Epic Real Estate Investing - 3 Reasons to Buy a Rental Property Before the End of the Year | 834

Episode Date: November 12, 2019

In today’s episode, our host, Mercedes shares 3 reasons to buy properties just before the end of the year. More specifically, you will learn what tax benefits you can acquire by buying a rental property during this period of the year. Tune in and find out more!  Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. So you want to be a real estate investor, but you don't want to do the work. If there were only a way where someone else could do it for you, now there is. Tune in here each and every Tuesday on the Epic Real Estate Investing Show for Turnkey Tuesdays with your host, Mercedes Torres. Hello and welcome, welcome to Turnkey Tuesdays bought to you by Epic Real Estate Investing. My name is Mercedes Torres, your turnkey girl, and I am lucky enough to be partners in crime with Mr. Matt Terrio, the gentleman who created the epic real estate empire. This is a real estate investing show for busy people. Busy people just like you who understand the importance of real estate, but don't have the time or the desire to do it all themselves.

Let's face it, it's a lot of work. So this show is to share tips and advice and real real estate experience so that you too can create passive income in your world. So if this is your first time here, glad you made it. Make yourself at home. If this is not your first time here, my friends, welcome back. So let's jump right into it this week. We're going to jump into the important stuff because I often get asked.

asked, what type of returns do your properties produce? And while my common answer usually consists of the infamous cash on cash return or the ROI, I fail to include the massive tax benefits, cash flowing properties, and real estate in general can provide. I mean, one of the biggest benefits of real estate ownership is the favorable tax treatment it receives. And when you become a real estate owner, you gain access to a number of additional tax benefits that could add up to significance tax savings each and every year. I mean, it's easy to calculate your tax deductions. You simply add up everything you can ride off and compare it with your standard deductions. Ladies and gentlemen, it's epic. I mean, not only do cash flowing properties

produce cash flow, the list of write-offs approved by the IRS, it's extensive. It not only includes you being able to write off the typical appreciation, depreciation, and interest, because of course those are the most common. But you can also write off. benefits like advertising. All the money that you spend to advertise your rental or if you're selling your property, which I strongly advise against, but if you are, all the costs that you spend on advertising, that is deductible. All the auto and travel expenses that go into not only supporting your property, but let's just say you're acquiring the property across the country and you decide that you want to fly to go see that property?

Well, all those auto and travel expenses that you incur to go see your property, perhaps in another state, that's an expense that you can write off as well. Oh, and the cleaning and the maintenance of the property to bring it up to par, that is also deductible, not to mention commissions that you pay, all the insurance that you pay when you, own your property, and all the legal and other professional fees that go into not only acquiring your property, but perhaps creating the structure that's going to hold the property, that is also a deductible expense. I mean, these are just a few write-offs to name a few

because the list is extensive and I'm just tapping the surface, so to speak. Now, hopefully, your accountant and your tax preparer is well versed in real estate because if they're not, they could potentially not capture all those benefits, ultimately having you leave money on the table at the end of the year when you do your taxes. So make sure that your tax team is fully aware of all of the benefits real estate can provide you and make sure you're maximizing those to the maximum. Since we are nearing the end of the year, my friends, I want to share with you three reasons why it's critical to buy properties just before the end of the year so that you can capture all the tax benefits for that current year the next time you do your tax returns. Got it? So let's

jump right into it. And I'm going to share with you my top three reasons why you're you want to buy properties before the end of the year. So number one, interest and real estate taxes. You can always, and I do mean always, write off and deduct without limitation, all the interest that you pay for your property, and all the real estate taxes. Now think about it. all the interest on any aspect of real estate is fully deductible. So let's say, for example, you buy a property for $100,000 and you get a bank loan. You put down 20%, so you put down a $20,000 deposit on your property. The bank loans you $80,000, and the interest on that $80,000 loan is about a $5,000.

and a half percent. Now, that's a little high for the time being right now. I'm just using that as an example. I just had one of my clients lock a loan at 4.99, but that's relative. So we're just going to use five and a half for this example. So that means that every year you're going to pay on this $80,000 loan approximately $4,400 in interest. Well, that five and a half percent or that $5,000, or that $4,400 that you're paying in interest every month is 100% deductible. Think about what that mean dollar-wise. You're getting to deduct everything that you've paid the bank that lent you the money to buy this property that is fully deductible.

Or let's assume you're going to borrow this money from your, 401 pay where you are currently employed. Well, if you borrow from your active 401 pay, your employer will make you pay yourself back with interest. Now, my friends, don't even get me started on how retarded this is, but that's the price that you pay for borrowing your hard-earned dollars when it is parked in your company's 401k. So let's assume that you borrow this $20,000 to use as a down payment for your rental because the bank is giving you an $80,000 loan. So the employer requires you to pay yourself back. Well, let's assume that's a 6.5% interest rate that you're paying yourself back with interest. That 6.5% that you're paying yourself back is 100% deductible in addition to the interest that

you're paying on that 80% loan. Is that amazing? That is all fully deductible. Oh, and by the way, let's not forget the taxes that are being paid on this property. Well, guess we? Guess we? what? That is also fully deductible. Is this not amazing, my friends? This is something that people just don't give it a second thought. And at the end of the day, my friends, it is huge. Okay, let's move on to number two. Number two, you can write off the depreciation of real estate. That's a simple formula. So I'm going to walk you through it just to give you. an idea, and by the way, my friends, this is just to shed light on the benefits that are available to you when you buy real estate before the end of the year. Before the end of the

year. So, you deduct out the value of the land and divide the remainder, the real estate value. Now, you do that by 27 and a half years to reach the final annual depreciation. figure. You take the purchase price minus the land value and that equals the real estate value. Well, that figure that you get can be your tax deduction. This can happen from the date that you purchase the property even if there's no rental income in that short year. So let's just assume that you buy a property in December and you make it right in the nick of time. It closes. It closes. on December 31st. Well, that depreciation, even if you purchase the property on the last day of the year, you can write off that benefit for the entire year. Is that not amazing? So let's analyze that

even further. Let's say you are a W-2 employee and you don't have a lot of deductions, meaning you're pretty much paying a pretty penny to Uncle Sam every year. So that just means that when your employer gives you your paycheck, they've already deducted a certain amount of money that goes towards the FICA and your other taxes that are deducted by your employer. Well, this depreciation deduction can mean that all that money that you paid for taxes, that were deducted by your employer, you could potentially get it all back. My friends, it is crazy sick.

I actually, true story, my friends, I actually didn't get this concept until I brought my first rental property. And I bought this property. I bought it as a fix and flip, but I lived in it. And I actually got to live in it for almost the entire year. year. I lived in it for 11 and a half months. So the entire time that I owned that property while I was preparing it, if you will, was fully deductible. The depreciation was fully deductible for the whole year. And I didn't actually see it until I sat with my tax preparer and she explained to me

step by step and walked me through the deduction amount that I had. had that year. And in that one moment, it was a total life changer because I actually got to see the number that I was able to deduct against my taxes. It was mind-blowing, eye-opening, and really helped me understand why it was so important for me to buy real estate every single year. So number two, deductions and depreciation is my second favorite. Now, let me talk about my third favorite and one of the main reasons why you should buy properties and hold them and hold them and hold them. So one of my favorite deductions are writing off repairs and improvements to your rental real estate. Now, there's a fine line on what is repair and what is an improvement. And you have to be

crystal clear on what this is. So a repair, for example, is like you're fixing a hole in the wall on the property or you're unclogging a shower drain. You can deduct the cost of these minor repairs from your current tax liability. Because the IRS concept of repairs is that the repairs in most cases do not add significant value to the property or extend its life. Therefore, you can ride off the entire amount that year. So let's just say you fix the hole on the wall and you unclogged the toilet and the total of both is $500, you can actually deduct penny for penny that $500 from your taxes that year.

Okay. Improvements, on the other hand, are handled a bit different, but nonetheless, they are still a benefit. Improvements, such as replacing a roof or renovating a kitchen, these are usually more labor-intensive than repairs and typically cost. substantially more. And the assumption is that these improvements will add value to the property over multiple years and not just the current year. Therefore, they're handled a little bit different, and this is why you can't deduct the entire amount of the kitchen renovation, for example,

in one single year. Needless to say, you can still benefit from spending that money to make your property more desirable for renters, it's just taxed and deducted a little bit different than a repair. Needless to say, my friends, this is still an enormous benefit for you. You can also deduct capital expenses, which to the IRS are considered like betterments to the properties or restoration to the property. Let's say perhaps your property. You're is located in a historical area where you are required to maintain the property and restore it up to the city code. That entire restoration or the amount that you spend on the entire restoration is fully deductible over an X amount of time. And also, the adaption of the

property. Let's just say you adapt the property to become, for example, handicap accessible. That adaption cost. So what you spent to make it handicap accessible is fully deductible. Again, over time, but needless to say, fully deductible. Indirectly, these are all incentives from the IRS to keep America beautiful, if you will. I happen to think it's pretty smart. I mean, we all do our part to keep our properties safe and updated and beautiful for not only ourselves, but for tenants, and the IRS allows us to do it tax-free. So I give a thumbs up on that portion of what Uncle Sam does for us. My friends, you know, I've always loved real estate. But when I started building our own portfolio and meeting on a regular with my tax advisor

and my CFO and our CPA, at the beginning it was just my tax advisor. But she helped me see personally what those numbers meant to be at the end of the year. And for the first time, I started to see how those numbers impacted my bottom line. Now, unfortunately, the only thing you see right away is really cash flow. That kind of provides like instant gratification. But it's not until the end of the year that you get to see where the real money is made. And it's on your tax returns. It's something that, unfortunately, real estate investors, when you first get started,

you don't get to see it right away. It's not until the very end when you get to see it. But needless to say, if you're sitting with your tax advisor or with your CPA or your tax prepare and they break down the numbers for you and what it potentially means not only in one year but five years and 10 years, my friends, it's mind-blowing. Now, I truly hope this episode served as a little bit of education on how one rental property or year, or even one property every other year, what it can do for you and your finances and how it can impact your financial future. I mean, think about it. If you pick up one rental property a year,

in 10 years, you will have 10 rental properties all working to pay you. That's what I'm talking. about my friends. I'm open to discuss this further with you, my friends. So feel free to reach out to me or reach out to the cash flow savvy team. We are here for you. Truly, it is my passion to help you create passive income and financial freedom in your world. So feel free to reach out to me directly. You can send me an email or you can simply go on to our website to cashflow savvy.com. That's savvy with two vs. Contact me or fill out the form and I will be more than happy to reach out for you. Discuss what would be a great plan to help you deduct as much as possible from your bottom line so that at the end of the day it contributes to your financial freedom. I will catch you,

my friends, on the next episode of Turnkey Tuesdays where cash flow is king. Do you have doubts about your current plan for retirement actually panning out? Imagine revolutionizing your retirement plan so it pays you right now and in retirement. Change one thing, one time, and that revolution can be yours. That's Bad news for Wall Street, but great news for you. We're cash flow savvy, and we'd like to offer you free information that will show you how one simple tweak can cause your retirement plan to pay you right now and in retirement. And it's yours for free. For the secret your financial planner doesn't want you to know, go to cashflowsavvy.com. That's cashflow savvy.com. This podcast is a part of the C-suite radio network. For more top business podcasts,

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