Epic Real Estate Investing - How to Make 2016 Rock! and Olivier Katz | EREI 184

Episode Date: December 7, 2015

If you want to start 2016 off with a bang, you’ve got to put in the work NOW.  Join Matt along with fellow Epic listeners and Epic Pro Academy members as we ramp up at the end of this year for an amazing 2016!  PLUS enjoy two great interviews - one for getting your business taxes in order and the other introducing a new web service for real estate data. ------- The free course is new and improved!  To access to the two fastest and easiest strategies to a paycheck in real estate, go to FreeRealEstateInvestingCourse.com or text “FreeCourse” to 55678. What interests you most? E ducation P roperties I ncome C oaching Learn more about your ad choices. Visit megaphone.fm/adchoices

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This is Terio Media. from Terrio Studios in Glendale, California. It's time for Epic Real Estate Investing with Matt Terrio. Yeah. Hello. Hello. And welcome. Welcome to Epic Real Estate Investing,

the place where I show people how to escape the rat race using real estate. A lot of people think this is a real estate show. It's not a real estate show. It's a money show using real estate as the vehicle. And to escape that rat race, all you got to do is one thing. You just got to shift your focus from making piles of money to making streams of money. Change that one thing just one time and you are on your way to financial freedom.

It's not the most exciting path I promise, but it is the fastest. That's why we talk real estate because it is the final frontier where the average person has a legitimate shot at creating epic wealth. And the quickest road it is to get there. And once you get there, life then becomes exciting. All righty? So I got a good question this week inside of the Epic Pro Academy. Yeah, this week from Parker. And Parker had asked, Matt, I know I have heard on a past podcast that you like to really kick it into high gear during the winter months because that is when most of the competition is slacking off. What would be a few specific pointers you could give your followers on how to kill it this winter to help catapult us into 2016 riches? I love that question. I love the way he said it or way that he phrased it. What specific pointers could you give your followers on how to kill it this winter?

So that's what we want to do. We want to kill it this winter. And so my first response, if nothing else, do not take it easy. You got that right, Parker. Do not take it easy. Act as if it's just another month. That's the absolute minimum. Now, I'll tell you what I'm doing.

Personally, doubling down on my mailing this month. doubling down. I'm sending out twice as much mail in the month of December than I have ever sent, actually. This is going to be my biggest mailing month ever. And another thing that I've done this month, which I'm going to carry out indefinitely. But I'm starting at this month specifically is I'm doubling down on my follow-up touches. See, I have my VAs from VAs for real estate.com. They're calling all of my leads back.

They're fielding those calls. They're calling the leads back 40 hours a week, nonstop. Two full-time people do just that. and I'm sending a recorded voicemail out now every other week. I used to do that monthly. Now I'm doing every other week, a recorded voicemail to all of my suspects and prospects. I'm sending out a text broadcast on alternating weeks. I used to do that just once a month.

Now I'm doing that every other week. Alternating one week is the recorded voicemail and next week is a text broadcast. One week is a recorded voicemail. Next is a text broadcast. And then I'm sending out an email broadcast once per month, of which I didn't do frequently, but now with all the leads that we've been generating, we are getting a really good database of email addresses. So now it's really going to make sense to do that.

And here's why the massive follow-up. This is why I'm doubling down. There are some statistics. I think it's by some sales organization, some association. I forget where it was from. But they reveal the statistics of when most sales are made. And 48% of salespeople never follow up with a prospect. that's why I drive at home so hard that when you generate a lead you've got to call the lead back.

48% of salespeople never do. Half. Never call the lead back. They just, they spend all the money in the marketing. They make the phone ring. They capture that leads information and then they do nothing with it. They just hold it and collect it and just store it in their computer somewhere.

Don't do that. So 48% of all salespeople never follow up with the prospect. 25% of salespeople. make a second contact and then they stop. So 25% of the people will make at least one contact and then they are a second contact and they stop. 12% of salespeople make more than three contacts. Only 12% of salespeople make more than three contacts. You want to get into the top 10% of salespeople make four contacts.

Okay, because only 12% of them make more than three. So did I say that right? So if you want to get in the top percent, make more than three contacts. Okay, there we go. So where do you and your business fall into those stats right there? I mean, how many contacts are you making with each prospect? How many times are you contacting each lead? Not how many times are you dialing the phone?

How many times are you dialing the phone and they actually pick up? How many contacts? How many pieces of mail are you mailing to them? Are you sending broadcast? Are you sending them text messages? Are you sending them emails? Each one of those count as a contact. How many contacts are you making?

I mean, maybe you are an elite salesperson and you do follow up four times with each prospect. That's awesome. You are in the top 10% of all salespeople. And here's why you want to even double your follow-up attempts, even if you are at four times. Well, first, generating leads, depending on how you're doing it, especially in this business,

it can be expensive. I mean, the lead generation, it's probably my biggest single business expense in my business. You know, we're doing, I don't know, $15, $20,000 a month right now. And I think just three months ago, we were doing like $5,000 a month. And that number is going to double again first quarter.

So that's my biggest single expense. So with that being the case, you're going to want to maximize your marketing dollars. You want to maximize the ROI on that money that you're spending. So that's first. That's why you want to make those contacts. You don't want to just make one, two, or three contacts like the amateurs and then let it go. You don't want to do that. and the next reason that you want to do that is that's actually probably the biggest reason

for doubling down on your follow-up is the results you see just 2% of sales are made on that first contact just 2% just 2% 3% of sales are made on the second contact 5% are made on the third contact and 10% of sales are made on the fourth contact so if you are a res of sales are made on the 4th contact So if you are a sales rock star, you are in that top 10%, you are making at least four contacts with your leads, you're following up four times with each one of those leads. You're only capturing 10% of your potential sales, only 10%. Get this, 80% of sales are made on the fifth to 12th contact. The fifth to 12th contacts where 80% of those come from.

Now, this statistic came from, again, I forget the sales organization. for the statistic for a while, actually, when I was in floor sales, when I was selling professional audio equipment years and years ago. And, you know, and I've seen it circulate through different forums, and I've seen it circulate on Facebook. But inside my mastermind group, there's a guy in there. He's relatively new, just been there a few months. And he has a massive sales force. And it's a lending business. So he's got a bunch of brokers or, yeah, lenders that work under his brokerage. And he has such a sufficient. monitoring system of their phones and their lead generation, everything.

He knows his stats exactly. And when he did his first presentation at our mastermind group, his numbers were almost exactly this. And that was just six months ago. So I've seen these stats circulating for at least two decades. And this guy brought in his brand new fresh data and they haven't changed into decades. So if you want to kick off 2016, if you want to generate those 2006. 16 riches that Parker is looking for.

And you want to just do this with an absolute bang and make next year your best. Do yourself a favor and send out an extra mailing in December. Just send out an extra mailing right now this month. Because those are going to be your leads in January. That's what's going to help you have a rock star type January. And then what you want to do is you want to follow up with those leads and follow up with your past leads like crazy. hit them from as many angles as possible.

Phone, text, email, direct mail, hit them from every single angle. You know, the follow-up system that I've set up in my business, I believe, is the second most valuable asset my business has. Because since implementing this practice, this month, December, will be our biggest month of the year, wholesaling and flipping properties. And the overflow from my December efforts are going to make January, even bigger. And this is all happening during the time most people are taking it easy.

If you want to take it easy, if you want to pick a month to take it easy, I'd say take July off. Take off July. You know, looking back over years and years and years and years, and not just as an investor as a real estate agent as well, August seems to always be the slowest month of the year. From almost every perspective, from a buyer's perspective, from a seller's perspective, August. That's the slowest month.

So why take off July? Any answers? Any ideas? Any guesses? Why would you take off July if August is the slowest month? Because typically you get paid for the activity you did 30 days ago. What you're getting paid for today is because of work that you did 30 days ago. So if you're going to take some time off, take that time off in July, and then your August is going to be slow.

Got it? That slow month is going to match up with your slow inflow of leads. So I'd recommend, though, you do not take off December. Just my recommendation. If you want to start off the year big and make January a rock, you've got to put in the work in December. That's how it works. All righty. So I've got a great guest for you today, an entrepreneur, bringing buyers and sellers together via technology.

I love these technological conversations. And, I mean, we're going to find that elusive push button system sooner or later, aren't we? When we'll see, we'll see if he has the answer right after this. There are two steps to wealth. First, stop doing what poor people do. Second, start doing what wealthy people do. The wealthiest people do what they do best and delegate the rest. If only you have the time and resources to do it, now you do.

We're VAs for Real Estate.com, and we have some free information for you. Get the five-step shortcut to hiring a rock star virtual assistant that will make you millions. Go to VAs for real estate.com. Stop doing what poor people do and do what wealthy people do. Our guest today has over 25 years of senior level managerial experience with entertainment, television, advertising, and media companies. And he's bringing his talents to the real estate space. And he's here today to share what he's up to.

So please help me welcome Oliver Katz to the show. Oliver, welcome to Epic Real Estate Investing. Well, thank you. Thank you for having me. Very good. So I don't know if I'm pronounces this correctly. Your company, Homendo, is that right? Well, the jury is still out.

A lot of people call it, you call it Omen Do or Omen do. Okay. Whatever feels natural to you. Tomato, right? Exactly. Perfect. So why don't you tell me a little bit about yourself and your company specifically and what you guys do? Well, we started three years ago developing a solution that will essentially address both the needs of the real estate professional but also the consumers.

There's a growing divide between the real estate professionals today. and the Zillos and Trullias of the world. 90% of the consumers go online to search for properties before they contact a real estate professional. And, you know, unfortunately Zillow is pulling all of their data from public records. They do get fragmented MLS information, but by and large, their data is highly inaccurate,

which is very frustrating for the consumers, and certainly frustrating, for the realtors as well, for two reasons. One is that Zillow is essentially grabbing the data, the listing of these agents and making money as a result of it. And two is that the consumers tend to contact realtors with homes that they want to buy that actually was sold six months ago,

and it happens time and time again. So our primary objective was to launch a more mobile and online search platform that both professionals could use and consumers could use looking at the same listing inventory that is absolutely accurate because we pull from the MLS and we update that every 15 minutes. Very good. So similar to how are you different from realtor.com? Well, again, realtor.com tends to pull a mixture of MLS data and public record

and it's not MLS exclusive. And in addition to that, what our platform allows realtors to do is conduct their business from the time they meet a prospective client all the way to the closing of a transaction. So it is consumer-facing but also professional-facing and under one platform essentially provides the entire suite of tools required to conduct their business every day. Got it, got it.

And so this is a good place for, you know, our audience are real estate investors. And a lot of them do their investing virtually and out of state. And finding good, solid comps without getting a realtor involved is always a challenge. Does this solve that dilemma for a lot of people? Well, I think it will in time. We just launched the market. So we are now in the state of Colorado. and as recently as last week launch our national initiative.

So we're essentially broker by broker capturing all of the MLS around the country. But long term, certainly that or midterm, we feel that the solution will be the go-to solution for anyone looking for accurate data and then an ability to then consult with a real estate professional. So what are your projections on eventually being national? Well, we certainly, you know, it's interesting. There are 619 MLS in the country. And the top 25 MLS have about 600,000 subscribers would cover essentially, you know, 25 cities and 29 states. So, you know, our definition of a national footprint is really to capture the top 50 MLS.

With the top 50 M&S, we're essentially in almost every state and could profess to be a national property search platform. And that we think is something that we accomplish, we certainly intend to accomplish, you know, suddenly by the end of the year early next year. Okay, very good. So it's certainly a work in the making, but you've penetrated and you're inside, you have your presence inside of Colorado to begin with. very good and then does the public with people without a real estate license do they have access to all of the data is there still a limit on the data that they can see so we know we are in line with a professional the professional in this business and and so we are respecting certain protocol or guidelines in the industry so there are different types of information or level of information

that the general public can access versus what an real estate professional can so The technical terms actually are IDX feed, then broker feed, and then what they call VOW, which stands for virtual office website. So the general public would be able to consult and search on the property platform and have access to the basic descriptors of the property. And if a realtor was to log on to the service, they would then have access to agent information only data, you know, commission structure, days on the market, and so on. Right. So this is really the key differentiator is that it's the same listing inventory with different level of information, but everybody's looking at the same thing, can collaborate and rely on the accuracy of the data that we actually provide.

Okay, so the specific information that I know this audience is most interested in is seeing actual what has sold, say, in the last 30 days, 90 days, last six months. Will they have access to the sold information, or is it just active listing? So both. They will actually can access active listing, under contract, and sold. But we've introduced a brand new functionality that I think your audience will certainly understand and be attracted to, which is what we call the private market. And so we have developed a platform that allows real estate professional to actually create listings before actually submitting the listing to the MLS.

and sharing these property listings with either their preferred customers, certainly among themselves, and realtors can share that from brokerage to brokerage. And in markets where the inventory is low, and certainly it is the case in Denver, and I think many other parts of the country, access to a private market is going to be a great benefit to anyone looking for homes,

particularly in the investment community. Got it. No, that sounds like a good deal for sure. But, yeah, my audience, they're going to be looking more towards pulling accurate comparables. That's their biggest challenge. So we've integrated two sources. One is RPR and the other is value check. So for any listing, let me phrase that, every listing has integrated.

CMA solutions. So market analysis, recent sales, environment statistics, neighborhood statistics. So again, the idea here is to integrate all of the function, whether it's for the consumer or the professionals, and the one platform to access the most amount of information. So that is a big, big part of our solution is making sure that we provide a depth of market analysis attached to each property listing. the big difference, I guess, between you and someone like Zillow, the big gorilla in the market right now, is that your data is pulled from the multiple listing service and not just county records. That's right.

And that our objective as a business is very much aligned with the real estate professionals and the needs of the consumers. Zillow is an advertising site. Suddenly they're doing really well, and I don't want to speak disparagingly about Zillow there, but their objective is really about generating advertising revenue by grabbing data from agents and essentially advertising around it. One of the key differentiators for us is we never separate their name of an agent from his listing or her listing. This is sort of the golden rule of the business. But Zillow is essentially, you know, in the words of a lot of realtors

are hijacking the business and exploiting the agents by essentially making money on their listing and data. I mean, that's really a key philosophical and business objective differentiator. Got it. Got it. Super. So you just launched here recently, and so I imagine 100% of your focus right now is just on partnering with the other multiple listing services specifically. I think you said the top 50. That's right.

And that happens through the broker. we have a broker-to-broker strategy. So as we embark on a relationship in an agreement with each brokerage, they are empowered to provide the MLS listing. It is part of their agreement with their MLS. So we as a technology vendor essentially are getting what they call the REF feed

or the feed of data through the brokerage. And as such, each broker that we're on board in a new MLS provides us with, access to that MLS data. So in essence, if we had one broker in each one 619 MLS area, we would absolutely have a full national footprint. But all we need now is 50 brokers and 50 MLS and we'll have met our objective. Fantastic.

So, yeah, like I was kind of inquiring, or I can imagine, you know, that's your major main focus having just launched. Do you see anything above and beyond that for, for, 400? Well, we think there is an opportunity for home builders because we're currently focusing on residential homes. New home certainly is a big market, which may also be of interest to the investment community. We certainly will add rental components to Home Ando. And then, of course, you know, the MLS system is unique or exclusive to the U.S. and Canada. The rest of the world doesn't have an MLS solution.

What we're building essentially is a platform that could very plausibly become a standard in other countries. Super. Well, I wish you the best of luck. Sounds like a fantastic service. And, yeah, let's check back in six months after, you know, you've progressed a little bit further. and we'll talk about it all over again. How does that sound? Sounds like a great idea.

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Oh, ho ho! It's that time of year at Terrio Media, where we spend the wheel of reviews and give away a $100 Amazon gift card on every episode in the month of December. And here's how you play. To win a $100 gift card from us here at Terrio Media, all you have to do is leave a review for any or all of the podcasts hosted under Terrio Media, meaning this show, Epic Real Estate Investing, or Turnkey Real Estate Investing, or Hold That House. or do-over and or body do-over.

Leave a review on any or all of those podcasts, and on every show in the month of December, I will randomly select a winner of $100 Amazon gift card. Now, if you've already left reviews for these shows, then there's nothing for you to do. You are already entered. So go to iTunes and leave a review for this show and the others. And you see, with five podcasts under the Terio Media umbrella,

you have five chances to win this month. So let's now spin the wheel of reviews. The winner today is Panama Black, who back on January 14th of this year wrote, Matt, thank you so much for sharing your experience and real estate knowledge with us free of charge. To anyone reading this review, please know that Matt is the truth and nothing but the truth. Love this podcast. Panama Black, you are welcome, and thank you for the nice words and listening to the show. So what you want to do right now is go ahead and send us an email with your iTunes ID and the words I won in the subject line to podcast at Epic Real Estate.com. Send that to podcast at Epic Real Estate.com and we'll get you your $100 Amazon gift card out to you right away. Now, if you want to win, you got to leave a review. You got to be in it to win it, right? You got to leave a review for any of the Terio Media podcast. And as you can see, it doesn't matter when you left the review.

just as long as you leave one. Panama Black's review was way back at the beginning of this year. So the next $100 Amazon gift card will be handed out tomorrow on the new episode of Turnkey Real Estate Investing. Now, being the end of the year, I wanted to share a timely message or another interview, if you will, with my personal tax avoidance expert. And this was the feature interview last week on Turnkey Real Estate Investing.

So if you listen to that show, then this is going to be a review. It's going to be a replay. but if you missed it and you'd like to learn the three things anyone can do to mitigate their tax bill this year, well, I'd like to introduce you to Mr. Kingsley Charles. Kingsley, welcome to Epic Real Estate Investing. Hey, man, thanks. Thanks for having me. You bet.

You bet. So, hey, Kingsley, before we get started, can you just run down real quickly your credentials and what your business does for its clients? Absolutely. We are from the ground up. we were always designed as a service implementation for business owners, is that finances, taxes, taxing, accounting, all of those realms are often overlooked from a business model and from an entrepreneur standpoint.

So we use the professionals and our resources within our group to make sure that we give edge-cutting solutions to business owners, both from a financial reporting aspect, a higher level tax planning. Tax planning is key in our business because most CPAs are reactive for clients on April 15th, as you know. We take a holistic approach in terms of helping manage a client year-end and year out in order to make sure that we're doing everything in our power

to make sure that our clients are well-educated and well-informed when it comes time for April 15th. Got it. Yeah, when you talk about the thing proactive, I think that's where a lot of people dismiss it because, I mean, you and I, before we started recording, we were just talking about being sick. And we were talking about, you know, possibly juicing and being proactive about it because, you know, I get sick the same time every single year and here I am again. And, you know, you don't have a lot of value for it until it actually, it's a problem. And I think there's a perfect analogy there for taxes. No, absolutely. And it's probably accounting and tax planning for business owners are probably,

even just ordinary taxpayers, is one of the most overlooked things that is significant in our life each year because for most people, their biggest bill is their tax bill. And so it becomes very easy to worry about your accounting specifically if you're a small business owner. And more importantly, for every taxpayer is understanding what goes into their tax return each year, is that mechanically we all get lazy and start to think about it in January. The reality is you have the entire year to plan for what happens on April 15th. And in most cases, I guess January, it's too late. Yeah, absolutely.

There's not a lot of tax planning that goes on on April 14th. Right. Your powers have been dwindled significantly because of the time, right? Absolutely. Right. Well, cool. So let's talk about, as we hear going into this last month of the year, so maybe there are some things that people can do to mitigate their tax bill come next April. So let's go over the top three things any American can do to help mitigate their tax liability.

Absolutely. It's pretty basic. And these three rules are pretty much universal with any taxpayer, whether you own a business or not. And it's kind of highlighting just what we were talking about, Matt, is that you've got to get organized. You have to understand what is in your income number for the year and understand what your liability number is, and we'll talk about that more in a second.

But more importantly, is once you're organized, you need to make a plan, is that now is the time to do any proactive planning as opposed to trying to be reactive in January or in April. And then probably the most important thing as we add complexity to our individual worlds in our business worlds is you've got to get better help. Those three things, although it sounds incredibly simple,

is what usually gets overlooked by most taxpayers. We can talk about each one of those a little bit more in detail for you. Okay. So let's go talk about get organized. And I've brought this up several times where people asked, you know, what are the first three things you do if Matt, you had to start all over and from scratch? And the first thing, it's one of the top three things would be getting a bookkeeper

because I did not have a bookkeeper. until I was making a good amount of money. And then I had to go back and retrace all those steps and clean all that up. And it was very timely, very expensive. And it's actually very frustrating. So how does someone, I guess, get organized? What's your advice there? Well, you hit the nail on the head.

Is that there's not a moment in time when you become an entrepreneur where somebody actually shakes you and goes, Matt, you got to get organized and you've got to get good clean books. Is that we all skip over the wanting to get into the business, mode, and they don't teach this to you in school either, so it doesn't matter what your degree is, is the reality is the minute that you're an operating thrift, whether you're dealing with rental properties or cash flow properties, is that you have to have a dynamic there where you can actually track what's going on. And so it's the same thing, whether you're a W-2 or whether you're an

entrepreneur, is that if you're a W-2 wage earner, you know what your income level is, you know what your withholdings are, and so you can actually start to plan what that liability looks like. The disadvantage that we have as business owners is we dive into our business and forget to get accurate reporting along the way. And so taking the time, the energy to really be able to identify what your income sources are, what your cost are for running your business, and then being able to tick from that information of projection is paramount in terms of understanding your cash flow, when it comes time for April 15th. Got it.

I know we have a little bit of a structure that I want to go through today, but you brought something up there, and if I throw you too far off your track, then you can go ahead and bring it back. I'm all yours. Take it where you want to go. Well, you talked about income sources. And there's something significant that Robert Kiyosaki

touches on, and he touches on just about in every book. He talks about the difference of how different people, depending on your income, the way you earn your income, how you're taxed differently. And the way that he simply puts it, and I want you to tell me if this is oversimplified, is that employees get taxed the most, people that get their money to work for them get taxed less, and people that get other people's money to work for them get taxed even less. Is that?

Absolutely. I would tend to agree 100%. And there's a dynamic, when we're talking about planning, there's a dynamic that goes into how you invest and how you deploy what your structure looks like. And so the more advanced you become in terms of those income sources and your cash flow, it gives you more flexibility to make sure that you're maximizing those investment types, those methodologies, as well as those structures. Got it. Got it. And then, so this is actually a selfish question.

The difference between ordinary income and passive income, like rental income, how are those taxed differently? Well, there's actually two questions inside of there. This is one of the things that I refer to when we have the structuring conversation. And so I'll give you the simple answer, then I'll give you the more advanced answer, is that passive income is what we would consider low-level ordinary income, where you might actually have deductions and depreciation in the cash flow model, for example, where you've got gradual cash flow increases. but you've got benefit inside of that methodology,

i.e. depreciation or excelled depreciation, depending on your cost segregation for your rental properties and your cash flow properties. When it comes to ordinary income, if you're, say, wholesaling or flipping, that is going to be treated as ordinary income as opposed to passive, and that's where structure becomes really important. Because if you skip over the structuring education,

is that you can end up in an environment where all of that income is subject to self-employment tax, which is extremely high, especially in higher tax regions in the country like California, New York, Washington, E, C, Washington. Mm-hmm. Mm-hmm. When you're talking about structuring, you're talking about, like, your legal entity, correct? Absolutely. The difference between just having an LLC that's disregarded for tax purposes versus having an S-corp if it applies to your business model.

Got it. An S-Corp model cuts out the self-employment tax, which, by the way, is close to 15%. Well, that's a significant savings right there. Got it. Cool. So one of the tax strategies, I guess, for someone that has a job is to start a side business with an S-Corp. Would that be accurate?

Sort of? Certainly helpful. Even in the beginning, even just to have the flexibility of having a business plan and a business model and having that entity provides a platform for which you to grow from is that the timing on that S-corp election is really predicted by the type of business you're doing. So I want to make sure that I clarify, you know, in some of the conversations you and I have had, you know, over the past few years, is that you don't necessarily want to put your rentals in an S-corp. Is that you want to very clearly focus on what activity goes and what type of entity on an ongoing

basis. And that's going to be kind of different for everybody, right? For the most part. I mean, there's standard rules that apply in terms of whether the income, back to your original point, is passive or whether it's active income. And that's really the tipping point is that generally speaking is that we know that we've got a cash flow model. LCs are usually the best way to go, both from an asset protection, as well as a tax basis item. And then if you've got ordinary income, flipping income, rehabbing income, wholesaling income, is those are typically going to be guided in terms of an S-corpor. Right.

Okay, good. So the number one question I get from new people just getting started is when should I open up that legal entity? Is there a good rule of thumb for that? You know, there is no rhyme or reason. A lot of the times with clients, because we spend so much time in the legal conversation, and the asset protection conversation as opposed to just the tax conversation, is that I don't want anybody to actually have paralysis,

is that you do not need to get all of the things perfectly in order in order for you to go out and invest. And so I always urge first-time investors to go out and do the deal. Get the education, get focused on the core competence, and it's okay for you to go do a few deals. We can come in and layer that structure afterwards. Okay. Got it.

So you don't have to do it before you execute. No, we tell clients go cause some trouble. We'll clean it up. Is that I would rather see a client spend its time and focus on the business activity and then as it's actually generating real activity, it's got real cash flow, real depreciation, that's when we actually come back and help sculpt that for a client. Got it. Cool.

All right. So that's number one. Get organized. Well, get organized, understanding your income. Right. And then more importantly, understand your life. liability. And the nuance in there is that as W-2 wage earners, we know what we've paid so we can actually calculate what our liability is going to be. It becomes much more difficult for a business owner.

What happens when you write a check for $50,000 and buy a property? What depreciation are you getting? What expenses did you have in acquiring that property? So the organizational side of the accounting side become really important in understanding what your liability is as you get more complex. Got it. Understood. Number two was to make a plan. Absolutely. Is that once you can understand what your income and what your liability looks like, is that there are things that I refer to as vanilla that are in the tax code.

And some W2 wage earners participate in 401Ks. That's what I would refer to as a tool that's just kind of hanging out there, is that you need to be sure and maximize that. Certainly if your employer is giving you a match. take the free money. Beyond that, there's a handful of tools which are front-level, decision-making, business owner, W-2, you know, predictable things that we can do as income producers, SEPs, IRAs, HSAs, those would be basic things that you need to focus on for your end. The cool part is a SEP can actually be done, if you own your own business, a SEP can actually

be done after 1231. It's not a requirement we actually get that in place for 1231. And what's a step? And what's a step? A sep is a simple employment plan. It's used for closely held businesses. And it allows you to contribute a certain portion of your salary into that deferred tax account, much like a 401K. Got it. But this is like for your own business, right? Absolutely. For your own business.

Super. It doesn't come with the restrictiveness and the TPA that's associated with a 401K. And so a lot of single employee business owners or under five employee business owners will use the SEP just by pure nature of ease of installation. A good example would be if you've got earned income of $208,000 in an entity that you own is you have the ability to put up to $52,000 in that SEP per calendar. year, which is deferred income. Deferred income, got it. Can you self-direct a set? Absolutely. And when we talk about getting better help, is that I'm a firm believer, not only because of the industry that you're in, Matt, but also our clients are entrepreneurs, and they tend to invest in their core competence, whether it's real estate or what have you,

is that we teach the methodology that you should self-direct everything. That's everything that I just mentioned, 401Ks, Ceps, IRAs, HSAs. When we talk about Kiyosaki and his mental belief on how you invest and where you invest, a self-directed Roth is probably the most powerful tool that you have as an investor in your arsenal. That's tax-free money forever. Right, right. Awesome. I have a question about that.

Here's my belief. on the retirement vehicles is that most of those, essentially, you are restricted from taking any sort of withdrawals until, you know, 59.5, 62, 65 somewhere there, right? Correct. Okay. And if you take out before that, you have the penalties, the early withdrawal penalty, and then you have the taxation on it. Correct.

Okay. So my belief or philosophy, and I'd love for you to weigh in on this, is that is to not use those vehicles until you get your passive income to a point where, you know, it can support you right now, say if you are in your 20s, 30s or 40s, and then once you have your passive income to where you want to be, then you start using those vehicles later as tax shelters, so to speak, for deferred taxes. And I understand there's a lot of people out there that won't agree with me on that, and that's okay if you don't either.

But that's just my philosophy is like I'd rather live life now with my passive income rather than save it in a tax-deferred vehicle and not be able to enjoy it until I'm 59.5. No, absolutely. And there is a departure there in individual beliefs. And I already know this of your belief. And so I need to make a judgment on that would be unfair. It's because every business owner and every income producer has their own belief. Is that we just provide as a provider, as a provider, we choose to provide options and educate on all of them.

And then however we want to treat that decision at each year could actually change every year, Matt. It really comes down to what is your income after all expenses, what is the planning that we've got, and what do we want to do to alter that tax liability? It's because different clients will layer in different treatments in order to minimize the taxation. So I agree with you from a startup position. invest in your business where you have control over it where you don't have to worry about, you know, age limitations or early withdrawal penalties. But as you continue to grow your business and you start to have an income that is heavier in a tax burden,

you have to start to focus on these tools in order to minimize that tax burden each year. One of the things that I tell clients all the time is at some point, you have to start paying yourself because if you just, keep paying the government is that you're going to get to the end of the game and you're not necessarily going to have anything left. This SEP idea, maybe we can talk about this later, but I'll bring it up just real quickly, is you can put up to $250-something thousand dollars in that thing a year? Actually, if you earn $208,000 per year, is it you can put it earned income.

You can put up to $52,000 a year in that, and it's fully self-directable. You can put up to 52,000, as opposed to the 401K is not that much, right? Well, you're going to have limitations between employee contributions. You have to run payroll for a 401K, so you're going to pick up garbage tax. A Cep literally will work off of straight-line income, say, like in an LLC that's disregarded. Is it if you've got earned income of $208,000 in that LLC, you can make that $52,000 contribution. That's sweet. Okay.

We'll have to talk about that. It also works with S-Corps. There are a few more rules inside of S-Corps. The trick here is to minimize the cost and the restraints of the payroll when it all possible. Okay. Yeah. And I imagine we haven't talked too much about this, you and I, is because you've been cleaning up some mess from my past relationships, professional relationships.

Well, and I will tell you exactly what it is, is it's determined by your income level and what else is going on inside your structure. And so exactly what I just said a moment ago, as your income fluctuates and goes up and down each year, that's when you actually have to layer these tools in, Matt. It's not like you have to do a SEP every year, is that if we find that at the end of the calendar year that a SEP is appropriate for a specific client, that's when we make that recommendation. Got it, got it. And that was the thing that you said doesn't have to happen actually in the calendar year.

You can actually do that. Yeah, it's actually something we can do when you actually file your tax prior to filing your tax return. So next year. Sweet. Sweet. And then this last category you had was donor advised funds. What are those? We have a lot of clients that actually do a lot of tiding and gifting. And so as your income vacillates up and down, whether you're a W-2 wage earner or whether you own your own business, a donor-a-advised fund allows you to take income years where you've got higher income and higher taxation and park the money in a donor-advised fund to give to your charitable giving over a course of time is that when you actually put money into a donor-advised fund, you get the tax deduction in that year. That does not mean that the check has to get written to the actual charity. So if you have an extremely large year in terms of income production,

and you might want to choose to give a set dollar amount that is well above your ordinary giving to be able to pass that on to the charities that you're involved with over a two, three, four-year period, so you're not having to do a lump sum charity. The benefit is you get the tax deduction in the year that you're in. Got it, got it. And then you, does it, I also understand that you kind of get to direct where you want your funds to go rather than not at all going to Uncle Sam? Exactly.

And the magic behind it is you still have to go, you know, to a 501c3 is that you need to be giving to, you know, true charity, or charitable organizations. It becomes a timing mechanism. Is that you can dump into a donor-advised fund, pre-end of year and then control the output to the charities over a course of time. So you're actually making that donation in real time before the end of the year. And then if you over-donated because you had an extremely good year,

it allows you to pass that on over a period of time to multiple charities of your choosing. Got it. And all this is legal, Kingsley? It's all on the code, buddy. And that's the magic is that when we talk about going above and beyond having an understanding, and getting organized, getting your accounting together, and start to tip the thought process on what actually is out there in that vanilla realm, is you can actually go to a whole different level.

And that's what we do in our office is we focus on the code. So understanding what exists inside of the tax code, it's a complex code, 6,000 pages plus, but understanding what is inside of there is where we have the biggest value for our business owner clients. is that we take it to another level. Actually, understanding what's in every single business owner's business plan, their accounting gives us the ability to follow the code and use every maximal deduction, you know, maximize every deduction that's out there for our clients.

We're just starting to hit on a few of them. Right. If we were going to talk about taxation, you and I could go for hours. Right, right. And I certainly don't want to do that. That's why I've hired you. But, okay, so it is legal. And the next question is, is this just for the rich or is this for anybody in America?

It's for anybody. And it's for any business owner is that if you're generating income and you're not maximizing some of the tools that we've already discussed and the tools we're about to discuss, you really need to focus on where you're at in terms of getting the appropriate help to make sure that you're maximizing your personal situation. Super, super. So the end of the year is coming, and we want to do some things before midnight at December 31st. Is there a little checklist that someone could run down or something that, like, if they made a little extra money this year and they're concerned about what they're going to have to pay next year,

there's some things that they can creatively do to minimize what they actually have to pay out to the government? Some of the basic ones that we've talked about today would be maximizing 401Ks, maximizing IRA, which can be done until you're doing. your tax reporting as well. HSA is limited, a health savings account is limited to the calendar year. So that's something if you've got a high deductible plan, you want to go ahead and make that contribution. It has the same impact as making an IRA contribution or a 401K on your tax return. If you are regularly giving to charitable organizations and a lot of clients will do it

based upon their income level, you might want to consider it. a donor-advised fund before the end of December. Those are hardcore 1231 items. As we get a little bit more nuance in terms of somebody that's active in real estate, cash flow, depreciation, all those conversations start to become real world. And so we can talk more defiantly about what a client should be doing versus not doing. in the coming months as well. I brought this up to you a few months ago when we were in Nashville,

and we're having a really great year, and we don't know exactly where we're going to end up yet. You actually probably know better than I do, but one of the things that we were discussing for a potential tax deduction was buying the new car. Correct. So kind of go over that idea. Those are the kinds of little things I'm looking for.

Like, okay, say we've maxed out the 401K, and we've got the R&HSA, and we've got our charity's all covered. You know, and you still want to do some other things. Like, you know, is this the time to go in and get a new company car? Is it time to go and, you know, buy an office equipment, you know? Yeah, absolutely. We do this with all of our business owners in the month of December. It is that unfortunately the government likes to play a game with specifically what you're talking about,

the limitations on Section 179 depreciation. which is for large equipment and vehicles, for example. That number continues to vacillating each and every year, and for whatever magical reason, the government makes that decision, and they vote for it on what the current year's Section 179 limitation is, and they've done it in pretty much every year for the last three years. But we know that there is a 179 deduction available.

So for any business owner that is actually engaged in thrift, having that Section 179 deduction is applicable, we just don't know what the magic. number is. Right now, the limitations set at 25,000, which means that if you go out and buy a $25,000 piece of equipment, this necessity for your business that actually meets the guidelines for Section 179, is that you can actually take fully accelerated depreciation on that in this calendar year. So that type of planning mechanism, very specific to business owners, but also very specific in your case, is that if we're talking about buying a company vehicle,

is there we're going to get deductibility in the immediate purchase of that. So you said accelerated depreciation. It means you back to basically get to take the expense as opposed to having it amortized over a period of time. Vehicles are typically five years. Got it. Some equipment is 10 years. Okay. Very similar to cost segregation in cash flow properties and rental properties.

Is it a portion of the house you can depreciate over five? years, another portion of the house you can depreciate over 10 years, and then the rest of the house gets lumped into a 30-year depreciation. With accelerated depreciation, we're being able to capture all of the cost in one year as opposed to having to wait the course of time. Got it. So that $25,000 piece of equipment that you purchased, and as long as it qualifies, and you fully took the deduction, advanced the deduction on that, you could essentially get a dollar-for-dollar deduction in the same calendar year. This year. year. You get a dollar-for-dollar expense in the same year for whatever is allowable under the code.

So a good example would be if you maximize that $25,000, which is the current limitation, which will probably be expanded sometime in the month of December, is that you get to deduct that expense fully or depreciated fully in the year of purchase. And so it has the same impact as you buying or spending on any other expense item. And so if your current tax rate, say, is 30%, and you expend $25,000 for Section 179, that it's going to give you, you got to do quick math, it's going to give you a tax savings of $8,500, roughly. Got it.

So that $8,500 would be that you can choose to put that in your business or you can choose to send that to Uncle Sam. Yeah, exactly. By the way, let's be clear you still have the asset, too. Right. So not only did you, not only did you reduce your tax liability, but you have value in the asset that you purchased. Got it.

And then as far as the company car category, does that apply the same there? Same type, same principle? Absolutely. As long as the car meets the regulations for Section 179, it's usually intended for heavier vehicles. And so like a PREA is not going to qualify. But the range rover would?

Huh? But the Rangerover would? A range rover would. Suburbanes do. I have a lot of clients that will buy farm equipment. in your end, a lot of dentists that will buy dental equipment and x-ray machines at your end. So Section 179 is the deduction. Got it.

Are there any other dollar-for-dollar deductions that we're missing? Not that I would consider vanilla, or straightforward that apply to everyone. And that's kind of where you and I were driving today is that we can talk about generics. the reality is depending on an individual structure and an individual vision of what's going on with their business, is that you really need to apply the code specific to your cases. And so that would be like my third tip is to get better help, really get defined about what other deductions you're missing. Without me going off on a tangent like that two-hour tangent where I could talk, you know, specifically about other deductions that are actually built inside the code,

just a short list, it would be defined benefit plans, cost segregation on rentals and cash flow properties like we were just talking about, specific benefits for rehabbers, is that there is additional deductibility if somebody's out there doing a rehab. There's all sorts of things that we can apply that exist in the code if we're actually focused on getting the planning portion of it correct in the calendar year. Super. So we've got... And structure, too.

I mean, I glanced over structure earlier. I mean, I encourage people to go make a mess and we'll clean it up. But if you've got three or four properties out there and you're not incorporated yet, is that maybe now is the appropriate time to get incorporated. So that would certainly fall under the category of getting better help. Who wants to do that stuff themselves? Let's see. Number one is get organized.

Number two is make a plan. Number three is get better help. and if they wanted to inquire with you, Kingsley, potentially, you being that better help. I love the domain name that you're using. Fire your CPA.com. Did you have to buy that from somebody or did you just go to your Go Daddy? Really? Yeah, we've had it on our shelf forever.

We used it for some video production a few years ago, but we usually only whip it out because we're doing a call or we're in a presentation. But it'll actually redirect you to one of the first. of our main websites and give you some more information about tax planning. Cool. So if you want to talk to Kingsley about how above and beyond the vanilla stuff that we covered today to see what's applicable for your specific situation on how you can mitigate your taxes, your tax liability, your tax bill, you can go to fire your CPA.com.

Fire your CPA.com. There's a huge collector of domain names. I'm very much a big fan of that one. It's easy to remember. It's easy to spell. There's no hyphs, no dashes, no funny spellings. It's great. Fire your CPA.com.

All right, Kingsley, so what are you excited about for the next year? What's coming up? You know, tax is an evolution, man. You know, so every year is that we all squirm a little bit when we're dealing with taxation because there's so many new rules each and every year. And I will tell you that if you look, historically at the turning tables for taxation and major administration implementation, is that we are now in that envelope of potential new electoral candidates coming into this next year.

And so just as in 2008 we had wide sweeping changes that we knew that we could predict based upon the election results, we are avidly watching what's going on with the presidential race because it has a huge impact and all of the stuff that we're talking about today. Yeah, it's interesting. Well, the interesting is I remain apolitical because I have to in my job. The reality is that there's change coming, and so it gets us excited because tax is evolution. We know it's always going to exist. The question is, what will it look like next year?

Right. Yeah, I've always considered myself apolitical because I didn't really think either party had all that much power. in the first place. And I mean, over the overall well-being of us, us citizens. But, you know, the older I get, the closer I'm watching. So I guess it has to do with the more successful I become, too, the more it impacts me, I guess, as well.

Well, it has a, for income producers, it has a higher level of impact because you can't control it necessarily as a W-2. As a W-2 wage earner, you're subject to it. As a business owner, you can actually, deploy different strategies and have different mechanisms in terms of investing, that can actually impact that bottom line much faster. Right, right.

Well, that's a good note to end on. Is there anything else I should go over that I forgot to bring up? No, I think we covered it all, buddy. Yeah, no, that was good. That was good. So go to fire your CPA.com, talk to Kingsley and see if working together make good sense. If nothing else, Kingsley has been an amazing help to me and my business. he's never short of at least advice or point you in the right direction if he's not the right fit for you.

So thanks again, Kingsley. Let's do this again, okay? My pleasure, Matt. Thanks for having me. That's it for today. I'm Matt Terrio, living in the dream. You've been listening to Epic Real Estate Investing, the world's foremost authority on separating the facts from the BS in real estate investing education. If you enjoyed this show, please take a minute to visit iTunes and share your thoughts. Thanks for listening. We'll see you next time here at Epic Real Estate Investing with Matt Terrio. This podcast is a part of the C-suite Radio Network.

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