Epic Real Estate Investing - Real Estate Investing Strategies and Tax Savings - It's a Wonderful Thing! | 353

Episode Date: March 6, 2018

Tax Hacker Tuesday is back to teach you about real estate investing strategies and tax savings! Tim Berry answers questions from listeners about which real estate strategies he suggests, the magic behind cash flow, the truth about recapturing depreciation, and how to use partnerships for success beyond your wildest dreams. Find out how to apply all of the above to your business with Epic Real Estate and Tim Berry on Tax Hacker Tuesday! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. Did you know that up to 50% of your lifetime income will be wiped out by taxes? What if you could stop this madness? Isn't it about time you play on a level playing field with the wealthiest 1%? Now you can. Tim Berry, attorney at law, shares here each and every week current tactics and strategies that anyone can implement to hack the tax code. Protect your assets and keep what's rightfully yours.

It's time. for Tax Hacker Tuesday. All righty, welcome to the Epic Real Estate Investing Show. Welcome back to Tax Hacker Tuesday with my attorney and friend Tim Berry. Tim, how goes it? It is going fantastic, Matt, yourself? Oh, couldn't be better if I told you, you'd be so jealous. On Mondays here at Epic, we show you new and creative ways,

as well as time-honored ways of making money with real estate. And on Tuesdays, Tim and I, well, actually just Tim, we'll show you how to keep it. And I ask him questions, and he gives us really clever, creative answers. And speaking of questions, it doesn't always have to be my question. You can actually have the ability,

or you do have the ability, not can. You do have the ability to ask questions to Tim as well, and we'll answer them here right on the show. You can go to taxhacker.com forward slash questions. Do you even have to say forward slash anymore? I think you just say slash, right? We all know it's a forward slash. Taxhacker.com slash questions.

And then right there, you can post your questions. And Tim and I, or Tim will, I'll ask the question for you on your behalf, and then Tim will answer it. So we have a few questions here. We mentioned this a long time ago. So there's not a lot of questions here. So this would be a great time to go there. And you could certainly get your question answered directly right here on the show. And we might have answered this before.

I remember putting this in. I put it here on behalf of one of the list. listeners that asked this inside of our private Facebook group. And that's Gilbert Ross. And he had asked, what real estate strategies do you suggest for real estate investors besides flipping with the new tax laws going into effect? Tim. Yes, sir.

What can you say to that? I mean, when you talk about investing strategies, it's really like you can flip, you can hold, or you can finance, or kind of what we're limited to, right? I mean, in general. Yeah, in general, but I mean, holding is a wonderful thing because, gosh, you get the rental income. Chances are the rental income is going to be negative from a tax viewpoint, even though it's probably going to be positive from a cash flow viewpoint. Right. Okay. Stop right there. I'm stopping. Explain that because I think that's really key and I don't want to brush over that. That's really one of the magical things about real estate that cash flows.

Oh, yeah, it's super magical. Well, explanation is, let's say that you have rent on a property of, I don't know, $14,000 a year. Chances are you're going to have depreciation of, I don't know, about $6,000 a year, and you're going to have an interest deduction of probably about $8,000 a year. Translation, you have income of $14,000. You have tax expenses of $14,000. you have a net tax bill of zero, if not negative. Most people, it's probably negative.

And the cool thing is a lot of these are cashless deductions. So like the depreciation deduction, if that was $6,000 a year, well, you're still getting that $6,000 cash into your grubby little pause and you can spend it and yet you don't have to pay taxes on it. And then there's a way how if you really go crazy and off the reservation, you can get double depreciation on a piece of property. So theoretically you could probably get, I don't know, about $10,000 of depreciation by doing this stuff.

So right off the top, buy and hold is fantastic because you get cash flow and you typically don't have to pay taxes on the income generated by the cash flow. Right. So the government, or as far as your tax reporting, it looks at it as you lost money. But you had actual money going, into your bank that you got to go buy stuff with.

Absolutely. It's a wonderful thing. Okay. And the other component, too, the other neat component. So it's a buy and hold. Heaven forbid, let's say the property even appreciates. You don't have to pay taxes on appreciation. And yet it's growing hopefully each and every year.

And then if you wanted to, you can go out and get cash refines and get money out that way. Tax-free. It's a wonderful thing. So refinances, that's not counted as income. Refinances are not counted as income. You might have gotten some cash, but you have a duty, a liability to pay it back. So you had no increase in net value in the eyes of the IRS. Well, la, tax-free income.

It's a wonderful thing. My friend Jason, he says, refi until you die. Why wouldn't you? Why wouldn't you? Yeah. Right. Cool. And another other question that this came up, and I've been asked this several times,

and I'm like, I'll have to ask Tim, and I always forget, but now I'm going to ask because I'm remembering is when you take that depreciation, the cynics and the skeptics out there, yeah, but you have to recapture it when you sell it. Is that true? How does that work? No, most of the time you don't have to recapture it. The recapture is if you have accelerated depreciation, otherwise it's really a non-event. And depreciation is just a wonderful thing because you get the depreciation. It goes against your ordinary income, which can be taxed, you know, super high in the 30% plus and all that stuff. And then whenever you sell,

you get capital gains treatment. And that's if you're stupid enough to even pay taxes on the sale. If you're smart, you're going to do a 1031, which is a way to sell the property without paying taxes and then refite until you die on that acquisition and or there's all sorts of different trusts in ways that you can sell the property in a tax-free nature or a tax-deferred nature. So, yeah, the recapture is kind of an odd event. It is. It's an amateur hour.

That's what it is. Oh, that's my answer from now on. Yeah. It's amateur work. That's amateur hour. Bring a tough question to me. If you don't know what you're doing, yeah, you might have some depreciation recaptured, but realistically, you're not going to have it.

Well, that's why we need an expert on our side. Right. Cool. All right. So I guess that kind of answer to maybe it did unless you were, because I did stop you mid-sentence, so maybe there's more you're going to add to Gilbert's question, or add the answer you're going to add to his question. I'm just going to add about the component of the appreciation of the actual property, too,

is cool. That's probably going to be tax-free. Right, right. You know, the for-profit centers of real estate? We've got, we just talked about two, appreciation. We're talking about three, appreciation, cash flow, and depreciation. And then there's amortization, right? Particularly if it's an income property, you're building equity in that way as well,

because it's the tenant that's paying that down for you, that debt. So with regard to, say, partnerships, and you were going to buy a property with a partner. And kind of what I'm thinking about is someone that's in real estate because they want the cash flow because they want to start paying their bills, they want to escape the rat race. And then they might be partnering with someone who doesn't really have those cash flow needs, but might have use for the other profit centers.

we can divide those up, right? All day long. All day long. So the scenario I'm thinking about is, you know, someone that doesn't have a lot of money, but it's got the time, got the knowledge, they're willing to go out and get dirty on behalf of someone like a busy professional,

a doctor or a lawyer. We've got a bunch of surgeons in our community. I don't know how we attracted all the surgeons, but how we have them. So they're cash rich, but they pay a crap load in taxes. So there's a really powerful way that those two could partner, right?

how would that work? No, I'm just, there's so many open doors in front of me right now by asking how would that work. Simple, easy way to make that work would be, and we kind of alluded to this in a different podcast, we give all the cash flow to the person who wants the cash flow. And so the person wants to get their hands dirty. We say, okay, cool, you're in charge of the rental property, you know, make sure everything, the toilets are working all that other good stuff. And you get cash flow and you have to pay the taxes, if any, on that cash flow.

In the meantime, the high net worth type who doesn't want the current income, why don't we give them all the appreciation of the property? And once again, they're not, they don't have to pay taxes on that until they sell it. And chances are they're not going to pay taxes on that either. And then it's even cool. Well, I don't know how far down to go inside this little rabbit hole. But the cool thing is, even if there was no appreciation on that property, if we did the deal correctly or did it in a certain manner, they're still going to get appreciation. The high net worth person still get appreciation because the one who gets the cash flow gives them XYZ dollars up front for that cash flow.

So that's getting weird and out there. But there's all sorts of ways we can, it just comes down to what did the different parties want. and we can create a solution to do that. And that's one thing, Matt, that I think is just the absolute mindblower of the legal world, if you just stop and think about it, we can drop a contract to pretty much do anything.

We've got a bunch of rabbits in my neighborhoods. We could draw up a contract to say, if five rabbits run across the street at the same time, you get this property. And that's allowable legal. So what we have to be trying to bring that back into the conversation you started, how could we do this?

We can do this however the parties want it. We can mix and match the cash flow, however the parties want to do it. And we can probably create some pretty darn neat tax benefits to go with that as well. That was too out there, wasn't it? No, it wasn't. It's taken me through other questions, but then we got totally off of Gilbert's question. But I think we answered Gilbert's question. And it just, you're really good at this, Tim.

I never know what I'm going to ask you. And we just started talking. I was like, yeah, but what about this and what about that? So that's good. No, because when people come in to start investing in real estate, you know, we take an assessment right up front when we have our first call with them is, you know, to be successful and as you need four things, you need knowledge, you need time, you need money, and you need credit.

Now, they don't all, you don't have to have, they don't all have to belong to you, but you do have to have access to them all. And every time someone comes in, whatever they're short on, they think they're at some sort of disadvantage. And what they don't realize is that whatever you're short on someone is really high on and they're deficient and what you're really strong on. And they think they're at a disadvantage as well. So I think there's just there's opportunities for once you realize that what you bring to the table is an amazing amount of value to somebody else, you know, partnerships are really a way that can work out and benefit both sides as if they were the sole person in there because they're getting what they need, what they're deficient. efficient in. Does that make sense?

It's the Reese's peanut butter cup story, isn't it? Right, right. Yeah. Or the less fillet, or the beer. Well, I think the Reese's peanut butter cup, I mean, you have chocolate. That's cool. You got meat butter. That's cool. You put the two together and where do you get an absolute miracle? Right. Right. I like it. It is a miracle candy for sure. If you walk down the candy aisle right now, there is like nine different variations of the Reese's peanut butter cup and still the original is by far the best.

And you heard it here first. All right. You send that endorsement deal for him. I know, I know. We're going to do hashtag Reese's. Totally. Brought to you today by Tim in his bunny neighborhood. The Reese's peanut butter Easter egg.

Okay, this is getting dumb. All right. So, Tim, thank you so much. We can only handle so much. tax talk, though, before we start losing the audience. So we do our best to keep it entertaining. If you'd like to get a free copy of Tim's book, you can go to Taxhacker.com and his book, How to Take Advantage of Five Loopholes in Trump's new tax plan. The mainstream media isn't sharing with you and could cost you a small or a large fortune. You don't want that. And after you've

done that, you have the opportunity to schedule some time with Tim. And either he or one of his team numbers, we'll get on the phone with you for a short five to 10 minute call just to assess your situation, just to see if there's going to be a good fit here. Because if there's not a good fit, we don't want to waste your time. If there is a good fit, we'll tell you how we can help. And then so after that, we'll take the next step. And if it's a good fit, we'll show you the benefits of a tax action plan and how that can improve your situation. And if there's not a good fit, they're going to go ahead and they're going to share some alternative resources with you to where a better fit for you can be made. Either way, Tim and his team are committed

that you are better off after the call than you were before. That's just Tim. That's what he does, and that's what he's committed to. And that's why he's here on the show. That's why I'm sharing him with you. I was going to keep them all to myself. But I was like, no, Tim, we can help a lot of people. So, Tim, any parting words?

I can't think of any other than. Thank you very much for having me. You bet, you bet. And I'll see you next week, all right? Sounds cool, sir. Thank you. And I'll see you next week as well on another episode of Tax Hacker.

Tuesday. Take out. That's it for today as we dream of a tax system that works just for you. But until then, you have Tim Berry. See you next Tuesday for another episode of Tax Hacker Tuesday. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.