Author: c c

Cons of the BRRR Strategy

https://youtu.be/blqXBWlg3lQ

0:24
Today we’re going to talk about the cons of why you should not be doing these burbs. So for those of you guys don’t know what bearse stands for its acronym for by rehab, rent, refinance, repeat. It’s this clever little term created by folks on the internet, where you pick up a property, you rehab it, and you increase the value of it, you rent it out in the meantime. But then the trick comes is when you get a loan on it from a bank, and you get all your original capital back out. And a lot of times, in theory, you can get all your initial capital and be sort of in the deal for nothing. If you’ve done one of these deals before. Well, good job for you. You’ve probably made a bunch of equity this way and likely gotten into the deal for no money, like I said, but from my outsider’s perspective, it’s successful most of the time, like 70%, but it always takes time.

1:19
So as higher net worth investors, like in our group, for some of us, at least time is more important than getting the best deal or in this case, free equity. When you add in the element of the risk, it takes the decision closer, most accredited investors would not bother with a turnkey renter or any type of bur because of the scalability. The sub $200,000 net worth bro might be really excited about getting into a cool $60,000 property with no equity after doing a successful for over $20,000 of manufactured equity means very little for an accredited investor. So if you’re going to do these things, here are some considerations for you to think about. First, have you done a partnership with this general contractor before is this small time general contractors or larger, bigger size builder, a lot of our apartment deals. That’s why I like this commercial world because a lot of our contractors and vendors are big companies with a lot of times 510 million dollars plus of insurance.

2:19
So just on that scale, and they’re much more sophisticated than your run of the mill general contractor that run that drives a little Toyota truck around. So I’d be very skeptical of the deal. Unless you’re incentivizing the person who is your builder or your rehab or your general contractor to do a good job and not cut corners behind your back, especially if you’re a remote investor, like a lot of us are, really there’s no recourse for you to kind of have oversight. But some people will have like an inspector kind of verify this stuff. But to me, it’s just a matter of time before you get screwed over. So maybe I’m just cynical, but I feel like this business proposition puts all the risks on you, the investor, and you basically are giving your GC or rehab or free rein to possibly the screw you over.

3:10
So right now I’m actually doing one of these on one of my properties where I have property as is value of $160,000. in Birmingham. It’s actually I’ve held this property for a number of years and then saying I’m going mostly to syndications of private placements for the scalability. And I feel they’re stronger returns risk adjusted returns. So I’m looking to rehab this property, the rehab estimates around $40,000. And there’s seems to be a bunch of margin the ARV or after repair value is about $250,000. So one of the things that could possibly go wrong here are another renovation could easily go over, as most larger renovations typically do. What many translate to a 25% overrun on the $40,000 estimate is in total, in the realm of possibility. That could be a swing of plus about 100,000 or $10,000. So let’s say the builder has other high paying renovation jobs are priorities that he would rather concentrate on. And your project kind of falls by the wayside. At least the schedule goes back a lot of these markets, if you don’t get the property on the market by September, October, you knew you’re waiting another three to five months to really get it back on the market in March, or the summertime of the next year. And in the best case scenario in this situation. Maybe I make an extra $20,000 of profit here.

4:40
But the question is, is it really worth the time and the headache The other thing to think about is your why and huge sums of money. A lot of times these guys will want to do want all the money up front which I would never recommend you always want to have some kind of a draw schedule and to be able to control the funds Granted, the general contractor needs to purchase supplies, and probably backfill the payments on their past project not associated with you too, because it’s this big, continuous cycle. And that’s, that’s why I don’t really like working with these general contractors, because a lot of these guys, their net worth is under $200,000. And they frankly just are insolvent. And when things get really tough need to pay off, pay their family bills, and put food on the table, they’re going to screw you over the person who’s potentially 1000 miles away, that has really had no recourse.

5:34
So at the very least, make sure you have some kind of draw schedule or control, create project completion milestones. And just like when I was a project engineer, it all comes down to your scope, schedule budget, like we’ve talked about the budget there, but also the scope, what are you guys working on, create a full scope of work and sign construction contract. And then also, no contract is complete without a detailed schedule. So the reason why you get the schedule is because now you can point to certain milestones along the way and hold them accountable for it can’t just be completed by a certain date. And, and needs to be some level of detail in there. because inevitably, things will pop up. And there’s, there’s some of the internal milestones that are in the control of the contractor, you can hold them accountable to them much easier.

6:23
Of course, I’m kind of glazing over the top of a lot of this stuff. And like it’s just from the my perspective, for a lot of working professionals that we work with even a lot of doctors, lawyers, engineers, folks making over 100 200 $300,000 a year to get a 20 to $30,000 equity by doing one of these burrs that take anywhere from three to nine months, it’s just not worth the trouble. Now it’s, it’s fine. If you don’t have that much money, your net worth is under a quarter million or half a million, this is the stuff that you potentially have to do. But the way I grew my net worth from zero to half a million was I just bought that first rental property then I bought the next 134 years later, I didn’t get up to 11 rental properties until I bought my first one in 2009. And I didn’t get that loved one until around 2015 16. So what a lot of people don’t realize it took me almost a decade to get up to that stage. And I just closing things out focus on being an investor, not a landlord. They’ll do the math here, like picking up single family home rental properties, that cash flow 300 bucks a month, you’re going to need 20 or 40 of those things to replace your income.

7:37
Again, I had 10 of these things. And I had an eviction or two every year and three or four big things that happen such as like a trap going out or some kind of plumbing leak. But imagine if he had 30 of those just three x those numbers now you’re talking about an eviction seemingly every other month and some kind of big catastrophe every few weeks. Not directly investing in turnkey rental or small multifamily is a great way to start to build up and learn but to create that war chest to go into more scalable investments should be the progression and that’s personally why I do private placements in syndications today.

8:14
Now if your net worth income minus expenses under $300,000 are you’re barely able to save $30,000 look syndications are not for you. Stick with these turnkey rentals or even do these burrs that were kind of against in this whole video you’re going to have a little more gains that way what you’re doing is you’re essentially trading your sweat equity for that extra equity at the end. If you guys have any other questions please submit it to simplepassivecashflow.com/question and we are also starting a new program to help all newer investors trying to pick up their first few single family home remote rentals. Check out more details of that at simplepassivecashflow.com/incubator.

What is an Accredited Investor?

https://youtu.be/JffG2-GfQlA

What is an accredited investor? 🎥 Quick Video

  • To be an accredited investor, a person must have an annual income exceeding $200,000 ($300,000 for joint income with your spouse) for the last two years with the expectation of earning the same or a higher income in the current year. An individual must have earned income above the thresholds either alone or with a spouse over the last two years.
  • Net worth exceeding $1 million, either individually or jointly with their spouse. Note – this is often the harder one to achieve as we find high incomes are not uncommon.
  • An entity is considered an accredited investor if it is a private business development company or an organization with assets exceeding $5 million.
  • Also, if an entity consists of equity owners who are accredited investors, the entity itself is an accredited investor. However, an organization cannot be formed with the sole purpose of purchasing specific securities.
  • In 2016, the U.S. Congress modified the definition of an accredited investor to include registered brokers and investment advisors. This continues to open up with new changes – If a person can demonstrate sufficient education or job experience showing their professional knowledge.

https://youtu.be/z5WHIa5FFng

Pondering how a person can be called an Accredited Investor? Do you need to be one to get access to private investment opportunites?


What do Accredited Investors Invest in?


Join our Private Investor Club

What qualifies as an accredited investor?

An accredited investor is an individual who has the institutional knowledge, experience, net worth, and/or financial sophistication to evaluate an investment opportunity.

Defined by the United States Securities & Exchange Commission as someone who makes a minimum of $200,000 ($300,000 if filing jointly) or has a net worth of $1 million dollars excluding personal residence – although one could easily do a cash out refinance or HELOC to get the equity out of the primary residence in order to put you over the $1M threshold if needed.

 

Importance of being an Accredited investor

The significance of being an accredited investor is that you can invest in things that those with less money, cannot which are mainly deals such as Reg D 506C offerings which are mass marketed and therefore can only allow Accredited investors.

 

Alternatives to having accredited investor status

If you are not Accredited don’t worry! Most deals out there are done through private networks and not mass marketed – these Reg D 506B offerings are accessible to “sophisticated investors” which has a much more nebulous definition but essentially says you know what you are doing even if you don’t have that much money.

In Reg D 506B offerings which require you to have a pre-existing relationship with the sponsor, you have the ability to invest if you can qualify as “a sophisticated person investor” which has a more ambiguous definition but essentially says you know what you are doing even if you don’t have that much money. 

These laws were put in place long ago to “protect” the average person (non-Accredited investors) from predatory activity. The irony of this all is that there is no protection for the average Joe, or pension funds for that matter, against investing in a wildly bloated stock market at record valuations and being mislead by a commission based financial planner. Every major trader out there knows we are in a bubble but there is no protection for individuals dumping money into their retirement accounts to buy mutual funds. It’s an archaic system which makes little sense and I have always felt that it was the little guy (non-Accredited investor) that need access to good private alternative assets the most!

Certainly, there has been some recognition of this fact. The 2012 JOBS act made it easier for Main Street America to participate in “alternative” investments via crowdfunding and made it easier for sponsors to advertise previously unknown opportunities. However, we have a long way to go because it is not practical for a syndicator to raise private capital with current crowdfunding laws because the maximum that can be pooled together is very small.

I am not a fan of crowdfunding websites. When I invest personally, I need to know the lead syndicator personally. None of this “we met at a local event and he pitched me his deal”. If a guy does not have a list of solid investors they must lack the track record. Also I did a podcast with Amy Wan a syndication attorney talking a lot about this topic.

 

How do I get qualified as an Accredited investor?

For Reg D 506C offerings where third party verification is required… the steps involved with qualifying include a bank statement from a financial institution that has been approved as a bank, a mortgage (with a qualified purchaser), joint net worth or income of more than $200,000 to qualify as an accredited investor, or a non-bank financial information, including the net worth of $1M not including equity in your primary residence. (Because your home is not considered a good investment in our community)

 




Tax Hacks for Accredited Investors

Types of investments an accredited investor can make

Now that you’re an accredited investor, you started asking yourself “what type of investments should you get into to increase your net worth by getting away from retail investments?”

The golden rule is to work with investment firms that have a proven track record. 

 

Potential SEC changes

Some rule changes rumor to pushing the threshold for Accredited investor status to $5 million or more of net worth. Or creating a new level of investors such as Accredited investor plus.

Go ahead and start your journey towards becoming an accredited investor.









SimplePassiveCashflow.com is for working professionals who are looking for diversification and better returns outside of traditional investments such as mutual funds and stocks.

The Hui Deal Pipeline Club is a free investor club where I filter investments and underwrite the numbers and partners myself. And put my money and reputation on the line. Unlike other investor lists and groups, my investors have personal access to me and know that I personally have skin in the game investing alongside with my investors. 

*We even accept non-Accredited investors and have turnkey rental opportunities. But only Accredited investors get free books (input address below).

Select all investments that interest you…*











































































Are you Accredited (Google – "SEC Accredited Investor" for details)*













Would you be interested in learning more about using…






















Check all that apply…*




















Not going to lie, you are going to need money to invest in these deals. If you are low on liquidity we still support the mission of getting people out of the corrupt Wall Street roller coaster and into Main Street investments consider joining the team!

I started this investor group because I wanted to create a community and personally see each of you get to your goals financially.
I don’t see myself as a guru but a facilitator of this great Co-op group of investors to crowdfund due-diligence and bring opportunities to the group Now that I am a full time investor I have the ability to travel for due-dilligence, join masterminds like the Collective Genius, and have calls with all the members in my investor club.

There are other investment companies out there that will train their investors down to 5-12% IRRs with a lot of risk – I won’t work with them. At the same time I value working with inexperienced syndications who have no experience even doing small residential single family rentals of their own or started with a small apartment to learn operations and proper analysis. I don’t “do deals to do deals” to pick up acquisition fees.

By investing alongside with you folks I am in the GP side and looking to expand my track record and gain experience the right way.

Please know that I take great respect in running my syndication business as I am well aware that each deal I put out there is putting my brand reputation on the line. I intend to be here for a long time and hope that you will keep coming back and bring your friends.

Hui (hu ee) – Definition: to join; meet; unite; form a club; partnership; union

Some investments (syndications) that I am involved with require you to be an accredited investor. Others are simple solo investments or small JV projects.
SEC definition link
For more information on Accredited Investors
You agree to keep these deal confidential and to not circumvent.
This does not constitute an endorsement of these deals nor guarantee the investment… think for yourself!
To jump to the front of the line, ask about mentoring!
Join the Passive Investor Accelerator & Mastermind!
Please submit the private (Privacy Policy –
I take your security seriously) form below and schedule a call with me to understand your investing goals. Schedule here

Tax Tips and Best Practices

https://youtu.be/aqPWoki-MP8https://youtu.be/FTj-nJEGi-4https://www.youtube.com/watch?v=zCW-MbPxJxMhttps://youtu.be/umCsNG8sLNc

What Are the Best Multi-Family Markets?

https://youtu.be/mjgXzQbKUu0

0:00
What markets are best for multifamily now? I’m not a big market fan. I mean, of course, like the where’s the population job growth mostly in the south southeast. But I think if you don’t have a clue how to underwrite deals, yeah, you look at what markets are hot, and you just kind of throw a dart, right? But it’s all property specific. Right? What are what are the current rents? And what are the market rents in that sub market? And how much is undervalued?

I mean, I’ll buy a property in freakin Alaska, if the if the market rents were undervalued by a lot, essentially, I’m going to put it into my model and factor in a lot of this stuff in and see which is the stronger deal and go into that. But I think what you see on a lot of like podcasts or like forums is a lot of the surface level questions like what what are good market, like, I think, like Dallas is a great market. But the problem is every like sucker out there is looking in Dallas, which pushes the prices up. So I don’t think you can look at it from that point of view.

I mean, again, learn how to underwrite deals and you can kind of cut through the noise. If you’re not willing to do that. Or you’re just kind of looking for some, maybe you don’t know too much and just want to throw a dart somewhere, you know, south southeast areas, population areas that are going up or like Florida. Orlando is a big one Atlanta, Birmingham, I like single family homes and turnkeys there but they don’t have the density to do multifamily. At least you know, not to get above 100 units.

We love Huntsville. Huntsville is one of the top of egos like the top three rent increases for the last 12 months. You know, all the Texas triangle Dallas Fort Worth Houston, South Carolina, the Carolinas, the banks really like those type of areas now, but mostly on the southern southeast area. But don’t just take that and go and run deals in those areas. It’s all about the specific deal.

Understanding Return on Equity – Example

https://youtu.be/6VcYyrUevlM

To get FREE Anaylzer go to simplepassivecashflow.com/roe

0:00
Investors sent in their property lists. And we are going to figure out which ones to unload first based on my rules of return on equity. So for those of you guys don’t know what return on equity is, it is a metric that not a lot of investors go by. But I and a lot of other sophisticated investors monitor very closely as we’re always pruning our investments, a big misnomer out there that people talk about a lot is buy never sell, which I think is half true. investors need to look at return on equity and figure out which assets to sell, refinance, or maybe use a HELOC on, basically you’re trying to find her dead are lazy equity, that’s not doing anything. And we are going to go down this list, I’m going to show you how to do this in this little example. 

But like when you first buy a turnkey rental, you’re making around 30%. At least I’m thinking, you can check my math here at school passive cash flow, calm slash returns. And I walked through a little whiteboard example showing everybody exactly how I come up with that with cash flow, mortgage, paid down tax benefits, and any bit of appreciation. Let’s go through this list right here. And let me show you how you manipulate this spreadsheet. Again, this is one of the cardinal sins that most investors make is they never sell and they have a huge equity position, which tends to happen over time. But they need to get that equity moving. One of the biggest mistakes I always hear is like well up cash line, it’s like, well, yeah, your cash flowing a lot. But your return on equity sucks. So you got to do something about it. 

So this investors very smart, they realize that they need to get this equity working hard, certainly harder than that at their day job. And we’re going to help them do that. So first formula I’m going to do here is just setting the status, all right, the value of the property is $1.1 million, what I’m going to do is I’m going to apply a 90% multiplier, just assuming that maybe this is just a little bit too high, and to account for closing costs and commissions. From there, we are going to subtract the debt service, so they currently own $352,000 on this property. And that is how we come up with a rough estimate of how much Lacey debt equity. So I’m going to cascade that down a spreadsheet.

2:17
Just cut and paste that down. And I’m just gonna sub this up to see how much of a problem we have here.

2:24
So about $2.3 million in equity. And on some kind of one to see a high level what we’re we’re at, actually, I have to figure out the some of the values of the property minus the some of the bolts course I’m missing out the Commission’s but I just kind of want to see where we’re at. So that’s 2.8. So that’s how much those loans and commissions and closing costs, whether or not that loans but the commission closing costs are what I call friction costs, are taking out almost half a million dollars right there. 

Maybe one day, I’ll be one of those douchey luxury real estate brokers and only work with clients selling two to $3 million houses, maybe I don’t want to do that with my life. But anyway, figuring out, let me sell them. This is the amount of equity and this is the amount of purchase price. So I’m gonna go this number divided by this. And currently there are right about on average 57% equity, which is not good. Usually, at full power, you’re going to be at 80%, just to typically be the max leverage, but it’s definitely getting to the side where I mean, it’s a good thing, you got a lot of equity, but it’s a lot of debt equity. So next process is like alright, figuring out which of these properties that we need to go first. So what I’m going to do is figure out what the how much money we’re making money we are paying

3:55
for via let’s just go by that. So on this first one, we make money with the rent. So that’s the primary residence to start off with.

4:06
This one’s bringing in 5000 bucks a month. And I’m also going to subtract these he wastes they put it down. And this is the reason why we don’t like conference. So you always have to pay these things. I don’t know exactly what this means by extra costs here, I’ll just add subtracted and also subtract out the Buffy mortgage peanuts, I would run these numbers a little bit differently. But that’s good enough for government work is what I say. That is how much money they are making believe on a must be on a monthly basis. So let’s multiply that by 12. So they’re making 30 grand. So you want to take that their return on equity is calculated by how much money you’re making, divided by how much equity you have in the deal. So if your denominator which is the number at the bottom goes up, which in this case, it’s the $475,000 this number gets smaller. It’s

5:00
smaller, so they’re making about 7% on this property right now, that’s not good. So as we cascade this stuff down, there were a ton of equity on the primary residence is obviously zero, because not making any money, you’re probably losing money, that is a liability, right? They’re not an asset for these properties actually losing money. But to the pier, here’s kind of where the art comes into play, you can either look at it from perspective, all right, which property has the worst return. And so that is obviously this one and this one here, but we’re humans, and this is art. 

So obviously, like, there’s some utility to having a primary residence because that’s where your, your house resides. And that’s where you live. So maybe you don’t want to sell that one. First. Again, we’re trying to find the border operations border that we got load, so or refi. The next thing I’ve kind of take into account secondly, after the return on equity is how much equity requires you to extract out of it. So if you know say, this one, we’re losing the most amount of money, this is probably first on the chopping block. But because it’s so small, it’s not may not be worth the effort. And likely, what we want to do is we want to list multiple properties on the market. And kind of the attitude of you know, some of them were more in a hurry to sell some we might fold out for even better price. So the way I would do this kind of spot checking this is the first time I’ve seen this, the first two that stick up in my head are this one. And just I want to highlight the lowest three from a return equity perspective, but I want to highlight the big ones, which ones are going to really move the needle. And that is, which ones are the ones with the biggest bang for our buck, which is definitely these three. So fortunately, there’s no overlap here, other than the primary residence as a primary residence, that’s probably have to go but I don’t want to upset mama bear. 

So we’re just gonna leave that one on gone, we’ve got plenty of equity to play with here. So there’s no obvious winners, which ones to put on the chopping block, but just kind of I’ve done this buttock a zillion times. And what I would recommend selling would be this one first may not be the lowest return on equity, but it’s certainly a nice little pop there. And I would sell this one, but then I would sell this one, and I would sell this one, this one, these are all kind of the same. And then at some point, when a boss says, Okay, I guess or what do you take maybe one of these rentals, take the money and buy a bigger house, right? So this is where you buy a mansion does a good job up to this point, right? I mean, this is where people say, Well, you shouldn’t buy all this like do dads or like expensive stuff, but man like you earned it, you did a good job here, go out and buy a big ass house for all I care. Next, what I’m looking at is an act. This is probably where we got to get the investor on the line. I don’t know the full story on these properties. I don’t know what all these are, to be honest, these duplexes and fourplexes, maybe stick on the market owner occupied. Now even though I list them as five, knowing that these gonna, these are going to be four times as hard to sell as these other single family holds. And this is why for higher net worth investors, I don’t recommend getting a two to five unit. I just say if you’re going to do single family homes, it’s great because you have great exit strategy. As a high net worth investor you’re going to go to syndications very quickly. So you don’t want to be screwing around with this stuff. Because the the duplexes and triplexes fourplexes huge send it selling it to the cheapskate investor who wants to find the deal and their pain, you’re just gonna bang your head on the wall, especially when you get to one of these guys who are like think that they’re a pro, but they’re just a douchebag, who wants to retreat you for all these little nitpicky stuff. So I would list even though I haven’t listed as five, I probably list it like soon just and not be too motivated to sell it. Somebody wants to pay your crazy price for B and that’d be my general consensus with all these properties right here. Just put them all on the market, see what happens. 

But generally, you’re trying to go make a go at this order. This is really your motivation. Whereas when I’m saying like these guys, they just want to sell it, or they want a little bit of a price concession do Just do it. Or as these other ones you might want to stick to your guns or stick to your price that you think that it’s valued out here. The other side of this is like alright, where as you start to extract this money out this money right here, it’s $2.3 million. You can’t it’s got to be hard to invest that in the beginning, especially if you have no contacts. You don’t know who to trust, but you’re basically you’re trying to do is build a appointment schedule right here and I’m just doing it very simplistically, you know, you got 2020 2021 2022 for most investors under one to $2 million dollars net worth. I’ve never done any rental properties never syndication before. I would say no stick to like a few deals at first, right? That’s 15 grand minimums, and maybe deploy to

10:00
hundred thousand dollars in the first year. But after that, hold the horses a little bit right pump the brakes. Of course, if you have if your net worth is higher than that for $5 million plus this, the other side of you got money sitting in the bank doing nothing, right. So you may want to push it a little bit harder being more aggressive. Now this is a just in time exercise here, you want to sell these acids and hot potato them into deals, minimizing the full period or the time it just sits in a bank not doing anything. So I would imagine selling these properties probably in a period of two to three years. It’s taken a while. 

So I’m just gonna run the rental value ratios real quick on these properties to say I probably should have done this earlier. But this also helps determine another way of determining which properties to model first. She besides the probably the best right here. These other ones are well under 1%. Yeah, on both of them should unload him yesterday, people always ask like, Well, I have a rental property in California. And I’m like, Alright, stop right there. rents value ratios, California ain’t gonna work unless you’re in a war zone. To get more nitty gritty here, it’s if it’s under 1% to value ratio on load, unload that thing, it’s just not even worth it. Especially when a lot of you know other properties that we’re buying, like, you know, one well over 1% of the value ratios in broad markets with force appreciation. So I guess for this client, this client is pretty high net worth. So I would probably make this deployment schedule a little bit aggressive. So assuming that a cash saw half a million dollars every year on this. And so all the assets by the time 2024 comes around, I probably do something like 500 grand, that’s roughly kind of like the how you would patient deployment schedule. 

And this is where other more advanced concepts come into play. And like, you know, to lower your bid put me not making anything like infinite banking, which users will life insurance in a tax free via goal. Yeah, this just shows an example on figuring out your return on equity. What are you trying to sell first? And then what are you trying to deploy it into? Another piece of this is where I help clients all the time, and where I kind of empower people in the mastermind. And you can learn more about that it’s simple passive cash flow.com slash Johnny. But it’s like you know, you don’t want to sell these assets, you got to be mindful where number one your adjusted gross income is, you don’t want to be looking up into the next tax bracket. And guys, if you’re under 200 $300,000 AGI, don’t freak out about it. Most of my clients are well above that, that’s when you have to seriously think about no BGG con when you sell these assets and kind of take the capital gains slowly over time. And then also, if you’re, you know me, you may be taking money out of your retirement accounts too. That’s another thing to think about. So when you take money out your retirement accounts, it also shows up as ordinary income. So another thing that’s at play here is you have a portfolio like this, you would likely have a good amount of passive losses from the depreciation of these. 

But you also have to, as I go into this, it’s complicated, right? But it’s just something is what I do, right, this is what I do for folks and help them understand it so they can make their own game plan. But as they start to deploy into these deals, hopefully they’re doing cost segregations. In these deals, where they’re getting at least half of what they put in to inject brand, they load up 200 grand in deals that hey, Bobby should be getting more than $100,000 of passive losses, which they can add to their current passive loss, a stock fold to then use to offset these capital gains, but they do happen to that’s kind of getting three layers deep there. But these are the things to be aware of. And I think every investor needs to understand that. I don’t think that this is the responsibility of your CPA, like the CPAs job is to do your taxes for you. Not plan this stuff. This is your job guys, family offices, on millionaire families and above, people that do this for you. But look, when you’re under 10 million bucks, you got to do it all yourself. And fortunately, most CPAs out there just don’t know how to do it because that’s why the CPA has a day job off. their net worth is not over 123 $9 they don’t do this stuff. 

And that’s where we can kind of help but for free freebie go to simplepassivecashflow.com/ROE to download a spreadsheet very similar to this is more of a worksheet that you can plug your investments in and see where you have your lazing equity at to help you determine which properties to sell. What’s the poop down here what needs to go? It’s an unlock sheets the spreadsheet you guys can have. So you can again search out that debt equity and don’t be an unsophisticated investor that just buys properties and holds it till it’s paid off. I think that’s one of the worst things you can do especially from like a liability standpoint. I mean, if you have a paid off property, everybody knows where to see. Yeah. And that gives me

15:00
Tax any legal advice here this whole video but just giving you guys good information and yeah check out what we have to offer it simple passive cash flow calm. See you guys later bye!

Is Gold a Good Investment?

https://youtu.be/z4SyyVMIo04

0:00
But what’s the real play here, especially for guys who have less than a million dollars net worth. So people who are buying gold right now or buying it as an alternative to having something liquid that hedges against $1 collapse, right. 

That’s why people own gold, but you can’t gain purchasing power with gold, you only retain it which is worth doing. But when you pair gold with debt, now that’s different. 

Let’s say for example, I go pull a couple hundred thousand dollars out of a piece of real estate and I take half of it, I put it into gold, and then the gold doubles in dollar price because of inflation. Now my gold will pay off all my debt and so the debt and the dollar go together. 

And the problem with going into debt to buy gold is you have to make the payments unless the thing that you go into debt with provides the payments then when you pair gold with debt, and real estate, now you have a chance to outperform in an environment where the dollar is falling. 

And so that to me is the way to play this game right now because all of the pressure to support the entire global economy is landing squarely on the dollar.

2020 Real Estate Crash – Save Money or Invest Now?

https://youtu.be/Dp5O508bTys

0:00
It seems like everyone is talking about the market being at peak right now. And personally, I think things rings true for multifamily, even more so than other asset classes, given the situation, how do you personally decide how much to invest in opportunities today versus staying liquid to invest potentially greater opportunities in one or two years, my investment philosophy is when I have liquidity, I’m going to invest it again, some of the rules that I follow is I don’t invest more than five or 10% of my network into any one thing to get diversification that way.

I’m spreading around my portfolio in two big ways. The first way is different geographic areas. And then the second is different asset classes. I mean, most of my holdings are in apartment complexes and some mobile home parks. But I haven’t really branched out too much into self storage or some different asset classes, I definitely have done a bunch of development. And getting more into that. 

But diversifying into different opportunities is is a good way, I think for anybody. And that’s what I’m doing for myself. As far as A, B and C class properties. I think I’m kind of moving on from class C and Class C, I think everybody gets a little blue eyed over there, you can get 10 plus percent cash flows, but it’s a hard clientele like classy tenants, they’re hard because they don’t have too much cash savings and collections is very difficult for that type and often new trading a lot of sweat equity, especially as offered Of course, for that, but even as an LP investor investing in C class deals, cash flow is very hiddenness. 

One way I balanced staying liquid, I use infinite banking. So if you guys want to learn more about that go to simple passive cash flow, calm slash banking, but it’s a technique that a lot of wealthy families will do to use life insurance as a means to not pay taxes because it’s a little tax loophole. You don’t pay taxes on life insurance, and when it is life insurance, it is very hard to get sued for that money.

How to Lead a Fulfilling Life w/ Mariko Frederick

https://youtu.be/hthUUGjsxUs

Hello, simple passive cashflow listeners. Today. We are talking to Merico Frederick, give me a little bit different today, a little bit more touchy, feely. I’m not too much of real estate or wealth building today, but we’re Rico does work with a lot of high end professionals, Olympic and professional athletes, CEOs of seven and eight figure businesses.

And she is a transformational speaker and performance coach. And she is founder and CEO, so pro priority and, that she would bring her on and kind of talk about some findings, with folks that are, you know, sort of listeners of this podcast and insights. but welcome. Merico. Thank you. Thank you for having me on today.

Yeah. So let’s get right into it. you know, you, you and I were kind of talking before and, you know, you, you work with a vast variety of high level performing folks. I would say the people that kind of listen to this podcast primarily are working professionals, but man, these guys are high performing folks making over a hundred, 200, 300,000 a year.

various level of white collar jobs or medical professionals. yeah, let’s talk about some of those, the findings from, you know, kind of those, that cohort. Sure. how can we go deeper into that? So Merico w you know, a lot of these people, they, they come to you. What is the first motivation that they’re feeling that kind of triggers them to find somebody like yourself?

Yeah, their finger on exactly what it is. So Merico, so a lot of people are coming to you for help getting unstuck. What are some of the motivations that maybe if somebody is listening right now that they’re feeling that kind of triggers a lot of your clients to find you in the first place? Sure. So most of my clients have a feeling inside.

They can’t put their finger on it, but they just know they’re meant for more. They feel like they have another purpose purpose. Most of my clients, very well financial we’ve done big things in their life. Still fight that or they’re meant to do. And so they, I love working them because that’s something I’m able to help them with is discover exactly what they’re meant to do before they leave this world.

Is there any, some kind of like a trigger, cause I know when people kind of find simple passive cash flow or they start to do that dive late into the evening on Google. How do I quit? My job it’s usually because of some big event. Is, is that some of your findings or is it just a general buildup over time?

I’d say there’s two types of people. So one type is they know they’re meant for more. And they’re really seeking me out to figure out what that is. I do a lot of work by referrals. the other is

they have accomplished so much in their life, but they feel unfulfilled. And so on the outside, when you look at their life, they have made, You know, very good money and they have accomplished things that not a lot of people in the world can say they’ve done. And yet still feel like quote, empty inside or they’ll come to me and say, I kind of fell dead inside and that’s not something they can talk about because on the outside, their life looks really great.

Now, what are some of the barriers for why someone would, you know, not kind of white knuckle it, or keep, keep moving forward? I mean, I think a lot of us have this mindset or at least I do that. Hey, life’s, life’s tough. Suck it up, you know? Yeah. And so a lot of those people have done that. They’ve gone through that part and that’s why they’re so successful is they did get through that.

They do have a really solid mindset around money, but what about the rest of their life? What about their legacy before they leave this world? Because once you have attained a certain amount of money, it’s like, okay, but what’s next? I have all this money. I have these accolades now, what do I do? How do I feel fulfilled?

How do I wake up in the morning and really feel happy with my success? No. I think a lot of barrier is, is for a lot of people, as you know, just time, you know, especially if they have a family, you know, to go spend some time when somebody’s kind of talking these issues out or not, they’re not really issues.

Right. They’re just, they’re kind of more barriers. And like, how would you say, like how, how does this kind of work into someone’s busy schedule? Oh my gosh. So great question. When we’re thinking about abundance. one of the things I learned when I died, well, I usually don’t say that I died because there is no death.

When I left this world, I’ll tell you I never more alive. but when I left this world, it realize there’s a lot that happens when you, when you leave this world. But one of the nuggets that I brought back was that we tend to and specific money cage. Oh, abundance is part of a creative energy. And so we, you know, if you’re really thinking I’m a little bit conscious, you can say, okay, money is created not.

when you think of music, poetry, that’s creative energy. And right now, especially during the pandemic, we’re not worried that we’re going to run out of music. We’re not worried that we’re going to run up, run out of poetry or artists, but we’re worried that we’re going to run out of money. And interesting money in my experience in, in, in death is that money, is it?

Same category? as abundance, abundant creative energy, right? So whether you’re creating music or creating money, it’s the same energy, it’s the same concept and we have access to it. And so just the way that it really has to do with your mind and your beliefs around. And so I would say that most people on the planet have some thinning belief.

Funny and that they either money has, it’s hard to earn. That’s a belief. It’s not a true one. Or money is hard to come by. And those are not true. And when you leave this world, you realize all that, right? And then it’s like, Oh my gosh. I was believing in, in, in, in lack. And so when I came back, I realized that abundance is literally all around us.

And so to answer your question, you really have to be tuned into it. You have to change mindset, you change your conversation about money from the moment you wake up moment and you go to bed. And just to give people a little bit context, you know, you kind of referring to, how you kind of your near death experience, Rica doesn’t really like to get into it, but for the most part, you know, she had, she had Lyme disease and, you know, kind of had this epiphany, kind of in, in, in the low period of that.

So, was that kind of epiphany kind of, came at to you at a certain point? Or was it, you know, did it take days to sort of. come together for you. Okay. Both. So when I came back during my death, I had what I call a download. It felt like I was being, first of all at my death, didn’t feel I’m sure I wasn’t.

So it happened at home. So I wasn’t connected to, you know, machinery at a hospital. but my husband will tell you it wasn’t very long, you know, may have been just a matter of minutes, but on my end it felt like I was there for 800 years. So for me it felt like I lived a whole lifetime there. so when I came back, I had gotten kind of what I call a download.

I’d gotten a lot of information to bring back and they told me it wasn’t my time. I had to go back and help people. So when I came back, I understood it, but I’ll bet it took me a good decade to unpack it and be able to understand it in a way that I was living it. Plus I went through a long term illness and so I understood it on one level, but how do I make it?

How do I live it? Right. That took a decade. Yeah. Would you say it was more, you needed to help people or was it that you needed to make a bigger impact or legacy in the world? Which of the. The two did it skew towards

Hm, legacy, definitely. I know that I’m here to impact a lot of people. I know that when I came back, I knew I was here to, to, to help millions of people around the world. Now that said, when you come back and you can’t even stand up or go to the bathroom on your own, I had to kind of, I had to kind of, I had to understand in a way that I was a time, which I needed to.

People I think because, because the big of what I was here to not moment coming back after the spread. Yeah. And I think, you know, most of the people I’ll have the nice, they’ll do free calls for, you know, new folks that we do a pipeline club. I mean, you guys can send up for that. It’s simple, passive cashflow.com/club.

but I’m talking to a lot of people who are, you know, they’re kind of getting started on this journey and, you know, they’re, they’re kind of thinking about themselves first and I’m not saying that in a bad way. I’m just, they’re just trying to get themselves settled and get them, you know, it’s kind of like just getting back to baseline.

in your circumstance and, you know, I think at, at, at a certain point when money is really not an issue and, and you’re kind of just, you just kind of thinking about what’s bigger, what kind of impact you’re going to make kind of legacy you’re going to make. but it’s a face thing you can’t, you can’t, I don’t think you can just skip right to going to legacy.

I think you have to get yourself up the baseline. And put your own oxygen mask on first, but I mean, what’s your, what’s your opinion on that? Helping folks get, I mean, you’re right. It, yeah, it takes, it takes years to understand what that really is. And, you know, oftentimes people have more than one legacy, right.

So if you’ve been a professional athlete, that’s one legacy, but what’s after that. and so because we are unlimited, that’s the other thing we’re unlimited. So in our human. In this world, we feel very, we feel the limitations of, of this world, but when you leave it, you know, Oh, I was unlimited the entire time and I had no idea.

but what I would say as far as, as far as, how. We tend to be raised from, from children to think, what do you want to do when you grow up? What do you want to be when you grow up? And so I feel like culturally, we planning for middle age planning too. Cause when they say, what do you want to be when you grow up?

They’re really thinking that at least in my opinion, what do you want to be when you’re 30 or 40? Right. And not, who are you when you leave on your last breath? And I have a lot of my clients do this exercise of on your last breath. Who are you? Who were you? Who were you here to serve? You do that, right?

Because when we think of that, we think of the entire life. Then when we go back and we, these are the people that I know that I’m here to help that I know this is what I’m here to do, and it’s easier to go back and do that. Yeah. So I, I have a, Little business and life coach now. And we’ve kind of come to a point or they’ve kind of made me see that my big motivation is I’m a big ego guy.

I want to create big legacy and big impact. And I think about this all the time when I’m, you know, w we’ll we’ll bring on a new client, into the mastermind, they’ve got to pay some money to get into that group. And then I take that money and I. Put it right back into something, you know, I pay a virtual assistant to do something, or I buy some ad Facebook ad, you know, few thousand dollars of Facebook ads.

I’m like, where did all this money go? You know, like I did this to kind of be financially free, but the here I am just burning it up again, putting it right back in the business and then for what? Right. And. It’s kind of like, I kind of created that short circuit where it, well, you know, it’s for legacy it’s for impact it’s for doing something bigger and you know, I’ve got the basis covered today.

And I think the other thing that you’re doing, is you are creating a network of people. So in my world, I call it my tribe. Right. So the cost. Of doing business, the cost of being in your mastermind, the way I see it is that’s the cost of being with, with these greater minds. It’s the cost is the price of admission to get into a mastermind and be with people that are like minded, because the conversation that are going on in, in your mastermind is not what’s going on in the rest of the world.

And so you need to bring those people together to say, how can we talk about money, about abundance, about wealth. About legacy in a way that’s more of an expansive conversation. And so the cost is saying, okay, and the people that, that aren’t willing to pay that cost that entering that entrance fee are going to there they’ll have a different conversation somewhere else.

Right. And so it’s, I think it’s beautiful because people need to be around people who are abundant in order to become abundant. Right. And you know, all I know is like a few years back, I couldn’t stand just talking to regular folks at work about normal financial building stuff. Right, right. You go pass them.

Yeah. nothing wrong with that. I used to do that for a long time. Not at all, but I think if growth is good and we do past relationships, and I think that that’s a really difficult thing for people because they want to hold onto all the relationships. Meanwhile, they also won’t want to grow past it and they want to go into a next level with abundance, with wealth and with their legacy.

And so it’s a matter of how do I navigate that and keep relationships that are really dear to me and also allow myself to grow. And that’s where, you know, masterminds are really. A wonderful place for that to happen. So you’re working with a lot of high end clients. you know, a lot of people work in day jobs.

What are some of the findings of the things you work through with those folks? the Tiffany’s they have guilt big one. So in leaving women, they know, or you need to do a lot of times what stops them up. Could you repeat that? You cut it up. Which part, the whole thing. Yeah.

Guilt. I would say the biggest factors because when somebody says, okay, when we see, okay, this is the bigness, this is what you’re meant to do before this world, but that might involve leaving their job and that right. Like their job, but they feel sometimes guilty. Well, but my company needs me. What would they do without me?

Right. And so actually guilt is a big one and I usually will tell them, well, you know, that company doesn’t care the next day. If you laugh, They wouldn’t care about you, but that’s just me, but how do you kind of work through that? I mean, you know, people, people think that they have, you know, if they left tomorrow, the whole world would crumble.

I think what you do is you have to, into your next four, you get there. Meaning, you have to step into the mindset. You have to step into feeling that next level of who you are before you become it. So, so part of what I do is I help people become the person that they need to be in order to thing they’re meant to do.

Right. So that’s a big mindset shift, and there’s a lot of action around that, but you literally have to feel it before you do it. So you have to like. We really have to believe in. You have to believe in your dream. if it’s not something you’re passionate about, then don’t do it because there has

to be a drive, right? In order, in order to be willing to quit your job, you have to really love what you’re doing. Obviously. So, is it kind of like you have to know what kind of legacy you’re going to create before you kind of get off of this current, your current job or your current path? Is that a key part of it?

So you don’t have to know the specifics, but you kind of have to be able to feel what it is, right. If you have no idea what it is, there’s, there’s no reason to quit your job, but if you are specific about, this is what I’m here to do. and you are in the financial position to quit your job or B both have your job.

And then on the side, You’re working your business, you’re growing your business. It doesn’t all have to happen. and so that really just comes down to time management. What are you doing right now? You know, what are you doing next? What’s up on the possibility list? What could you do? But you don’t need to carry that with you.

And that’s something that also stops people up. We look at all the possibility, okay, this is, this is what I want to do. And it’s, you know, it’s this big thing in the world. You can’t carry that around with you all day. That idea there’s too many working parts in that idea. So you have to really use time management skills and say, what am I doing right now?

What’s what’s on my schedule next week. And then you create like this possibility list of like, okay, and these are all the things that I could do, but I don’t, I’m not doing it right now today. And then you take some of the things that you could do and chunking them down to where you’re getting. You’re sort of chipping away at them.

one conversation that came up a lot during our last, Hawaii mastermind was, you know, a lot of people are already on the path of investing. You know, they pulled all their retirement funds. They’ve got things deployed and good cash flowing assets. but they’re realizing like, wow, I’m gonna need to invest a lot more.

And this is not a get rich quick thing. And I’m like, yeah, man. But then it’s it’s then I’m like, yeah, you better get comfortable, comfortable, buddy. Like, it’s going to take awhile. but they don’t have, maybe they just haven’t spent the time to kind of figure out what is that bigger thing that they’re going to need to create, or maybe they don’t want to create.

Maybe they’re totally happy. You know, they’re happy at their current job and you know what, what’s kind of the advice for those types of folks. Yeah. So. Why you’re doing what you’re doing. Right. So I know, I know why I show up. I do. I know I I’m, I I’m doing this. Cause I don’t want anyone to die with an assignment on their life.

I don’t want any leave this world unfinished. Right. We don’t get to go time, but I don’t want anyone if I can help it to leave this world and go, Oh my gosh, I didn’t finish. I could have done this big thing, but I wasn’t, I didn’t, I just got stuck. No. And cause that’s, that’s a, that happens. And so I think for people that really.

No, you know, they, they really feel like they want to do something bigger. They need to know why is it the right, not going to be instant. And so your why is going to get you to the heart. Your why is going to be, you know, thing you give up and putting forward. And if you don’t know, well, I’ll give up. So you really have to have a strong sense of why am I doing this?

I guess like, you know, one thing I’m, I’m kind of saying here is, you know, and let’s just say you make 80 grand a year and you save a whole bunch of it and you, you, you like you travel the world and you know, you’re good, right. If you’re good, you’re good. And also if you’re making $500,000 a year and that’s really all you really want to do and not really, you know, take up a, a side gig or a business or create a huge legacy.

You know, nothing’s wrong with that too either? Well, I think sometimes the legacy is your family, right? The legacy doesn’t have to be big. The legacy could be literally being the most amazing parent you’ve ever been or friend. So that’s the other thing, right? We, we, we tend to believe that a legacy has to be this big thing.

And sometimes it’s very quiet. Sometimes it’s something that nobody else notices. Right. We have those people in our family that live literally we’re the glue to the entire family. And that’s C I think that’s beautiful. I think that’s a well lit, so it’s not just about making money and being abundant.

It’s well, abundance elevate, right? Abundance is friendships, family relationships. All of it. Right, right. I think a lot of people listen to these podcasts and, you know, they hear about, you know, doing these big things, but that’s not for everybody. I mean, it’s, we don’t want to shame anybody. It just, you know, kind of playing the role kind of, you know, making your own world better place.

Right. That’s I mean that honestly, if you don’t have that nailed down, then the big system is not going to fix it. It’s not going to fix it, right. You really have to be, be, and continue to become a person that you really are happy with. And so that’s some personal development, right? You gotta kind of look at yourself and say, am I a good person?

Am I, am I a good friend? Am I a good father? Am I a good mother? That does have to come first. Okay. Yeah, I think, I think I see in like, you know, the real estate, for example, people with like these thousands of units, they’re kind of weird people, in my opinion, they’re kind of kooky. I always tell my, my clients, you know, let’s figure out what your end game is, you know, define your end game and work towards that.

And then when you get it stop, you know, I, and I use the analogy of like, people are on a train or the subway, you know, people always get off before the end of the line. The only people that I won’t get off or the weirdos, the homeless people. And the people that don’t really like, they’re just weird.

They just stay to the end. And that’s kind of like the, you know, the people that keep, keep trying to achieve and do more and more, more, but for what no reason, I mean, I mean, it’s cool. And sometimes people just like to ride the train, ride the subway, but that only happens and you know, some romantic comedies, I guess, but.

Yeah. I mean, I D I S I see the downside with some of the people that keep going and going and going. Yeah. I feel like that’s all they have because they didn’t build a life as well. And that can be weird. Any last thoughts, to kind of part on, the listeners here, if you think we missed. Go for it. I think that that’s really a big message here is just go for it.

You know, big don’t leave anything on decide what playing big means to you. Right? So like we said, playing big could mean, scaling down on work and becoming parents playing big in, you know, launching a business and, and drown the entire. But you decide what big means to you and don’t leave it undone.

Well said, Mariko’s website is so priority.com. You guys want to check her out and any other ways they get ahold of you, we’re gonna put up. Sure. I’m on, I’m on Instagram at spelled M a R I K O. and on Facebook, the Matico Frederick. All right. Well, thanks for listening everybody. We try to throw in one of these, You know, more life building type of less hardcore investing math science podcast once in a while, if you haven’t done.

So please check out the website. I’ve been doing a lot of upgrades there@sevillepassivecashflow.com. Lot of ultimate guides like for taxes, trade lines, legal, all sorts of fun stuff. So, we haven’t connected please. let’s get on the phone. She meant email lane and civil, passive cashflow.com. And we’ll see you guys next time.

Watch This First Before You Follow These Billionaires

For George Soros, he bought t mobile and the biggest cell was peloton interactive via the biking people. Car iPod, he got LNG. And he sold HP and David Tepper bought T Mobile T Mobile again, he’s bigger sellers. amazon.com. JOHN Paulson biggest purchase was Bausch health companies vhc. And he sold fire call. Now the teaching block here is just because a big whale is doing something doesn’t mean that you should be doing it. These guys are wealthy billionaires. It’s very different from what 100 millionaire family office should be doing a $10 million net worth guy a $1 million net worth guy and possibly what you are doing at home

Save Taxes via Cost Segregations w/ David Brizel

0:00
So if you didn’t use a home office in your home exclusively for business, and then you don’t want to have to face the capital gain consequences when you sell, you would need to stop using that home office for business purposes for at least two years.

0:28
Hey simple passive cash flow listeners. Today we are going to talk about cost segregation and not for those looking to cost sick. They’re 200 unit 300 unit apartment complex. But how can we use this for our single family home rentals, smaller rentals or possibly even our primary residence? Again, this is the passive investing show simple passive cash flow, where we are trying to a lot of our highest and best use is that our date our day jobs, but how do we optimize things are investing so we can get out of the rat race and a lot of times I can see you guys getting out of it in less than five or 10 years. So today I have a cost segregation expert David Britten soul on the line. Thanks for joining us, David.

1:13
Thank you.

1:15
Yeah, so in the past year, I’ve kind of found that cost segregation studies are a little bit of a racket, a lot of companies and firms will do it out there typically charged around the same price. But there’s a difference between a legitimate cost segregation study. And one of those big things is actually having a site fitted visit, which David has actually flies out there himself, and he does these things. But yeah, can you expand on? I mean, there’s a lot of companies doing this, right, David?

1:47
Yes, there are in the last, I’d say 12 to 15 years is when a lot of them popped up. I’ve been doing this for 20 years. And in the first five years I was doing it, there was practically no one west of the Mississippi River that was doing it.

2:04
Yeah. And also on the smaller end, I mean, on our apartment projects, where it makes total sense with economies of scale and 100 200 300 unit apartment complex. But when you start to get into a single family home, like a lot of you guys will have $100,000 turnkey, it may not make sense. So there are some options out there that you might want, you can pay, you know, 400 500 bucks, and they do a little desk review. But David, can you talk a little bit to the legitimacy of those cost segregation studies and how those guys operate,

2:38
what they tend to do is they will ask you for the measurements of certain things that they want to segregate. And so essentially, you have to do it. And then you give it to them, and they’ll put it into a report. That’s the way I understand how they do it. We don’t do it that way. I actually go to the site and do the engineering myself, when it comes to these smaller projects, especially if there are new architectural drawings that we can use for the engineering.

3:08
And is there some kind of checkbox when you submit the cost segregation study to the CPA? Where, yeah, I actually did a sidewalk? Or is there any kind of designation that you need to do on your end?

3:21
Well, I do put it in the report that we visited the site. When I say we, it’s essentially it’s me, but I have an engineer who does the pricing on the value pricing of the assets that I bought segregated from studies where we don’t have blueprints. And also I photos, document everything. So when I’m on site, I’m taking pictures of all the components of the property that I want segregated, which obviously cannot be done if I don’t visit the site.

3:52
So you had out there, travel costs are included.

3:57
Do actually I did I build those separately on top of the stated fee? Right?

4:01
So you touchdown and what actually do you do on these trips to so people can get a sense of what goes into a cost segregation study?

4:12
Well, I mean, I have to look at the entire property both inside and outside. And so I photograph everything that I want to segregate. I measure everything I want to segregate in the case of situations where there are no drawings to work from. And that’s both inside and outside the house. And I have measuring equipment that assists me in doing that, such as the laser beam for the interior stuff and surveyors wheel for the exterior

4:38
stuff. If we kind of left people at the dock there what a case, cost segregation study is, but in a very high level, it’s a report that allows the CPA to now aggressively right off the property. Most single family homes you can write off a property and 27 years so 127 of the depreciate Over 27 years old, she called straight line depreciation row with a cost segregation able to aggressively write it off. Oftentimes, you can take one third of the entire building value in year one.

5:12
That sounds about right. In most cases, yeah,

5:14
you guys can check out simple passive cash flow.com slash cost sag, also embed this video in there too. But that’s pretty much the the guide to what cost segregations are. If you want to see how that ties into your own personal taxes, go to simple passive cash flow calm, slash tax. But let’s get into the good stuff, David. And before we do is throw down the disclaimer that you and I are not CPAs

5:41
I am a CPA.

5:43
Okay, you are? Yeah, cool. Well, I’m not one, and I’m not a tax attorney either. But we are just giving out infotainment here, right. We’re not giving any professional advice based on your personal situation, but just some ideas that have David has seen some of his clients do. And so let’s start off with the top right, like, can you cost segregate out and aggressively extract the depreciation on a primary residence that you want to live in? Let’s talk about that, that you cannot do,

6:16
you’re not allowed to depreciate your own home. The exception to that would be if you have certain areas that are used exclusively for business. But even then it may not be advisable to do that. Because if you are segregating out a certain portion of your home for business, a home that you own, because then when it comes time to sell the home, if you sell it again, you will actually have to deal with a capital gain on that portion of the home which might more than offset any deductions that you would have gotten for that area of of your home. That’s the one thing in the tax code is actually more of an advantage to renters and into homeowners, where a renter may use a bedroom in the two bedroom apartments. And we’re using exclusively for business, they can take all those deductions that are allowed and don’t have to deal with recapturing any depreciation because they didn’t take any depreciation because they don’t own it.

7:18
Now, what are some of your clients doing to do they turn it into a rental property or commercial property first, and then they move on after let’s talk about like, what are some folks that you’re seeing doing?

7:30
Yeah, you can do that. And what’s the way the law works is that as long as you lived in the home for at least two of the last five years that you’ve owned it, then it’s considered your principal residence. So if you did use a home office, in your home exclusively for business, and then you don’t want to have to face the capital gain consequences when you sell, you would need to stop using that home office for business purposes for at least two years.

8:00
So how did they get around? Like, I mean, can they move back in? What’s kind of the trick there?

8:04
Oh, well, if you’re talking about a separate rental property, then yes, if you have a, let’s say you live in one home and you have another one that is a rental property, and you’re facing a large capital gain, then what you want to do is move back into that other homes that was your rental property and live there for two years, and then you avoid the capital gains.

8:26
So let’s just say you you bought a house to live in actually, this was my case, for my first rental I bought back in 2009. I lived in there for a year. I rented it out for the next I think two or three years. But you’re saying if I would have just moved in for one more year, I would have been able to not have to pay the capital gain on the whole thing.

8:48
Right, you need to do live in it for another year for some stonework to have the last five, right now you still would be facing depreciation recapture. But you wouldn’t be facing capital gains.

8:59
Okay. So let’s talk about this other idea you and I were talking about so they have a larger home like maybe a million dollar property that they own. And you’re saying that they are renting it out for a year turning it into a quote unquote, commercial property, in that time costs, egging it out, pulling out the passive losses or the depreciation as and putting in their back pocket for passive losses. So when they do have a different real estate capital event, they can use that, but then they’re moving bright back into the property. unpack that for us how that’s possible.

9:38
Yeah, especially with the new rule laws that came out two and a half years ago. It allows for 100% immediate write off, technically, it’s depreciation, but you can take 100% of the value of everything we segregate and write it off in the first year. And then as long as you Don’t dispose of the property. So let’s say you rent it out for a year, and then you’re and then after that you move into it. You don’t have to recapture the depreciation until you sell. And let’s say you don’t sell it for 20 to 20 years. So you’ll have depreciation recapture in 20 years. And that assumes anyone even remembers what happened 20 years ago, but technically, that would be the way it would be recaptured. And certainly, it’s nice to get the deduction Now, while you’re in a high tax bracket, sell it 20 years down the road, when you may not be in the same high tax bracket. And on top of that, you have the time value of money of 20 years.

10:42
And for a lot of people that might be building their retirement home, right, they’re gonna plan to be in there for the rest of their life. But that’s kind of an ideal scenario.

10:51
Right. So then you never end up recapturing that depreciation. Yeah,

10:57
I’ve heard of like the I’ve gotten some legal advice, which I think is a little too aggressive, where they say, well, you just need to have the intention to rent it out or turn it into a commercial property. But you’re being a little more conservative here, you’re kind of guidances rented out for an entire year. Yeah. What’s your thoughts on that?

11:18
Well, most leases are going to be for a year. So typically, you rent it out, it’s going to be for a year, and then at that time you decide I think I want to live in it. And I don’t see how the IRS can really argue against it. Unless it was very, very obvious prior to you buying it or prior to you renting it out that that was your intention. And even then I don’t know if it matters, the fact of the matter is you did turn it into a rental by actually renting it out. Now, if you rent it out for only a week, then I would say no, but if you rent it for a whole year, I don’t see how they can argue against it. Right. And

11:57
a lot of this stuff isn’t tax evasion, right? I mean, you’re following the letter of the tax code.

12:03
Correct?

12:05
So kind of going back to some people have a lot of single family homes like turnkey rentals, they typically cost $100,000. Yes. How much does it cost segregation cost? And does it make sense to do it on a smaller property? Is there a certain rule of thumb that you have on

12:22
in general, it’s hard to say that there’s an exact rule of thumb, but I have done studies on single family dwellings that were purchased for under $100,000. And actually, they work and one of the reasons is because we’re able to do those studies, generally for under $2,000. And the benefit that will be realized from a cost segregation study will exceed the cost of doing it by enough of a margin to make it worthwhile.

12:53
And that’s in a situation where the owner is looking to own that property for the longer time horizon 510 years plus,

13:02
yeah, that’s true. If you’re planning on disposing of the property a year or two later, it’s probably not worth doing the study on

13:11
on a couple of our Mississippi assets. We’re not super bullish on the market, we elected not to do the cost segregation, because I mean, the way that the projects are going, they’re going well, so we’re trying to unload them in the first few years. And yeah, our attorney or tax attorney kind of advises the general rule of thumb from there and is if you’re, if you’re looking to hold on to the property for more than three years, it makes sense to do it, but it’s less, it probably doesn’t make sense. But of course, that’s on a larger hundred 20 unit apartment or the cost segregation study might be $5,000. You know, that’s peanuts compared to the hundred thousand dollar this case? And we’re talking about, right? Yeah, that’s true, I would say three or four year time horizon. Sounds about right. And also what you want to take take into account is your expected tax bracket. So if you’re in a high tax bracket this year, but you think you’re not going to be in high tax bracket, even next year or the year after, then it may be worth doing because you get deductions in the higher tax year, tax bracket year and then you’re recapturing the depreciation in a lower tax bracket here. So in a way, it’s a little bit of a form of arbitrage. Right right. So let me kind of break this down for folks an idea that I had recently. Yeah, I guess maybe one day I’ll own my own house. I’m not a big fan of owning houses here in Hawaii or California especially where the rent to value ratios are nothing good. Right. Maybe one day all this investing will pan out and I can actually buy my wife a house instead of just renting. But if I were to buy a you know $3 million house which isn’t is probably the equivalent of somebody. A million dollar house in Alabama here in Hawaii. Just use a round number $3 million. Sharon Hawaii, I mean, I think that the land values are our majority of the price. So right, I would say one third of the $3 million is actual the building value, which you could depreciate two thirds of it being land. So that means a million dollars is possible to depreciate and going by the general rule of one third of the building value is depreciable. In the first year, with a cost, say, if I brought you out to Hawaii, which I’m sure you would like, and I don’t spend too much time here, and I’m not doing a study, you have to you have to tell me that you can’t tell me that. But um, yeah, pay, pay a few thousand bucks, do a cost segregation study, and then get a third of that million dollars. So $300,000 of passive losses in my pocket to use whenever I want.

15:51
So it’s always whenever you want, it’s wherever you can go, that’s the thing about passive losses is you have to be able to use them. Otherwise, sometimes, you can get caught in a situation where they’ll be suspended and carry forward until you can use them. Now, speaking of Hawaii, real estate, one thing that I have noticed, because I’ve done studies in two islands there, and that is the big island real estate tends to be less expensive than the other islands. So that can be something to consider. Yeah, well,

16:23
I don’t want to live there.

16:26
There’s nothing it’s a very rural area, right?

16:28
Well, no, Kailua Kona is, is barely happening. And I did a study of a five bedroom Airbnb that also had two other residential rental units attached to it, they only paid I think $700,000 for the property, and it was only maybe a 10 minute drive from downtown Chicago.

16:50
Yeah, out there, I would, you know, just kind of shooting numbers out there, I would say it probably be half half the price of the land to the building value. I kind of did a lot of research about this back in the day when I was a city engineer where we had to make offers to property owners to buy little slivers of land. And it just seemed like if you’re in a high priced area, the general rule is one third of the property is the land or the building value two thirds is the land value. And then when I look at my, my rentals in Georgia or Alabama, it’s the opposite.

17:27
Maybe actually, even less, what’s common here in the mainland, with the exception of maybe areas that are high price, like New York City or San Francisco, is that most accountants will will assign a value of about 20% of two of the purchase price to land. And that even includes where I am here, and it never seems to get challenged. So that’s why even where you are, I would imagine if you talk to your accountant, if you bought a $3 million house, they might assign 40% to the land value, even though in reality, it may be more of like two thirds, like you were saying

18:06
any last kind of tax tricks you kind of seen lately, that’s been maybe not talked as much.

18:13
Well, one thing is if you’re if you’re looking at all into commercial property, one thing that that came about within the recent passage of the cares act back in March, is that if you have a commercial property, or let’s say you buy one, and then you renovate it, the renovation of an existing building now qualifies as instead of 39 year property, which is for commercial property, it now qualifies as 15 year property and is eligible for the bonus depreciation, which allows you to write off 100% of your tenant improvement in the first year with the exception of certain things that would be considered structural, which would essentially amount to the four walls around the building the concrete floor and the roof. Any stairwells, elevators and escalators or anything that’s load bearing. Otherwise 100% of the tenant improvement will qualify as it can be completely written off in the first year.

19:21
Awesome. David, you want to get your contact information out there. We will also put it in the show notes. We’ll put this on simple passive cash flow calm slash cost sag. For you guys pull this video and want to

19:35
do my phone number here at the office is 480-963-2872. And we have done studies in 39 states. So we’re at some point we’re hoping to get the other 11 But anyway, one thing I’d like to add if I can is to kind of go into what exactly we are doing what what cost segregation entails. And what it entails is the identification and segregation of the value of various assets that are contained in the building as well as outside of the building that qualify for accelerated depreciation. And in a nutshell, everything outside qualifies because everything outside is considered a land improvement. So we’re talking concrete sidewalks, driveways, porches, patios, curving asphalt, landscaping, fencing, all that stuff qualifies for cost segregation. For accelerated depreciation inside, most flooring will qualify such as carpeting, vinyl, tile, vinyl sheet vinyl, laminate flooring, what will not qualify is wood flooring, or ceramic tile or any other kind of hard, titled, kitchen cabinetry will qualify the power to the appliances in the follow fi the the appliances themselves, the baseboards, and just ceiling fans, the whole host of things qualified to be accelerated outside segregated and outs from cost of the building and then accelerated depreciation.

21:17
And the reason why bring guys like David on the show is he’s the actual guy doing the work. And this is all small businesses, right? We are kind of the anti institutional investing world where there’s just middlemen upon middlemen upon middlemen, most cost segregation firms is just a bunch of salesmen, affiliate marketers, or David’s actually got going on to it. And if he has like a project in Nashville, and he’s going to do my go to Huntsville, and do your rental property. He’ll bill accordingly. And he’ll he’ll split the travel costs. I’m sure he’d love the Hawaii to.

21:52
Yeah, yeah, I guess I’ve done one there. Big Island and one in Maui. And yeah, so it’s and yes, I don’t I don’t stay for an extra week in June before. Right. I’ll do that.

22:05
Right. So yeah, I mean, a lot of the simple passive casual brand is kind of going off of value and getting the highest quality. Again, a lot of tough things we talked about today had to do with taxes, and we’re not giving any tax or legal advice here if you guys need a CPA referral and shoot me an email Layne at simple passive cash flow.com and if you haven’t connected before, let’s get on the phone and connect man looking forward to talking with all the investors out there. Thanks David. Thank you very much. This website offers very general information concerning real estate for investment purposes every investor situation is unique always seek the services of licensed third party appraisers inspectors to verify the value and condition of any property you intend to purchase. Use the services of professional title and escrow companies and licensed tax investment and or legal adviser before relying on any information contained here in information is not guaranteed as an every investment there is risk. The content found here is just my opinion and things change and I reserve the right to change my mind. Above all else, do your own analysis and think for yourself because in the end, you’re the only person who is going to look out for your best interests.

Should I Get a 15 vs 30 Year Mortgage

People always ask like, well, should I do a 15 year mortgage or a 30? I’m like, well, you take as much debt as you can, because that’s the whole point of why you’re doing this with the lowest required payment possible.

Because you can always accelerate if you want to, but you just you lose control of the property, if you lose control of the cash flow, and the bigger the payment, the harder the cash flow is. And this is why we’ve been brainwashed that you know, that’s bad.

And actually, if you want to hedge yourself or something that’s coming in the future, you want to take as much debt now so that when inflation’s happens, it’s worth barely nothing. Yeah, banks want you to stay in debt because that’s how they acquire streams of income. Right? investing isn’t about buying low and selling high investing is about acquiring streams of income, what I call acquiring the efforts of others.

When you go to invest in real estate, I’m not interested in owning a property that goes from 100,000 to 200,000. I’m more interested in having two $100,000 houses that have two tenants instead of one because now I have twice as many people working for me