn't like I stopped selling some of the houses and then I bird some of them, you know, bought it, rehabbed it, refinanced it. And I couldn't get back all the money. And so there was a point where I was like like probably three years in the my investing, I had like $30,000 in credit cards, just kind of rolling over from various things. And that, I mean, the monthly payment on that at whatever, 23% interest, I think it was, was horrendous. And so I would just, yeah, caution people. I mean, like, again, it got me to where I am. Like, I don't regret doing it. But like you said, you really got to be careful when you put those credit cards in the mix because if, I mean, things go wrong, especially when you're just getting

started. And maybe you can't refinance or you can't sell right away. What do you do if you don't get as much for the properties you want? So yeah, it's dangerous. Absolutely. I always have an exit strategy that involves getting that paid off or somehow figuring out how to get those payments because it can put you under. I would never recommend it as a beginning strategy, to be honest. The only reason I think that I was able to do that successfully is I had used that same method to pull myself out of debt. Prior to investing in real estate, I had quite a bit of consumer debt from an illness and a period of unemployment and a bunch of stuff like that. and I did the same thing with credit cards there to pull myself out of debt where I just was really careful about it. So because I had already used that strategy to pull myself out of debt, I felt like I could successfully use it for real estate investing.

Yeah, that's interesting. So do you think that people should, like let's talk about debt and credit cards and all that? Should somebody be debt free before they invest in real estate? I mean, I get that question a lot of here on the forums or should they look at interest and compare the rates and all that? Not necessarily. I think debt can torpedo you before you even begin in that it really affects your ability to borrow from the banks. You know, if your debt to income ratio is way too high, you're sunk before you even begin. Can you explain real bit that income ratio is for those who don't know? Oh, yeah. So a mortgage broker or an underwriter will look at your total debt to your total income. And they look at it on a monthly basis. So they'll look at your monthly income and your monthly minimum debt. service and if that ratio is higher than a certain amount, they just won't lend to you.

So it makes sense. Yeah, it's, it's, it's pretty tough. So, you know, you see a lot of times, you know, people will have this, you know, high car payment and wonder why they can't get a loan. Yeah. And it's because that debt on that car payment is just so high that, you know, they can't service that and a second mortgage at the same time. That's true.

According to the bank. Yeah, yeah, yeah. Because like, yeah, the more debt that they have, the more that the bank is like, well, they might not be able to make their payments. And it can really hurt people. I know people who've got, you know, two, three car loans that are $400, $500 a piece, and I got their big mortgage payment. They got all this stuff.

And you know, that's one thing is Scott. So Scott wrote a book called Set for Life for those people who haven't got it yet. You should get it. It's fantastic. One point you make in there, Scott, is like, you know, if people can just cut those huge expenses out out of their life, it sets you up for life for like a better thing. Can you explain a bit about that, Scott? Yeah, I think in the context of this debt discussion, the more debt you have, the more consumer debt, the more monthly payments you have to make.

And the more that's kind of piling up against you, the risk your real estate investing becomes because an investment that goes south can turn against you. Versus if you're in the position that Linda was in where you have some cash, you can put down a down payment and you have good credit where you can get access to some credit, that mitigates the risk a little bit so that you can begin paying off that debt. And if this investment had gone south, yeah, you're stuck with some debt, but that's not just an additional piece of debt that's piling on top of what you've currently got. So I think it's all about setting a strong financial foundation going into this. And it sounds like that you worked really hard on that financial foundation prior to buying your first investment. And so you could qualify for a loan and get good credit to make the repairs.

Exactly. You know, so, you know, would I recommend people wait until they're completely paid off to start investing? not necessarily. I think for some people, if you wait till you get out of debt, you'll never get started. The real estate cash flow goes a long way towards getting the balance of your debt paid off. So if you can find a situation or get involved in a situation where you're cash flowing and able to take some of that cash flow and pay down your other debt quicker, it gets you along much faster. But if you wait, you know, a lot of people will never get started. There's always a Christmas, there's always a car breakdown. There's always, you know, something that happens that puts you a

little further behind. And, you know, I think as soon as your debt to income ratio makes it so that you can qualify, get started. All right. Awesome. So let's get back to this townhouse that you bought. So you bought this four-bedroom townhouse in Westminster, which again is just slightly northwest of downtown Denver here. Why did you choose this? Was it, you know, I heard that townhouse, townhomes have HOAs and stuff like that. Was this a good idea, bad idea? What, what, what kind of prompted your decision making in that? At the time, I didn't really know all the ways that an HOA could impact you as a real estate investor. I had not found bigger pockets yet. I had not seen all of the posts about people complaining about HOAs, and I had never owned property in an HOA before.

This particular HOA ended up not being in the best financial health. They were spending their reserves just to meet regular monthly operating costs, but they didn't even know that. I went to an annual meeting just to go and ask them, you know, why are the reserve balance is dwindling? And I don't see major repairs happening here. And for people that don't know, an HOA is only supposed to spend reserves on major repairs. You can't just take it out to do whatever you want with. And they didn't have a good answer for that. And when I started pressing my question further, they said, well, do you want to be on the board? And I said, all right. So I ended up on the board of that HOA, dug into the financials with my background.

It was pretty easy for me to kind of dig into it. I realized what they were doing, and I'm not really going to get into the details of what was happening, but realized how they were misspending some stuff. And basically their biggest issue was that they had a board of directors that was very anti-dues increases. They wanted to keep dues low forever, not really. realizing that, you know, the costs to maintain a property go up every year. So we had to implement a dues increase and then do some very careful budgeting and cash flow management. And that HOA

is doing much better now. Oh, that's cool. Do you advise, I mean, people, if you're talking to a new investor or even somebody who's got, you know, maybe thinking about buying an HOA neighborhood, do you think that's a good idea, bad idea? Do you have any other properties that are in HOA? Is like, how do you feel about that? All of my property. Yeah, all of my properties are in HOAs. I have, yeah, I have 11 properties. They're spread across four different complexes that are all in HOAs. You know, I think it really depends on whether that's a good move for somebody. If you are committed to a community, you really are interested in seeing improvements in the community, and you're going to do more than just show up at the meetings every month and

complain, it can be a good move. You know, one of the big criticisms about investing in an HOA is you're not really in control of your investment. You're at the whims of the board. If you're on the board, you control your investment now, or you're at least one of only five people that, you know, control, you know, however many people are on the board. But you are more in control of your investment. But it's work. It's honestly a lot of work. I have three HOAs that I sit on the board of right now. One is a 432 unit HOA. One's a 400 unit HOA and one's 183 units. And it's a lot of work. There's a lot of email to deal with. As the president of one of the boards, I get very involved in the day-to-day management of the community. So it's a lot of work. But the reason why I do this

particular one, it's a bit selfish. Managing this complex with 432 units puts me in a perfect position to actually manage a larger apartment building when I'm ready for it. Oh, yeah. Oh, that's a very interesting comment. So are all the properties that you own in these HOAs? Yeah. And there's, so you have 11 properties and they're all in these three very large complexes. And it's basically like running at a large apartment complex is what you're saying.

Exactly. So this is really interesting. I've always heard, hey, HOs do not like the investors. They tend to be favoring the homeowners. They tend to be favoring the people who want to come in by and live there for the long term, and they don't like the tenants and all that stuff. Have you encountered any of that, or is that just hearsay or are you the? No, that's not hearsay. There is definitely an us versus them mentality within HOA communities in general.

It's not just the board. It's the residents as well. I don't think there's an HOA meeting that goes by that I don't get a resident homeowner in there complaining about neglectful. landlords, slumlords, you know, their words, not mine, to be honest. You know, and there's a real misperception that the rental units within an organization or within a community really bring down the whole community, and it's just not true. I actually, because I kept getting hammered on this in board meetings, I did a little research myself to find some data that I could share with the rest of the homeowners, because I kept getting complacent.

in board meetings from, you know, oh, those horrible landlords, the horrible investors. And in the period from 2009 to 2011, I found that of the foreclosures that happened in the community, 25% of them were for investors and 75% were from resident homeowners. I also went through our past due aging account and found that 100% of the people that are past due are all resident homeowners, not landlords. In an economic downturn or in times where things are not going well economically, it's generally the investors in a community that keep up on their dues. And those are the people that make the HOA capable of maintaining the property. Unfortunately, when you present this data to the resident homeowners, it does help stop the conversation and it does help stop the argument, but it doesn't change minds.

They still see the landlord as the evil person, everybody in there twirling their mustache and rubbing their hands together and doing a Scrooge McDuck and a pile of money. And it's unfortunate because I do think that there are some landlords that, you know, the stereotype exists for a reason. They do let their properties go. They aren't the most attentive people. And it does affect the rest of the community. And I think that knowing that, understanding that, acknowledging that goes a long way towards helping to repair those relationships. But there is always an us versus them mentality there. So how did you, if this is the kind of feeling inside these HOAs, inside these communities, how did you put yourself in position to get on these boards and have your position of influence?

Nobody else wants to do it. So in a lot of these boards, generally if you're running against a position, if you really want to be on the board and you're running against a position that's already held by somebody, odds are pretty good. You're not going to get in. But if there's a vacant position and there almost always is, they can't really turn you away. If you volunteer for the position and there's nobody else running and there almost never is, they can't tell you no. if that makes sense. That makes a lot of sense. I mean, because it's not like something

that I would want to do if I lived in an HOA community. Like, yeah, that sounds fun. Go and hang out on a board and get people mad at me. Like, it's not a fun thing. So you have a vested interest in running the HOA well.

Most people don't. I do. And I think, you know, my background as a CPA. I also have a background in business management makes it so that, you know, I run these HOAs like a business.

There's no personal agenda for me. other than just maintaining property values. I don't have, you know, okay, maybe a little ego involved. But it's not, you know, you get into some of these boards where there's so many ulterior motives and so many hidden agendas that they run a community into the ground in favor of whatever it is they're trying to accomplish personally.

All I want to do is run the property. I just want to run the property successfully, you know, get stuff repaired, make sure there's money in the bank, and keep going. And that's my only motivation, really. There you go. Okay. So we kind of skipped around a little bit on the show.

You started with your four-bedroom townhome, and then we moved into Grandmaster of four HOAs, whatever, chairwoman of four HOAs. What happened in between? So what was the next step after you had that first property? You've paid off the credit card debt. You finished the rehab. You've gained some equity. And you're looking to build your personal portfolio. What were you kind of looking to do as soon as that project was completed?

Yeah, so after the first property, I refinanced out, took the cash that I got. I bought the second property. The second property was more turnkey. My partner at the time said that he wanted to do the second one as a four-way split and rented out by the bedroom. And I thought, you're crazy. That's not going to work. And he's from England. And so he said, no, this is the way they do it in England all the time. It's very popular there. It helps with affordable housing because in larger cities, especially. especially like London, you can't find anything affordable. And so people will just rent a room. And I said, well, wouldn't it make more sense to just, you know, get a roommate? And he says, what if you don't know anybody? You know, you just move into this place where you don't know anybody else. And he said, yeah, it's going to work. Trust me.

All right. So we tested it. We ran two ads. We put the first ad up as a single family. And then we put another ad up as by the bedroom. And we were inundated with communication for the bedrooms, especially in Denver where affordable housing is very difficult to come by. People were very interested in keeping their housing costs low.

In this particular one, we basically pay for everything. So all utilities plus high speed internet and cable TV are all paid by us. And then they're all in for their rental amount. Can you walk us through the numbers in on that? That's fascinating. That's something I would be terrified to do. But again, my area is a lot smaller and cheaper, but still, like, I would be terrified to do that. Like, can you walk as do?

Like, what do they pay in rent versus what they would pay as an entire property? Yes. So the first property is still rented out as a single family. Okay. And right now, I get $2,0.50 a month for that one. Okay. The one that's the same floor model that rents out by the room. We rent out for $650 per room.

and then $700 for the master suite. So that's $2650 that we gross and rent on there. And we have about $250 additional expenses because we cover all of the utilities and everything. So the cash flow on it is several hundred dollars a month more than the single family. Interesting. And go ahead. What'd you pay for that one? So that one we bought at 156.

and that's that floor plan that sells for about 240 now. Okay. Wow, that's awesome. So do you think it's worth it? I mean, obviously you're doing it. You know, let's say you're making an extra $200 or $300 a month, maybe $400 a month in cash flow versus having the whole thing rented out by itself. Is it worth a few hundred dollars a month?

Is it a lot more work to manage that one than the other ones? Or is it pretty easy to manage it? You know, I thought it was going to be much more difficult. and in the beginning when you're first trying to get it tenanted up, it can be a little extra work because you've got, you know, a huge volume of people that you're working through because you're essentially trying to fill four doors. It's like buying a fourplex. So in the beginning, it's pretty difficult.

And I thought that there was going to be a lot of interpersonal conflict. I thought that people weren't going to get along. I thought I was going to get all kinds of calls about, you know, somebody stole my soda. And that's just not the case. I also thought I was going to get a bunch of younger students maybe or something, but I'm getting middle-aged professionals. We've had people all the way from 50-year-olds down to 25, 26, 27-year-olds that are starting their career. And once they're in, they tend to stay in. I have some of these tenants now that have been in there for two years.

And we started it off with six-month leases because I was really unsure in the beginning. and I wanted to be able to have an exit, you know, if I needed to. And those leases just keep rolling over. I've had very little turnover in those bedrooms. Interesting. Well, that's cool. Yeah, I mean, it's definitely something worth trying. I've heard people doing that, and we've interviews and people here on the show who did it with Airbnb,

where they rent different rooms by the night for that. But just as a typical rental, it's kind of fascinating. I mean, I guess when I think back, that's how I started. Before I ever bought a property, I rented a four-bedroom apartment, and I rented out each of the rooms to different random people I didn't know. And then I rented out my bedroom to a fourth person and I slept on the couch in the living room. Like that was my college real estate experience, I guess.

I mean, it worked. I mean, I was living for free, even making some money there. So, you know, just if it's something you want to do, then, yeah, it's fascinating. I think that's cool. It does work pretty well. One of the things that you do have to be careful of is your city's occupancy limits. In city of Westminster, you can only have five unrelated people living together in one, else. So anytime I have somebody ask me if they can co-tenant one of the bedrooms, you know,

or do double occupancy, the answer is always no. Because even though one person in an extra bedroom would be at five, and that would be my limit, I feel like it's not fair to the other roommates to not be able to have that as well. So I limit it to four, and that's that. I think Boulder has like some unrealistic thing, like three unrelated people living in a residence. And so you can get like these five or six bedroom houses in Boulder that you would not be able to do that with. Fascinating. And Boulder. Go ahead.

Oh, go ahead. Well, I was going to say this sounds like a terror, like I don't mean to. I'm not trying to sound like I'm skirt the law. But how does the government even enforce a thing like that about five people living? Like, is that really an issue? Like, again, I'm not trying to skirt the law here. I'm just wondering. I don't know how they would find out.

I'm guessing, you know, if somebody made a complaint that would probably do it. I'm just, I'm a rules follower. I just always find out what the rules are and I follow them. I figure I'll never get in trouble if I go that way. Me too. I try to stay above board because I don't know. I hate the idea of building an empire of any kind or building real estate wealth on something that's shaky. I'm not in this game to be, to be, oh, I hope they don't find out about XYZ.

I completely agree with that. And I find like one of the examples where this tends to come up a lot is with these Airbnb and short term rentals where people will buy a building just like it's. sounds like what you've got, Linda, and they'll rent it out. And it's like, oh, this is making incredible cash flow. Well, maybe it is, but often that's not quite within the realm of the city code or not quite within the realms of the rules of the HOA or whatever it is. And if you're building your portfolio in that way, you know, you could be in for some trouble in a few years. Yeah, I agree. There are two kinds of real estate investors, those who have reviewed their insurance and those who think that they have. Most don't realize their coverage wasn't built for

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So, all right, moving on. Let's go. Where else did you, I mean, you had the first property, then you bought the second one. What else have you done? Have it all been the same, just rinse and repeat? Yeah. Okay. So tell's about that.

So my next acquisition after that was kind of funny. I had some extra cash built up from the profits for the first two and was looking for my next deal. The Denver real estate market had really heated up at that point. This was summer of 2015 and could not get a deal under contract, just outbid, outbid. I mean, there was, God, dozens of contracts it seemed like coming in on every property. So I called my real estate agent one morning. And again, this is off the MLS. and I saw three condos that were all up in the same complex.

And so I called my agent and I said, just get these under contract. Here's the price I want you to put in for me. He said, okay, it's probably not going to work. And I was like, you're probably right, but let's just see. So at 10 o'clock the next morning, he called me and he said, congratulations, you're under contract. I said, woo-hoo. And then he called me at 2 o'clock. And he said, congratulations, you're under contract.

And I said, oh, okay. And then at 10 o'clock that night, he called me again and said, congratulations, you're under contract. And I went, oh, God, I can't buy all three of these. So that was interesting. He said, well, what are you going to do? And I said, well, let me do inspection on all of them and see which one I want. And we'll go from there.

He said, okay. So we went to the first one for inspection. And the photographer on that one was very talented. The property was nowhere near like it looked in the pictures. and because I had put the contract in sight unseen, you know, it was an issue. So there was no way I wanted that property at that price. So I walked out from that one. But the other two inspected perfectly.

They were great. So I kept both of the contracts and sat on it for a few days. And at the end of a couple of days, it was my sister's birthday. So I called my sister to wish her a happy birthday. And she said, what's happening? And I said, well, I got these two condos under contract and I have no idea how I'm going to buy them. I really only have enough money for one. I said I might be able to squeeze out the second one, but it's going to be really, really hard.

And she said, well, I have some money. I would like to come in on that with you. And my mom, who was on speakerphone, said, oh, I have a little money, too. And I said, oh, I guess we got a partnership here. So we threw together a partnership and bought both condos and away we went even further. That's cool. I think that's neat because, like, you know, you got good deals. I always say this, like, if you find the good enough deal, like, you'll be able to figure

out a way to get to financed. Like, you know, that's kind of finding good deals is like the foundation of being able to finance them. I was just an analogy, like, if I were to sell you my house, that right now, my house is worth, let's say, $300,000, if I were to sell it to you for $10,000 and you didn't have the $10,000, could you figure out a way to finance it? Of course you could. Everybody could.

They'd go sell their car. They'd ask their parents, their family, wife, husband, spouse, whatever. because it's such a good deal, it's easy to finance. And of course, that's an absurd example, but the principle is true. The better deal you get, the better you can finance it. And you figure it out. Absolutely. If it's a good deal and you tell other people about it, you'll get people wanting to come in on it with you or loan you the money on it or whatever the issue is.

But, you know, my recommendation there is always be open for something new. They always say don't go into business with your family. I did, right? it's working out fine. You know, they say that, you know, never bite off more than you can chew. I had a mouthful. There was no way I was swallowing that on my own, but we managed it together. So my partner and I, you know, have been doing a lot of this type of stuff now.

He bought a couple of properties within his self-directed IRA. So that was fun and interesting to learn about. And then we have a group of friends that I found this deal. The property was under market by about $20,000, and I couldn't figure out why. But I got it under contract anyway, even though I had no ability to close on it. Like I had just put those other two under contract and closed on them and had just started getting some cash flow out of those other two when I saw this third deal. I had no idea. I was like, well, I'm getting it under contract because it's perfect.

Don't know how I'm going to close on it. Started talking with it about some friends, you know, some friends of mine. And next thing, I know I had another LLC. So my brother-in-law went in on that one and a couple of friends that I met through Bigger Pockets at the meetups that we go to and threw that one together and that one's doing really well. So, yeah, it's just been a question of finding deals and then figuring out what you're going to do to get it.

Yeah, I love that. And you want to say something too? I can tell you. You're like, go ahead, Braddock. Okay, all right. So there's like a ton here I want to go through. But first of all, I love. I love the fact that you put in offers without looking at the properties.

So this is something that comes up quite often. And when I'm teaching, I do webinars every week on Bigger Pockets. And I talk about this a lot where I typically don't waste time looking at properties until I've, at least I'm in negotiation. I mean, nobody hardly ever responds yes right away and takes my offer. There's always negotiation. That's when I look at the properties because nine times out of ten, they don't even negotiate with me.

So then whenever I tell people that, they're like, well, what happens if you put in three offers and they take all three? And I always say, I mean, first of all, that is. a very good problem to have. I love when that problem happens, but it hardly ever happens. In fact, it never happened to me like that like it happened to you. When it does happen, though, you've got your inspection contingency most likely in there like it sounds like you did, which means you have a few days to go in there to inspect it and then you can back out for something that you find there. And so I've like, that's fine. Do that as well. Like back out during the inspection.

I'm not saying like go throw off 5,000 offers and just back out on every one. But like if you, the absurd chance that happens, you get two or three, four accepted. You know, that's a good problem. And then thirdly on that note is if they really are good deals, you'll figure it out. And here's why, and I think why your story perfectly illustrates this, real estate is really cool. Like we're like the fondsy of like the personal finance space, you know, like, we're cool. And like everybody out there knows that real estate's like the top, like, oh, I wish I could get into real estate. Even people who have no idea about this business, they know that someday, I mean, everyone says that, right? Someday they want to buy real estate because it's just, it's cool.

people know that it works. And so when you have really good deals, like most of your family and friends would probably help you finance it in all reality. And I don't think I've ever had anybody like turn me down like that I've actually come to and said, hey, are you interested in partnering on this deal? I got a really great deal. I don't think I've ever had somebody turn me down because it's it's cool and I'm doing all the hard work for them. And I'm like just here, here's a deal. You don't have to do anything. Just give me some money. So anyway, I love that. And I want to kind of add out to that. It sounds like, you know, you bought this place, you'd, you'd you'd bought rehab to place.

You'd tried something experimental out with by renting out by room. You had some experience. You gotten involved in the HOA. And I presume that you had mentioned this once or twice around your family and these friends who invested with you. And in so doing, perhaps, had built up your reputation to the point where they want to invest alongside you and take part in what you're doing. And I think that that non-tangible piece of what's going on in real estate investing, your personal brand, your reputation, how you, you handle yourself, carry your business also is impactful in your ability to close on these types of investments.

Yeah. Absolutely. I think that, you know, talking a little bit about it, you know, mentioning it at Thanksgiving or mentioning it, you know, wherever really works. Now, I do have some friends that, you know, hear about what I do and they just share their head and there's like, nope, I could never do that. What if your tenant trashes your place? What if you get a bad tenant?

What if they don't pay the rent? and I say, yep, those are all things that have happened to me. I've had the same condo get trashed twice now, to be honest. I've had a really bad tenant that was a nightmare for six months of my life that, you know, was really bad. So yeah, these things happen. It's a hard business to be into, but at the same time, it can be one of the easiest. It really, you know, just depends on what's happening and what's going on and how you handle it. You know, for me, you know, when I walked into that condo the second time and saw that it was trashed again, you know, I just, I just started laughing, you know.

I mean, I cried the first time. I absolutely broke down in tears the first time. Second time I just went, well, great, here we go again. You know, and that's the call the carpet, call the carpet cleaner, call the contractor, buy some easy off, buy, you know, go get all the cleaning stuff. You know, it just, it is what it is. It's a business at that point. It is. You deal with it, you know?

It's part of the, part of the business. And what's cool about real estate, too, is that you'll, like you just, like you just said, you learn, you grow and it's easier the next time and the next time, which is also why this is so, like, why private money and partnerships work out so well is because the answer to that question, what if the tenant trashes it? I'll take care of it. Like, that's like the best answer in the world for a private, like for a partner who doesn't want to be involved.

Yeah, don't worry. I take care of it. I've taken care of it in the past. I can take care of it in the future. you don't have to do anything. It's really like the best situation. They get to invest in real estate and they don't have any downside, like, other than putting up some money. So I love that.

I think it's fantastic. Yeah. Very cool. Very cool. So we'll need. Before we move on to the fire round and all that stuff and I want to ask you some CPA related questions here in the fire round. But anything like you want to share that we didn't cover, that's like a cool story or something that you're like, hey, I wanted to make sure I said this on the on the podcast. You know, one of the things that I've learned very recently is the business is all about how you conduct yourself.

I mentioned this nightmare tenant that I had, and it was pretty bad. There was a lot of accusations of wrongdoing. There was a lot of midnight emails, you know, ranting and raving and all kinds of issues. And the issue there is I never yelled. I never lost my temper. I never said the wrong thing. I never did the wrong thing. It was all a question of knowing the laws, knowing my lease, and just remaining calm through the whole thing and keeping everything on an even keel.

You don't manage this any differently than you would manage your W-2 job. You wouldn't go into a meeting with your team and start throwing chairs and yelling at people and cussing them out. Well, Scott trench might. I wouldn't. Yeah. Well, right. Scott might do it differently. That's how you got that black eye, right? That's it, yeah.

You said it was rugby. But it's all a question of how you conduct yourself. Always treat your tenants with respect, even when they're making you angry, even when they're doing things they shouldn't do. Always treat them with respect. And it's the same thing with your business partners. You know, never try to hide anything. Always treat them with respect.

Keep them appraised of what's going on that they need to know. and just always, always do things on the up and up, and things will come back to you. Yeah, I love that. In fact, I think every single person here who has any tenant whatsoever, if you have one tenant, two tenant, whatever, rewind this the last like a minute. Just hit like that back 30 second rewind a couple times on your phone right now or whatever you're listening to it. And listen to that again, because that is such good advice.

Like being a landlord, like, it's a business and you can learn to be good at it. If you just like follow what you just said like that, that was gold. So I love that. Well, cool. headed in your business. I mean, what's the future look like for you the next five, 10 years? So I just completed a Midwest tour. I was in Chicago, Quad Cities, Madison, and Milwaukee last week looking at properties because, you know, we joke about how you can't make money in an overvalued market, and it's somewhat true. I am finding it more and more difficult to find

deals. That said, I'm a lazy investor. I'm not going to be the person that goes up and knocks on the door with the overgrown weeds and asks if I can buy your house. That's just not me. So I am starting to look in the Midwest. I was hosted by some great meetup groups in Chicago, Quad Cities, Madison, and Milwaukee. And I want to get a shout out to those groups. Those were organized and hosted by Megan McCallum, who was a BP guest a couple of months ago. So that was really great. She provided me with some tours of those cities. And so I think I'm ready to go to the Midwest. like most other people right now. Nice.

Nice. That's very cool. Very cool. All right. Scott, anything before we move to the fire round? Nope.

Just want to shout out that Megan McCallum's podcast was showed Bigger Pockets podcast showed 228. So you can see that at biggerpockest.com slash show 228.

There you go. And that was an awesome, awesome podcast as well. And I also want to give you a little bit more credit. You know, you say you're a lazy landlord, but it sounds like you

also are heavily involved in several HOAs, really know, stuff, I've put in a lot of hard work and have a lot of experience in this. So yeah. Well, I mean, like, that's your unfair advantage, right? We talk about that a lot on the show is everybody has like an unfair advantage, something that they can do that nobody else can really do very well.

And you're, you're a CPA and you're organized and you know paperwork. So you can, if you want to help run a night show way, that's perfect for you. You know, other people are, you know, maybe they're, they're young and they like to run around and they like to go and knock doors until two in the morning. Well, that's great for them. Like that's their advantage. And other people, you know, like, yeah, everyone's, you know, like, everyone's, you know, got their own unique thing that they bring to invest in and figure what they

isn't exploit it. I know Tim Ferriss talks about this a lot in the four-hour work week is stop trying to fix all your what you're bad at. Like, I'm trying to fix, you know, I'm not very good at knocking on doors. I better go try to get better at it. Instead, like, what are you good at? Maximize that and forget about the things you're not good at. So anyway, I love it. Very, very cool. One last thing I'll say this before we move on. I love your tips about like going to meetups, you know, meeting other people for partners or for whatever. If you guys, listen to the show right now, don't know what your local meetup is. You don't really like your local meetup. First of all, go to biggerpockets.com.com slash events, E-V-E-N-T-S. BiggerPockets.com

is where everybody from the community can go and get together and meet and, you know, whether it's over a drink or at a restaurant or whatever. There's meetups, hundreds of them happening in all the time all around the country. And if there isn't one in your area, guess what? You can start an event in your area and then you become the hub. I mean, like, I would love to see, and I know Josh talked about this too, we would love to see thousands of just local meetups happening every month all around the country. Like that just because like it takes it off of this like I listen to a podcast or I read a book to here's real life people doing this and maybe we can figure out how to how to work together

on this. So anyway, bigger pockets.com such events. It's fantastic. So all right. Well, let's shift gears here and head over to the world famous fire round. It's time for the fire round. All right. So let's get to the fire round questions.

these come direct out of the bigger pockets forums. Now, today's fire round is a little different because we have a CPA on the show. So, as we asked you a question earlier, Linda, about tax stuff, and you kind of jokingly said, well, the answer is always it depends. So we know that you can't, you're not giving direct advice here or whatever, but I'm just curious to your opinion. Like, how would you respond in the forums to somebody who might ask this question? Like, what should they at least consider?

So these are all somewhat tax-y sort of questions. And we'll see what you've got to say. Scott, you want to take the first one? Sure. Should I invest using an LLC or a corporation? Do you have any general advice on when those entities apply and when they don't? Yeah, in general, it depends. If you are buying and holding, the general wisdom on that is to invest in an LLC if you're going to insist on investing within a structure at all.

for the most part, for the casual investor, for just the mom and pop person that just has one or two properties, there's nothing wrong with holding it in your own name as long as you're adequately insured. But if you're insisting on investing within a structure, generally we recommend an LLC for that. If, however, you're doing anything that's more technically a job, such as flipping, wholesaling, being a real estate agent, that type of thing, then an S corporation can be a really good structure for that type of thing. One of the things that people get caught up on a lot, and I want to make sure that this is crystal clear, flipping is not investing. It is from what we're talking about with real estate, but flipping is a job, flipping is self-employment. So your profits within flipping are subject

to self-employment tax. And so when you're talking about structures to help alleviate some of that self-employment tax, and S-corporation can be a very good way to go. It's not cookie cutter, though, and it's not necessarily the right solution for everybody. So you definitely want to get with a good tax advisor who can talk to you about that because they need to know a lot more about what you are and who you are and what else you have going on in your life before they can make a full recommendation. There you go. I like that.

All right. So next question. Now, this is I did not know anything about and hope maybe you do, maybe not. But I just found this in the forums as well as grabbing questions. You know, there's 750 hours per year requirement to be a real estate professional. So here's what the question says. And maybe you can explain this if you've heard of this. Since Padilla versus Commissioner disqualifies investing hours from counting towards 750 hours,

the 750 hour real estate professional criteria, is it possible for a stay-at-home mom who wishes to be a single property rental owner to meet the 750-hour threshold without becoming a real estate agent? Thank you. What is, like, do you know anything about like the 700? Single property? Or let's just say like, if, I mean, first of all, do you know, like, what, what are talking about in terms of can we not count investing towards that 750 hours? Yeah. So the 750 hours has to be

active participation within your property. So if you are a landlord that's going to be showing the property, doing bookkeeping for the property, basically doing all of the management for the property. If you have your rental under management, you're never going to get there because basically all you're doing is maybe approving leases or, you know, cashing checks. You're not going to get to 750 hours even with maybe eight or 10 properties. You have to be actively involved in your properties. And one or two properties is in general not going to get you 750 hours. Because, I mean, what they're talking about with the Padilla case is a very passive type activity, such as researching your next deal, not really the activity that they're talking about. What they're

talking about with being a real estate professional is performing repairs, being an agent, so showing, actually working in the business. So yeah, it's, it can be a tough, it can be a tough bar to reach. And it's tough on purpose. And what's the, what's the purpose of it? I don't even understand. Yeah, what's the 750? Like, yeah, why do I care? So, so what the real estate rule gets you is, um, if your total income is more than $150,000. a year, you are not allowed to write off your passive losses and your rental real estate landlording is passive income. So if you are having losses within your rentals, you can't write that off. Okay. What a real estate professional allows you to do is write those off. So being concerned

about being a real estate professional is for people who have losses in their rentals and make more than $150,000 a year. Okay. Yeah, that's a really good explanation because I always kind of wondered how that all worked. Because yeah, when I was like my, I was given massive losses for a long time. I was having big losses because, you know, my apartment complex, I was depreciating it and, you know, showing just massive losses. But had I not met the 750 rule or my wife, you know, we would have not been able to deduct all that. So, okay, very cool. All right. Next question. All right. Is education cost a tax deductible expense? And where would that apply? Where wouldn't that apply? I know that it always depends. It does. If the education is.

for a career that you are already involved in, then yes, it can be deductible and it depends on how that works. So me, for example, as a CPA, I'm required to take continuing education every year because I'm already a CPA and because the classes that I take result in being able to maintain my licensure and they're directly related to being a CPA, that would be deductible for me. but if you are going and getting education for a career that you're not already involved in, that's re-careering and that's not deductible. So if you are a lawyer and you're paying money for education to become a doctor, that's not going to be deductible. Okay, so what if I was a, you want to go ahead, Scott?

Well, I was just saying, what if I'm a real estate agent and I am, I work a full-time job, but I'm going to get my license anyway. so I can look at more properties and invest in the side, can I write off that expense, or do I need to show income from being a real estate agent before I can write that off? Yes, so if you have your license as an agent and just haven't done a deal yet, you're in that business.

You're trying to make a living. The IRS has this whole list of questions that they would ask to make sure that you are actually in a business, and I won't get into all those now, because it's like 10 or 12 questions that they would ask. But if you are in that business, even if you're not making money or making a profit, that education still can be deductible. But if you are dabbling, so maybe you got your real estate license,

but you haven't done any with it, you're not really soliciting clients, you're not doing anything, you're just kind of going through the motions, then maybe not. It's all going to be a list of facts and circumstances that has to be applied to your particular case. Okay. And what about a book? So I manage rental properties that I self-manage, my own portfolio. And what if I buy the book on managing rental properties by Brandon Turner?

The best book ever written. Best book ever written. Yes, that is something that if you came to me, you were my client, I would definitely allow that as a deduction. I would have no issue with allowing that. That'd be, you know, an office supply more than education. But yeah. What about if I wanted to get like Twilight?

You know, the book Twilight, Vampires and. Edward, because it takes place near where I live, and I may someday buy a house there, you know. I would think that a business expense would have to have some redeeming features. Okay. Darn. All right. Last question of the fire round. I like this question, actually.

I've never even thought of asking this question. And too bad Josh is not here. This would be great if he was here. But can I write off a firearm? Now, here's the full question. This may be a wacky question, especially considering I couldn't find any search results. pertaining to it, but can I write off the tax of a pistol as a business expense? I own almost a dozen rentals in Michigan, which is known to get a little dicey in certain parts. While I myself

have not been in a situation that would warrant using a firearm, and I probably don't. I've heard stories of landlords being assaulted while working or picking up rent. So, I've made up mind, I'm going to purchase a pistol and take some training courses. But being the savvy guy that I am, I wanted to save some money. Any input? You know, I actually saw that forum and I was going to reply to it. But, you know, the issues of firearms is pretty controversial and I decided to just stay away from that one. And now make you do it in front of 300,000 people. Yeah, no.

It's interesting because if you scroll further down in that forum, there's a very talented CPA that did answer that question and he answered it quite properly. Which is that if you have an expense that's normal and usual for your course of business, then it would be deductible. It was the opinion of that particular CPA. And his name's Brandon Hall, by the way. I want to give him a shout out. He is actually very talented. His opinion was no.

A firearm is not normal and usual course of business for real estate. Even if you invest in the dicier areas, it's not considered usual. Can I ask another weird question? Let's just say on that note, let's say I deducted it. Let's say I did a firearm and then I deducted it and then I got audited. Is the worst case really going to happen? If I'm a little more aggressive, this is a much bigger question, but if I'm a little more aggressive in my deductions,

because I think that I should be able to deduct a firearm, and the IRS says no. What happens in that case? I mean, do I just have to pay those taxes then? Yeah, so if the auditor decides to disallow that expense, then he'll recalculate what your taxes should have been and you will be required to pay the difference. Plus, if it's a big enough difference,

some penalties and interest as well. Okay. All right. So it's not like you're going to get thrown in jail for deducting a little bit heavier, but we don't want to have to pay extra and you don't want to be foolish, right? There's a difference between, you know, taking a deduction that you shouldn't have that's maybe a little gray versus tax fraud. Yes. People can and do go to jail for tax fraud a lot. Yeah. Yeah. More than, you know, I mean, huh.

Yeah, I sort of like that. Right. But no, if you write something off that you should not have. have or you forgot to declare some income, you'll get penalized for it. If it's huge, like, you know, they usually do it based on percentages and they don't really tell you what their formulas are, but I'll say that if you misstate your revenue by 20% or more, that could be an accuracy-related penalty and they'll add more and more penalty on to that. I get to know. Well, fascinating. I was like interviewing CPAs on the show here because, like, I was like to ask my tax questions. tax questions. And no, mine wasn't the gun question, but I love that question. All right. Well, before we

get out of here, let's head over to the world famous. Famous for all right. These are the same four questions we ask every guest every week. Let's see what you got to say here. Linda, number one, what is your favorite real estate related book? So you're probably going to laugh and it sounds pretty schmaltzy, but I did just get a chance to read Anson Young's new book, which was the finding and funding real estate deals, I think is. Yeah, finding. And finding great deals. Oh, wow, look that. That's it right there.

Yeah. Yeah. Finding and funding. Great deals. So the thing that I really liked about this book is I happen to know Anson personally. And reading the book was like sitting down and having a beer with him. It's very conversational. It's not lecturing and it's not condescending.

It's really just packed full of great information. And, you know, you can need to sit down and buy ants and a beer. or you can buy his book. But either way, you'll get great information. And it was, it was really, it was really great. I couldn't find anything in there that I was like, oh, that would never work. You know, everything in there was seemed, you know, oh, yeah, I'm going to try that. Yeah, that's cool. There's a lot of specifics of the book, too. Yeah. A lot of very detailed ways on how to find incredible deals, how to navigate certain systems and all that kind of stuff. Very true. I will also say that I did pick up Amanda Hahn's book on the tax

strategies for real estate investors. And, you know, it was interesting because normally I'll pick up a tax book and I'll be like, hmm, I'm probably not going to learn anything about this. And I did. Her book actually had some great tips and tricks in it for things that I didn't know. So I use those now in my own business and for my clients as well. I love it. Very cool. Awesome. So moving past kind of the real estate side of things, what's your favorite business book in general? You know, I had a tough time coming up with an answer for this, and I ultimately turned to a book that I've read recently called You've Got This by a guy named Will Matthews. And it's not business specific. It's more motivational, how to get over personal humps in your life, how to just really develop a brand new mindset and a brand new attitude that helps you move forward.

I struggle a little bit sometimes with procrastination. and there's a couple sections in there about how to overcome that and work through, you know, things that cause you to procrastinate and how to get those out of your life. Very cool. I've done heard of that one. Yeah, we'll put it in the show notes. All right. Next question. You get that one, Scott. All righty, I got it. What do you do for fun? What are your hobbies?

What are my hobbies? I am a beekeeper. A beekeeper? Yeah, I have a couple of hives in the backyard. So that's a lot of fun. I find that to be really fascinating. There's a couple hobbies I have that I've been so focused on real estate investing. I haven't had a chance to do for a while, but that's both sailing and scuba diving.

Really enjoy those. Cool. Not much of that here in Denver. No, there's not. No, but it's interesting. At one point in time, Colorado had the most divers per capita of any other state, even the coastal states. Wow.

Huh. Yeah. Weird. All right. Number four. Last question of the famous four. Linda, what do you think sets apart successful real estate investors from all those who give up, fail, or just plain never get started? You know, I think I'd like to address just the people that never get started.

I have one complaint about bigger pockets and only one. All right. And that is on the forums, you get people who will post about, you know, oh, I don't invest in anything less than a 12 cap or I only get, you know, 27% cash on cash return or more, blah, blah, blah, blah. blah blah blah. And there's a lot of that, you know, boasting and bragging that goes on. And that's great for those people. And I'm not knocking that. But for the newbie that looks at that, they'll say, well, gosh, I have this deal and it's only a nine and a half percent cap. I guess I shouldn't do it because that other dude only does 12%. Well, they're not taking into account different markets, different places in life, different places in the real estate investment career. And it's

sad because they talk themselves out of what would otherwise be a really great deal. And, you know, my advice would be if you see a deal and you run it by other people and they think it's a good deal too, just do it. Who cares if it's not the best deal or if it's not better than the deal that some other guy you talked to did? The thing that stops people from getting started is that competitiveness. And they think that if they can't go on bigger pockets and talk how they got 75% cash on cash return, that it's not worth doing.

And it's not true. Just do it. That's a fantastic point. People don't like bragging about their losses very often. So we don't hear nearly enough about the sob stories. I could brag about how to lose money on a burr. I've done that. Have you? Let's go there real quick. Tell us about it.

Sure. Sure. Picked up a property that seemed okay. During the inspection, there was sort of that hint of something not quite right, but I couldn't put my finger on it. So I moved forward with it anyway. And the tenant that was living there was, you know, burning the vanilla oils and all that kind of stuff. Well, after she moved out and after she closed, we went back in there. And the whole place was just soaked in dog pee. So I bought the dog pea house and took us forever to get it remodeled. Had some issues back and forth with some financing for a little while, had some motivational problems like I talked about before. And, you know, the long story short there is it took me almost a year to get it remodeled and sat on those holding costs and carrying costs for a year before I turned anything. And, you know, it's doing okay now. but it was a money pit for a long time. Yep.

So what would you advise for people to not have that happen? How do you catch the dog pee house? That's a great question. I'm not sure. Like I said, you know, the tenant was doing a really great job of masking that particular one. Yep. Because, I mean, my inspector's great. You know, there's nothing that my inspector did wrong.

I don't think there's anything that I necessarily did wrong. It's honestly, I don't know how to have how I could have evolved. avoided that one, but the key to it is having sufficient reserves to carry me through. I think that's a perfect answer, yeah, because things will go wrong. There are things eventually, like, I think the answer is twofold, right? You have reserves and then you buy enough real estate that on average everything works out well. If you buy one deal ever, there might be a 20% chance that that one deal is going to be horrible. But if you buy 20 deals, and like on average, a few of them are going to be not real great, but most of them will turn off fine and you

sell the ones that aren't as great. I know that everyone needs to go buy hundreds of deals, but the more you buy, the more of those averages work in your favor. So, very cool. Well, already. Linda, where can people find out more about you? You know, I'm on bigger pockets. My profile is not up to date. So I'm actually going to run out and update that real quick before this podcast airs. My contact information is on there. I don't really have a real estate investing website or anything like that. And honestly, sad to say, I don't really have a great website for my CPA business either. Most of my business just comes in through word of mouth, so I haven't really needed to use it as an advertising

vehicle. So it's just super basic. But that's all on my Bigger Pockets profile. Okay. Very cool. Well, thank you, Linda, very much. And I look forward to seeing you more around the Bigger Pockets forums and talking to you again someday here. Great. Thank you. All right, thank you. All right, Big thanks to Linda Wygant. Is that correct, Scott? Did I say that right? Wigants, yes. All right. Big thanks to Linda today for coming on the show and sharing her CPA advice and her story. Very inspiring. It just shows that you don't have to live in Podong, Washington, like me, to buy rental properties. You can do it right there in Colorado.

Yeah, I love it. I'm obviously a local Denver investor as well. And I love how she's making things work. She started investing right around the same time I did back in 2014, has a number of properties. and is really going at those entry level price points that a lot of people, that's what people can afford in this market. Does under $200,000 price points. And she's making it work because she's using her financial acumen to help run successful HOAs and maintain involvement there. Yeah.

And I thought that was, you know, that was a common theme in the show was like she was really good at certain things. We talked about at the end. Like she had her unfair advantages and that's great. So anyway, very cool. that she recognizes the market's different. She's now looking elsewhere as well, saying, hey, I want to continue to expand. I can't do it as easily as I once could hear. So let's look elsewhere. And a lot of people are doing that right now. So yeah, very relatable story today.

Absolutely. All right. Well, you got anything fun going on in your life these days? And now the Game of Thrones is done. I mean, what else do you do on your Sunday nights? Well, now I'm just kind of attempting to rest my one eye here while it yields up. I'm going to actually get the stitches out tonight. Oh, nice. Then I'm going right back to rugby. I'm doing that a couple, three, three, four days a week now, working out, running sprints, lifting weights, playing rugby.

Hardcore. Ladies. In the middle of the season. Ladies, calm down, but Scott Trench is getting buff. This is, this is good. Yeah. A little different from your traveling the country tour here. A little bit, a little bit different.

But yeah, I'm going to Disneyland, by the way, also I'm taking Rosie. She's not going to remember any of it, but I'm like, come on. I got to go to Disneyland with her. She can ride like the Dumble Ride or something. And I will have good memories, even though she won't. That'll be fantastic. She like Frozen? She has not seen any movies yet at all.

She can't sit still during a movie yet. Like, nothing. I mean, she'll like watch something on TV when we're watching it for like two seconds. And then I probably realize I shouldn't have Game of Thrones on for a 15-month-old. And then I pause it and wait until she falls asleep. Anyway, with that, let's get out of here, Scott Trench. See you later. See you later.

For the Bigger Pockets podcast, my name is Brandon, and this is Scott. Signed enough. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place. Be sure to join the millions of others who have benefited from BiggerPockets.com.

Your home for real estate investing online. It's time for it. It's time. the random five. All right, we got one last segment of the show here that we always like to throw in. This is our random six. We're going to throw six random questions that's you, Linda. Number one, what public figure has inspired you recently? It can be alive or dead.

Who inspires you? You know, that's a great question, actually. I kind of have a little girl crush on Elizabeth Warren. All right. She, and it's not necessarily for her political points. view, although I do agree with a little bit of what she has and what her platform is all about. What I take from her is her willingness to speak her mind and to not be afraid of messaging the sticky situations and the sticky issues that are out there.

And I'm trying to learn how to do more of that in my own life to not back down from things that scare me or sticky situations that might otherwise have intimidated me. All right. Cool. Awesome. Second question. Would you rather work for the FBI or NASA? Ooh, NASA. All righty. Good answer. That is easy. Do you read books in print or electronic format? Yes. Perfect. Nice. Do you use an alarm clock or do you wake up naturally? I have cats. So that's my alarm clock.

Good, good. I remember those days. Now my dogs don't let my cats anywhere in the same part of the house. But last one. What is your favorite dessert? Last one for me anyway. Anything chocolatey and gooey and stuff? Oh, like those lava cakes. Yeah. Those are pretty awesome. Good choice.

All right. My last question is, would you rather be the first person to explore a planet, a new planet, or to be the inventor of a drug that cures a deadly disease? Can I do both? You can discover the cure on that planet. Yeah.

That would be good. I think that I would like to discover the cure for a disease. I think that would be pretty fulfilling. It's a pretty noble answer. I think it would be kind of weird to answer the other way. I don't care about saving children. I'd rather be... I'd rather explore the planet.

Especially if they're behind on their rent. Exactly. Whatever. All right. Thanks, Linda. Thank you all for listening to the Bigger Pockets Real Estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform.

episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K, copywriting is by Calicoe content, and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.com. The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk. So use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose. And remember, past performance is not indicative of future results. BiggerPockets LLC disclaims all liability for direct, indirect,

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