DonorsChoose.org was a little slow (and ~$200 of fees) the goodies arrived!
My students need supplies to support our Choose Love movement, a social emotional program that teaches children how to choose love in all different situations. We need clipboards, pillows, answer buzzers and much more.
My Students
My students are active, fun loving and excited to learn. They love hands on activities that allows them to engage in building and teamwork with one another. They come to class ready to learn and are eager to share their ideas with each other.
We continue to work together to build a community within our classroom that encourages each other to grow and learn from one another.
Its important that all students have a voice and that we as educators understand all of our students needs. We promote a learning environment that builds a culture within the classroom of love and understanding through learning. Every year I am blessed to have a loving and engaging group of students that encourage me to keep learning along side of them.
My Project
Our school is focusing on our Choose Love Movement this year. This social emotional program is encouraging students to choose love in all different types of situations. The program focuses on 4 components, courage, gratitude, forgiveness, and compassion. With the materials from this project, I am creating a Choose Love corner for my students to use as a space to express themselves honestly with no judgement or fear.
This Choose Love Corner is helping to “cultivate optimism, resilience, and personal responsibility” in all students.
I really want to encourage my students from an early age, a healthy way to express their emotions. A main focus of the corner will be the rug where students can take their Choose Love journals and share about anything they are feeling both at home and at school. The emphasis of the rug is also about different traits that I am hoping to instill in my students as well. Many of the items will be used by the students to make them feel comfortable sharing things in their journal that they may not feel comfortable talking about.
I am hoping that if we can teach students from an early stage and provide them with the life skills of coping with situations, it will continue to encourage a happier and stronger learning environment for all students.
SPC followers are typically younger than 30 or older than 35. My observation is that when people have kids, that takes all precedence.
Launch 2019 with a 50-minute goals brainstorming session.
(we will not be talking real estate investing – the second half of the presentation will be our 2018 Quarterly recap – this will likely take us another hour… please stay if you can or listen on slient)
Here is the editable worksheet to follow along link
Topic: https://simplepassivecashflow.com/2019-launch/
Time: Jan 5, 2019 9:00 AM Pacific Time (US and Canada)
On the last day of 2019… I will be immensely satisfied when I…
[Get down to 155 lbs and raised $3M in fund]
If it does not scare you bit… Its not high enough.
If you accomplish it what will it give you?
[A level that I can maintain and focus on quality.]
In TEN YEARS… I will be immensely satisfied when I…
[$25k passive a month with still being able to interact with a person a day.]
“We over estimate what we can do in one year and underestimate what we can do in ten years” -Tony Robbins
5 things you did NOT accomplished in 2018?
[Weight goals
Find a new hobby outlet
Operate in a less frantic mode]
Why not?
1) Disconnect
2) surrogate to accomplish the same why
3) used the wrong strategy
4) lacked knowledge/resources/people
5) you took the easy way
6) crabs in a bucket (peer group)
Creating the plan…
Break down the goal in four chunks:
1) Complete routine of activity 3 days a week
2) Evaluate progress in March 1
3) Possible add 4/5th day of activity
4) Evaluate progress in June 1 and at that point address diet
3 People hack: 1 person above you, at your level, and below you that you mentor
Setup environment
Four tendencies: upholder, rebel, questioner, obliger
Rewards
Taking action
Scheduling in the calendar (not recurring cause it won’t be special)
Every two weeks review big goals
Would you like an accountability partner?
Most of you folks are hard-charging achieving types who listen to my podcast at 2X speed. For once you need to stop that just for this exercise.
Set the timer for 20-40 minutes and get into the right State.
Getting into this State is critical. Music, a little wine, whatever floats your boat…
Get a pen, paper, (or your computer/mobile device) and a quiet space and here we go…
The group coaching is something that I have been trying to put together a couple years now after I accumulated a lot of content and got a feel for coaching students these past few years in a one-on-one setting – see SimplePassiveCashflow.com/coaching
I’m code naming this project, “The Journey to Simple Passive Cashflow” and it will consist of:
1) 27 weeks of curated content with concepts building on top of each other
2) Participants go through those modules together and are able to interact on the Bi-Weekly Call and the Private Facebook group in a “group study” environment
3) Bi-Weekly hour power calls switch between the topics of a) Acquiring you direct investment and b) more high-level wealth building concepts and syndication education
It’s going to be a really cool format where people take the journey together. Think like a Fraternity/Sorority without the weird stuff. When I was going through programs it was most beneficial to connect and climb the ladder with quality people. Who knows someone of your Cohorts might do a deal together or become lifelong friends or accountability partners.
1) Currently open for investors – 101-Unit Class C in Gulfport MS
2) 30% – MFH Apartment
3) 90% – Finally a Non-MFH fund syndication (where I do the admin/accounting) to lower costs and get higher prefs and lower minimal investments. Q2 2019
Current investors in past deals let’s meet up when you are in Hawaii. Non-investors you can still kick it with Lane
The Hui Deal Pipeline Club is a free investor club where I filter investments and underwrite the numbers and partners myself. 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 have acquired over $155 Million dollars of real estate acquired by syndicating over $13 Million Dollars of private equity since 2016.
Track Record of success:
15 Apartments Buildings Purchased, 2 Manufactured Home developments, and an Assisted-Living Facility
2,100+ total units
10 US Markets – AL, GA, IN, OK, LA, IA, TX, WA, PA, MO
Started investing in 2009 – 9 years of experience
Countless Mastermind and Mentorships in the Live & Virtual clubs through the education platform at SimplePassiveCashflow.com
2,600 investors and 100 new Kool-Aid drinkers every month!
As a real estate investor, imagine using Cost Segregation as a real property investment strategy that will grant you tax free cash flow from fixed assets and allow you reinvest even more (and possible lower your ordinary income).
What is Cost Segregation?
This is one of the easiest and fastest ways to squeeze a little extra profit out of an investment. If you have ever played those racing video games where you modify your car (like Gran Turismo) it’s like paying for that cheap computer chip upgrade to get an extra horse-power boost, it’s a no-brainer.
For those of you who aren’t ex-gaming nerds like me, it’s “low-hanging fruit”.
A cost segregation study gives a tax benefit to the taxpayer to take advantage of current bonus depreciation laws (starting to phase out slowly in 2022) in order to depreciate their assets by taking a loss on paper.
The cost segregation specialist/engineer analyzes the components of a commercial real estate asset to create a cost segregation report to equip the tax accountant or CPA the needed breakdown of the asset in order to make the depreciation determinations.
To better understand the benefits of performing cost segregation, you must first understand depreciation.
Depreciation is where you reduce the value of your assets (in this case, your real estate properties) due to natural wear and tear over time. There is a type of depreciation wherein the value of your fixed asset (real estate properties) depreciates faster than it should be. This speedier depreciation or most commonly known as accelerated depreciation.
Let’s look at it in detail: If you own commercial or residential real estate investments, you can depreciate your real estate holdings. A commercial property establishes a 39-year depreciation schedule and a residential property establishes a 27.5-year depreciation schedule. These are the numbers we will use to calculate the rate of our depreciation deduction.
Above link is for smaller assets. Larger assets will likely require other vendors that we use on our assets. Join the club for access.
Real K1 from a past dealReal K1 from a past dealReal K1 from a past deal
Above: Example of a cost segregation estimate for a past deal
Below: Another estimation of regular depreciation vs the more aggressive deprecation timeline (what is coined as “bonus depreciation”)
Envision a 3 bedroom single-family home in Birmingham, Alabama that is worth $100,000. Of that, approximately $65,000 is determined to be the building value and $35,000 is determined to be the land value. Each year you can deduct 1/27.5th of the building value, which is about $2,363 a year that can offset income gains. $2,363 can be taken for the next 27.5 years until all the value on paper is depleted.
Is there a catch?
Unfortunately, you cannot deduct the value of the land unless you have made a land improvement, granting that the improvement you made has a “useful life” that is depreciable. Only the improvement will be depreciable, not the land itself.
https://youtu.be/tlI83umq-DE
When you sell the asset you will need to recapture the depreciation. This is the major disadvantage to a cost segregation.
We pay $8000-12,000 on our larger commercial assets to do a cost segregation and our advisors tell us that the general rule is to do a cost segregation if we intend to hold onto a property more than 3-5 years because if we sold quicker than the time benefit to the passive losses we got as investors you be less and might not be worth the price of the actually cost segregation study.
But, guess what?
There are some exciting new benefits to passive losses since Mr. Trump enacted a tax law where 100% Bonus Depreciation creates substantial benefits on your taxes for the acquisition year. In the future, us investors are crossing our fingers that this part of the tax code sticks around.
Paper losses from single family homes
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Think about this: My $3M, 52-unit apartment, is looking to get more than $266K in tax savings (at 37% tax rate) in the first year of ownership by doing a cost segregation.
If you are interested in learning more about how to best utilize your passive losses, you can learn more here.
Companies and investors who have constructed, purchased, expanded, or remodeled any kind of commercial real estate (including 1 to 4-unit residential rental properties) since 1987 can use cost segregation studies for maximize their tax savings.
The study allows the owner to take advantage of accelerated depreciation deductions and defer federal and state income taxes on the reclassified building components mentioned above.
A team of real estate investors evaluates several personal properties, residential rental property, and land improvements that can be upgraded to improve the value of the property. Those improvements are assessed with the assistance of a Cost Segregation specialist. After completing this cost segregation analysis, the property owner may deduct the depreciable life of the individual fractional interest (IFI) through a cost segregation study, with or without depreciation. If the taxpayer is eligible and has not failed to take advantage of the tax rebate, the taxpayer may claim the expense directly within the given year of the seller’s ownership.
To elaborate more on Accelerate Depreciation Deductions, it is a deduction of the cost you pay to a person if you own your personal property assets. The accelerated depreciation deduction provides significant tax savings but it is not another type of benefit. The exchange of property owners whose benefit is primarily from cost segregation is a limitation in tax savings. The depreciation expense is deducted at the source rate in another year.
What are the Benefits of Cost Segregation?
Lower Property Insurance Premiums
Since it generally costs less to insure personal property, versus real property, building components reallocated as personal property should reduce your insurance costs as well which will yield potential benefits in the end.
Capture Retroactive Savings
Since 1996, taxpayers could capture immediate retroactive savings on properties added since 1987. Previous rules, which provided a four-year catch-up period for retroactive savings, have been amended to allow taxpayers to take the entire amount of the adjustment in the year the Cost Segregation is completed.
This alone is huge!
This opportunity to recapture unrecognized depreciation in one year presents an opportunity to perform retroactive Cost Segregation analyses on older properties to increase cash flow in the current year.
What Components Can I Reclassify?
Components of a specific property or qualified leasehold improvement are identified and reclassified for depreciation over a shorter time (5, 7, or 15 years). For example, 30% to 90% of the total electrical costs in most buildings can qualify for 5 or 7-year depreciation.
5- year tax-life components
Non-structural elements: carpet, decorative lighting and trim, HVAC systems, dedicated electrical and plumbing, and security systems.
7-year tax-life components
All telecommunication related systems: cabling, telephone, etc.
15-year tax-life components
Exterior land improvements: landscaping, curbs, sidewalks, fencing, and signage.
As a Passive LP investor the details of this is not needed as all you need to ensure is that your sponsor is aware of cost segregations to optimize tax benefits.
What is required to have a study done?
You need to provide as much of the original documentation pertaining to planning, construction, and current tax depreciation as you can.
This could include a complete set of:
Construction plans
Current tax depreciation records such as tax returns, building cost budget information, final AIA (American Institute of Architects) appreciation
Document of certification of payment or other cost information, change orders, direct or indirect costs paid by the owner that are not included in other documents
Other information depending on the project
How much does a Cost Segregation Study cost?
On average, the total fee will generally fall between 5% and 20% of the estimated net present value tax saving. You can often get a free preliminary analysis to help determine this. This can be impacted by how large or small the real estate project is.
In addition, the location, accessibility, and quality of the records and documents will impact the entire cost (costs typically range between $8,000-$12,000). Minimum fees can be as low as $2,000 for small projects, and some firms GUARANTEE a minimum of 500% ROI (fee vs. tax recovery) on projects over $500,000.
Cost segregation studies are typically cost-effective for larger syndication buildings purchased or remodeled at a cost greater than $100,000. Acost segregation study ismost efficient for new buildings under construction, but it can also uncover a retroactive tax deduction for much older buildings as well.
What are the steps involved in the process?
First off… if you are a Passive Investor (LP), your sponsor should be taking care of cost segregation for you so you will have one less thing to worry about.
If not, the cost segregation process can be broken down into the following steps from start to finish:
Step 1
Vet Cost Segregation Firm
Engage a reputable Cost Segregation firm that utilizes engineers and architects trained in Cost Segregation and it’s application to the proper allocation of assets. If you need a referral go here.
Step 2
Document Review
The engineer determines what documents are available (e.g. planning, construction, invoices, appraisal, and current tax depreciation) for reference and referral.
Step 3
Schedule Property Survey
The engineer then sets a schedule for surveying the subject property and gathering the available documents for review prior to arrival at the subject property.
Step 4
Document Recreation
For those documents that are unavailable, time is then scheduled into the Cost Segregation process for document recreation using known industry standard costing data (Marshall & Swift and/or RS Means costing publications). The process takes about 4 to 6 weeks after all necessary documents are acquired. The time that a Cost Segregation Study takes depends on the size of the project and the completeness of the documentation that you can supply.
Step 5
Conduct Site Survey
The site survey is executed and completed. Surveys can be completed within as little as an hour, but it varies between each survey. Measurements are taken and all areas are photographed for IRS verification and substantiation of asset values during the survey.
Step 6
Calculations
The engineer returns to the office and crunches the numbers. The number crunching process is when all documents are reviewed in detail, assets are verified, and measured against known costing data, and asset reallocation is applied.
Step 7
Review
A review committee then examines the results of the analysis completed by the engineer of record to verify its veracity and confirms it meets and exceeds IRS guidelines per the Cost Segregation Audit Techniques Guide.
Step 8
Compile Report
Once approved, the study results are compiled into a final report that includes: all IRS tax code to substantiate the reallocated assets, spreadsheets identifying all assets categorized according to their building codes, representative photographs of the reallocated assets, and the engineer’s credentials for IRS review.
Step 9
Issue Report
The final report is issued. The client and CPA of record receives digital copies via email, for application to the client’s tax return.
When Should Cost Segregation Be NOT Considered?
There’s an attempt to sell within within 5 years
Not being able to use the losses- planning 5 years ahead and looking back 5 years for taxes; income isn’t enough or PAL restricted.
No savings of at least 2X cost of study (not depreciation but the existing cash savings)
Be wary of 1031 exchanges- there are 2 ways to calculate the depreciation to carryover
5. Check that the federal 1031 doesn’t open you up to exuberant state taxation on the state 1031. Note: Many states do not follow federal guidelines for depreciation and personal property ineligibility.
6. Discern if 179 expensing method is a better option (due to presence of limitations)
7. Possess your real estate in S Corps due to many reasons: basis and step-up
Cost Segregation Example #1
Depreciation is distributed to investors on the K-1 Form in syndications.
Not making any promises as depreciation amount is primarily based off building specifics and the amount of leverage used in a deal, but here is a real-life example from a $50K LP investment in a Class C apartment syndication in the first year K-1 in 2018 which yielded a $36K paper loss by utilizing a cost segregation. Extract 10-20x what you normally able to deduct in the first year alone! Take these passive losses and employ the “Simple Passive Cashflow Gravy Train” strategy where you offset your ordinary/W2 income with real estate professional status. For more details on that check out our Master Tax Guide.
I paid 4% in taxes in 2018. All because of the passive losses that real estate gave me.
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If this is a new concept to you, you may be able to go back to previous years taxes and get back some benefits this year. Oftentimes, getting a quote is free and quick.
A recent quote I got back for a few properties:
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Cost Segregation Example #2
We purchased a $20M apartment and are about to write off $6M in the first year! The total capital raised from investors was $5.5M, that meant almost a dollar for dollar deduction in year one!
Cost segregations are not new. On the contrary, they have been in existence since 1954, when the IRS allowed for certain personal assets to be accelerated into a shorter life class. However, it wasn’t until Hospital Corporation of America sued the IRS in 1997, and won, that the IRS revisited the issue of accelerated depreciation. The IRS ruled that property qualifying as tangible personal property under the former Investment Tax Credit (ITC) rules, would also qualify for purposes of federal income tax depreciation under MACRS (Modified Accelerated Cost Recovery System).
The IRS Chief Attorney wrote a memo saying, “. . . Cost Segregation, for it to be properly applied, had to involve those with competencies in architecture, engineering, or construction and/or construction techniques, in order for personal property assets to be accurately identified and segregated.” As a result of this memo, cost segregation became a viable tax-saving strategy allowed by the IRS.
CPAs are not qualified according to the IRS guidelines. However, most Cost Segregation firms will gladly work with them on a consulting basis to complete the work for you. Remember, the IRS Chief Counsel issued a memo that made it clear what constitutes proper “methodology” in applying Cost Segregation, and it must be done by people who are competent in architecture, engineering or construction and/or construction techniques. You will want to ensure you are working with a cost segregation specialist to follow correct protocols. See ” Is Cost Segregation something new? ” above.
As investors, we like paper depreciation to occur earlier because that offsets gains earlier and gets more money in our pocket earlier. Just like how you give a mouse a cookie…. Give an investor a dollar early and… they will turn em’ and burn em’.
In other words, you are not creating more depreciation, you are shifting it earlier to take advantage of the time value of money concept.
On the project-level in a single asset LLC arrangement, the more you can lower your tax liability, the more you can significantly increase your passive income and create more value for investors.
A cost segregation study, in effect, gives you an interest-free loan from the government for the first 15 years, which you will then repay interest-free over the remaining 25 years. Wouldn’t you rather have your money now? There are also advantages in doing a study if the building is going to be sold (via 1031 exchange) or if the owner of the building dies.
Most cost segregation firms will perform a free analysis if you provide your basic property information and tax rate. From the information you provide, they can calculate a conservative estimate of the accelerated benefits you can expect, as well as their fixed fee proposed for the final study.
Typically, tax savings from 5% to 10% of the building’s original tax-basis are generated, but there are instances where it can be substantially more. Each property and circumstance is unique, so it requires a case-by-case approach to give you a definitive answer.
Certain types of commercial properties can be grouped together to give us an idea of the percentage of those types of buildings eligible for accelerated depreciation. Your results may be greater, or less than those quoted here, but in general, property that falls into one of the following categories is most likely to result in accelerated depreciation within the specified ranges.
A study conducted by a reputable Cost Segregation firm should strictly adhere to the IRS Cost Segregation Audit Techniques Guide . The type of study most firms perform places you in Internal Revenue Code Tax Compliance, which actually decrease your chances of an audit. However, you should be aware there are six different Cost Segregation methods allowed by the IRS, and not all are of equal merit. There is currently no standard method, and there is still some ambiguity about which method is best. If you have heard conflicting information about what is, and is not possible regarding Cost Segregation, it really depends on which method is being used.
A reputable Cost Segregation firm can assist you in the event of an audit. They will focus on doing the Cost Segregation Study to create documentation and support for conclusions so that these are easily communicated and resolved with the IRS. In fact, you should expect a final report that is “all inclusive”. The report should quote specific Internal Revenue Codes related to the reallocated assets. Additionally, it should provide photographic evidence of these same assets for complete substantiation of the assessment. A properly documented Cost Segregation Study helps resolve IRS inquiries at the earliest stages.
A cost segregation study can still be performed even if you lack some of the necessary documentation. Construction, engineering, and other specialists will do an extensive site visit. They will measure and estimate using currently accepted costing techniques and pricing guides (such as the IRS-recommended costing publications Marshall & Swift and RS Means ) to determine the costs that qualify for shorter recovery life periods.
Paying ~2% fees per year on my Health Saving Account driving me crazy that I withdraw it and invest cash.
I’m going to start out by saying please do not take this as legal/tax advice!
One rule I follow is “pigs get fat but hogs get slaughtered.”
But if there is a tax code or loophole within reason/ethical good faith you should exploit it as much as possible.
In 2017, I purchased a half acre in a turnkey Coffee farm in Panama in my Health Savings Account (HSA) for about $15,000.
HSA’s are truly awesome! You add money to an account tax-free (like a pre-tax 401k), don’t get taxed on the gains (like any retirement account), and you don’t have to pay taxes when you use it on Eligible Health Expenses (like a RothIRA).
You need a High Deductible health plan to be eligible for an HST. I’m going to get a little political here… health costs are on the rise because it bails people out for not being accountable (good diet, sleeping habits, stress, and exercise program). The company famous for the yellow Twinky bars cited rising health cost as their reason for going bankrupt… go figure.
You WILL have health expenses, MAY have retirement expense… in other words, you will likely die and have health expenses before you retire. So it makes sense to fund an HSA account before any 401K, Roth IRA, IRA, etc.
Here is some information for your entertainment purposes to see what you can start to use your HSA for:
Getting a doctor to sign off on your medical purchase as necessary will need a template:
Sample Letter of Medical Necessity for Hyperhidrosis Treatment
[Date]
[Insurer name]
Attn: [Name of individual]
[Address]
re: [Patient name]
[Policy number]
Dear [Insurer name]:
I am writing on behalf of [Patient name] to document the medical necessity of [insert treatment option here] for the treatment of hyperhidrosis. This letter provides information about the patient’s medical history and diagnosis and a statement summarizing my treatment rationale.
Hyperhidrosis, or excessive sweating, is a medical condition that can have a devastating effect on a patient’s quality of life, causing physical discomfort, secondary skin problems, social/emotional sequelae such as anxiety and depression, and disruption of occupational and daily activities. This has certainly been true for [Patient name], who has been impacted by hyperhidrosis for [insert duration of symptoms here]. Specifically, [he or she] has had difficulties with [insert quality-of-life, social/emotional and/or career/daily living problems here].
[Discuss patient’s diagnosis, treatment history, and degree of illness]
[Insert patient’s name] has tried the aforementioned therapies thus far without success and I, therefore, recommend [insert treatment option here] as the next logical choice for treating [his or her] hyperhidrosis.
In light of this clinical information, and this patient’s condition, [insert treatment option here] is medically necessary and warrants coverage. Please contact me at [(000) 000- 0000] if you require additional information.
Sincerely,
[Physician’s name]
Here is what I put together to get massages for stress from dealing with SPC listeners who don’t listen to the podcasts before booking a call or people who don’t take action:
I am writing on behalf of Lane Kawaoka to document the medical necessity of massage for the treatment of mental stress and muscular discomfort. This letter provides information about the patient’s medical history and diagnosis and a statement summarizing my treatment rationale.
“Mental stress and muscular discomfort”, is a medical condition that can have an effect on a patient’s quality of life, causing physical discomfort, secondary skin problems, social/ emotional sequelae such as anxiety and depression, and disruption of occupational and daily activities. Specifically, he has had difficulties with discomfort performing his duties at work and exercise routine [insert quality-of-life, social/emotional and/or career/daily living problems here].
[Discuss the patient’s diagnosis, treatment history, and degree of illness]
Lane Kawaoka came into the office in early 2018 where we ran a cardiovascular and blood assessment.
Lane Kawaoka has tried the aforementioned therapies thus far without success and I, therefore, recommend massage as the next logical choice for treating him.
In light of this clinical information, and this patient’s condition, massage is medically necessary and warrants coverage. Please contact me at [(000) 000-0000] if you require additional information.
I would say this is a bad report because it’s not Prescriptive. It is very important to have a chat with your inspector so they know it’s not going to be a warm and fuzzy home to live in but a rental property. They will need to avoid citing nitpicky things because the seller is likely another investor and more sophisticated than a regular homeowner and will call BS at your repair requests.
This is where an hour of coaching will go a long way to maximize what you get at the negotiation table.
I suggest bringing an accountability buddy or significant other. The worse thing is to come back to normal life without someone speaking the same “language” around you.
I see these motivational events as “baths” which you need to take from time to time. Even if you are someone who is internally motivated, this will take you to another level.
You will leave this event changed – as silly as it sounds “things will never be the same”
This event will be held in a smaller venue (12,000 people) which I was really excited about when I was planning this because it is a lot better environment than the normal sports arena setting where everyone is captive in their rows.
You get to walk on burning coals!
Learn more about the event here – note the LA event is not yet listed
Details are still being formed but we will likely get upgraded one or two levels if we come in as a large group.
I am also arranging for a Monday decompression meeting to connect with other investors who attended from the Hui.
This event is more for personal development than investing. But it is certainly investing in yourself! After all… getting the passive cashflow is Simple but what you do after is the hard part.
I don’t personally guarantee investments because of course there is always a risk but I WILL guarantee your ROI if you come to this event! Call me and I will share my experience.
After going in 2016, I made these goals in 2017. Some of which happened so of which I overshot.
2019 Takeaways:
Less urgency with more systems
Barriers- peers around to do the same things,
What needs to shift what actions… Deciding how to do this
Why will you live in a beautiful state everyday no matter why?
Life is too short It is a slippery slope backwards In the end a beautiful state is what we are after anyway not money, house, job or relationships. I have control over this… Potential => Actions => results => belief/concerns
Flavors of reaction:
Three things that cause suffering the fear of 1) loss 2) less 3) never have something
Suffering => appreciation => joy
You will make more money if you are in a better state.
Two things that I did to start investing to go bigger – 1) started something that could be better and connect with others and build a platform to have larger impact. I made small changes and found models and copied and got around the right people and slowly built 2) started paying to learn
So you are in!
Preparing for your first Unleashed the Power Within Seminar:
1) Come with an open mind.
2) Make a list of a few limiting beliefs. Everyone has these. Some common examples are I am not achieving what I want because… (I’m to young, too old, never went to college, a woman, I’m brown, I did not come from money). These are the things that subconsciously hold us back. What are limiting belief’s here are some softer examples and they range to not being a certain race, not having the right education, not being tall enough, to not being good at math.
3) Prepare to tackle your biggest, hairy, huge goals.
4) Tony will bring it. He drops the F-bomb a lot. Mostly for shock value as again it is entirely on purpose. Note: he gives free tickets to some troubled kids and he tries to speak to a lot of the kids in the first few minutes who likely have never have heard him before.
5) Prepare to dance your ass off. Even if you can’t dance/hate to dance/have no legs… You will still want to dance. Get in that “puppy pit”. For goodness sake… Live like you don’t give a fuck. Get comfortable with being uncomfortable. Dance because if only it is you trying to do something different.
6) Joseph McClellan will speak on day two and day four. He is a good speaker too. This is not a 5k seminar so you do not get four days of Tony… Its a fraction of that.
7) Be prepared to show up early and go long. Like 8 am to 2 am long. Stay as close to the convention as possible it will be crazy leaving when everyone else does. Don’t try to skip out. If you are getting tired you are letting circumstances control you instead of your leading your state! It is often in the moments when you are close to your limits that the biggest breakthroughs happen, so don’t sell yourself short.
8) Firewalking is real. I thought it was a party trick when I did it and did NOT get into state. You can do it and you will remember it for the rest of your life. This will be trumped by day 3 transformation evening showcase.
9) Taking your spouse or buddy? It’s good that you will be on the same page when you get back to real life but consider not sitting together for part or all of the seminar. There is a lot of value to connecting with others there and getting outside of your normal conventions. Don’t be afraid to talk to some people. Volunteers, there are a wealth of information about what’s coming next and what to do. You can be your true self when you don’t know the other person as they don’t know you or have any expectations of who you “should” be. Here is what the staff told me “It is highly suggested, but not mandatory, for family members, friends and colleagues to not sit with each other. We find it that you end up “playing full out” with strangers than with people you know.
10) I would take notes and more importantly brainstorm action items and implantation plans.
11) Drink the kool-aide. Be all in. Dance, scream, visualize. Show up on time and stay till the end. Get your money’s worth. Do it! It’s worth it.
12) Tony is on another level in terms of hypnosis that makes NLP obsolete. Go with it.
13) Try to sit in the aisle so you can mix and mingle. This makes it easier to run out for a quick bathroom break. You will have to be in there a little earlier like 30 minutes scheduled to start. Also, try and find the bathroom that no one uses for quicker usage. don’t wash your hands it’s faster… Jk.
14) Read/listen to any of his books or audio program
15) Check out what is on YouTube e.g. his TED Talk
15) Watch I Am Not Your Guru on Netflix
16) Six Human Needs and Triad are the core of his work you can learn more in his TED Talk or on his website
17) If you’re not in the right state, not getting it, not feeling right etc. ask any of the leaders and trainers for help, they are amazing resources and have been through it so many times before so have seen, heard and experienced it all before.
18) Subscribe to UPW Facebook group for the event
19) On day two make a list of things you will Stop doing
20) You may not want to commute to and from the event as the event starts early in the morning and end late night. The first night may end after 12 midnight.
What to bring to the Seminar
1) A heavy jacket or even blanker – Tony keeps the room extremely cold on purpose. It’s all part of his magic. Embrace it.
2) You will be jumping for hours. No heels or dress shoes. The only type of shoes you should be wearing are tennis/keds/flats/basketball shoes. Most people will wear causal or gym type attire.
3) Don’t just bring snacks. Bring meals. I’m talking fruit, nuts, hummus, veggies, crackers, granola bars, etc. If you don’t, prepare to race 10,000 other people to be in front of the food line. Post-mates/Uber eats can be a good healthy option. If you are so compelled fast for the four days – and start the literal cellular autophagy – as you will learn the pain is all in your mind!
4) Notebook
Post-event:
1) Give yourself a couple of extra days after the event to catch up on sleep, decompress, review your notes, absorb and process what you learned and make a plan for how you will integrate changes in your life. You will be tempted to plan to rush back into “life” straight afterward but to allow yourself to recover and to successfully integrate your learnings you need to give yourself a little time. There will be some discussion on this on the fourth day.
2) Stay tuned… I will plan an event Monday morning or Sunday evening.
Outside food and beverages are not permitted in the LACC Center with the exception of sealed bottled water and sealed light snacks. Light snacks include single-serving items that would be consumed by one person. For example, granola bars, protein bars, bags of chips, crackers, beef jerky or whole fruit, etc. Empty refillable water bottles are permitted and can be refilled on the main concourse at LACC Center’s drinking fountains. Coolers and grocery bags are not permitted in the LACC Center.
MHN 11-1-2018 – Student Housing Costs Compared – How affordable is purpose-built off-campus housing? – [All this data means nothing if there is a student bubble coming – think about it on a granular level… it makes no sense of a family that makes 90K a year to send their kid to a public college that costs $40K+ a year to get some random degree]
MFE 2-6-19 – 2018’s Record Deal Volume Suggests Positive Trajectory for 2019 – “driven in large part by increased interest in the student housing sector, which accounted for 17% of all deal activity in the third quarter, compared with a consistent 4% over the past 13 years” – [I don’t like student housing as I am seeing an education bubble with all the lending. It’s crazy how dorms get renovated every few years]
List of SDIRA Custodians in no particular order based off feedback from other Hui Deal Pipeline club members.
Accuplan
Advanta IRA
American Estate & Trust
American IRA
Asset Exchange Strategies
Broad Financial
CamaPlan
Capital IRA
Central Bank
Checkbook IRA
Community National Bank
Crowdfund IRA
The Entrust Group
Equity Trust Company
First Trust Company of Onaga
GoldStar Trust Company
Guidant Financial Group, LLC
Horizon Trust Company
iPlanGroup
IRAvest
IRA Advantage
IRA Club
IRA Express, Inc.
IRA Innovations
IRA Resources
IRA Services Trust Company
Kingdom Trust Company
Lincoln Trust Company
Madison Trust Company
Midland IRA
Millennium Trust Company
Mountain West IRA
Nevada Trust Company
New Direction IRA
New Standard IRA
Next Generation Trust Services
Nexus Direct IRA
NuView IRA
PENSCO Trust Company
PGI Agency
PolyComp Trust Company
Preferred Trust Company
Premier Trust
Provident Trust Group
Quest IRA
RealTrust IRA Alternatives
Safeguard Advisors
Self Directed
Self Directed IRA Services, Inc.
Sense Financial
Sovereign International Pension Services
Specialized IRA Services
Summit Trust Company
SunWest Trust Company
Trust Company of America
uDirect IRA
Vantage IRA
401kCheckbook
The Self-Directed IRA Graveyard
American Pension Services
I don’t personally like these accounts for my own investing even though the future gains and withdrawals are tax-free because you can’t use the best Fannie Mae or Freddie Mac loan products when investing in your IRA.
Unless you are using a QRP (Qualified Retirement Plan).
With syndications using leverage (as most good deals do) you will be likely opening yourself up to UDFI etc taxes.
In the end, I want the freedom to enjoy the money now and not have to wait till I am 60 something.
“A lot of the funds are shots in the dark with the only certainty that you get tax savings on the front end. Don’t let taxes be the cause to going into bad deals”
I did some research on this new Opportunity Fund Zone tax benefits. Below are some notes and ideas. Generally speaking I stay away from OZs because they are typically in crap areas which is why congress needs to offer incentives for investors to go there and infuse capital/life there. I’m all for tax savings but I don’t want the “tax tail to wag the dog”, the primary focus of my investment philosophy today is investing in solid locations. This recent article proved my point.
In 2019, I sold my last Turnkey rentals and did so without a 1031 exchange (which we don’t really do in our syndication accredited investor ecosystem. Nor do we mess around Opportunity Zones because we don’t really need exotic tax mitigation strategies once you get on the “golden hamster wheel” of good deals that get great passive losses from bonus depreciation. For more info on taxes go here.
Note: I’m not a CPA or attorney just putting it out there to help inspire some ideas.
An Opportunity zone (OZ) is a tax-favored investment for people with capital gains.
6-pages in the tax document in the new 2017 Tax Cuts and Jobs Act Goal to encourage long-term investments in low-income communities across the US. Every major city has some OZ. Most of Detroit is an OZ plus large portions of Baltimore. Allows investors to sell their appreciated assets and invest their realized capital gains into one or more designated OZ. EVEN STOCKS! Non-like kind assets are OK! After your selling your appreciated asset you have 180-days. The longer you hold the more benefit you get (up to 10 years). 1) Defer your original capital gain tax obligations until 2026 or until you sell your OZ investment.2) Discount of 10% or 15% on the taxable amount of your original gains. If you hold more than 5 years your original cap gains decrease 10%3) If you hold 10 years or more. You will pay NO capital gains tax on any appreciation. You can self-certify so you do not need an intermediary like in 1031 exchanges. No investment minimum. There are some items that get a little unclear… where you should really consult your CPA. Check out the IRS opportunity comes frequently asked questions page and additional resources below. Resources to Google: community development financial institutions fund, CDFI Fund map. Note: Spending $100 dollars to save $20 dollars is not a wise idea. Just like buying a rental next to Grandma’s house because of your travel there. A lot of specifics are still being played out but something intriguing to augment an already good investment. Other ideas: Look at the OZ map and try to find the smaller slivers of OZ. This is called “buying on the line” whereas areas improve on the edge of development you greatly benefit. I would ask your CPA if they know about these opportunity fund zones. If they don’t you might need a new CPA. If you are a current Hui Deal Pipeline Club member I would be more than happy to refer you to some people and then you can see if you work well together.
There is a lot of rumors floating around how this tax will be implemented later this year. One of these rumors suggests that we might not qualify for the Opportunity Zone Fund. See second to the last page of the attached where they state that we have to do improvements that is the same as the basis in order to qualify. Here are some other notes that a buddy of mine took:
Temporary tax deferral on reinvested capital gain until 12/31/2026 (from stocks/sale of a business/real estate partnerships/direct real estate sale)
Elimination of a portion of the reinvested capital gain over the term of the investment.
10% if invested for 5 years
15% if invested for 7 years
Permanent exclusion (100%) of gain on appreciation in excess of initial capital gain investment if held for 10 years.
This means if you have sold an asset whether it be real estate, stocks/bonds, partnership interest, cryptocurrency or a business, you can reinvest that capital gain within 180 days and defer taxes, reduce those taxes by 15% after 7 years of holding and eliminate any capital gains created on the new asset after 10 years.
Post-tax Internal Rate of Return (IRR) increases by a staggering 50% when you invest in a Qualified Opportunity Zone Fund!
This is different from a 1031 exchange which only allows you to exchange like-kind investments and also requires an intermediary (this program does not need an intermediary).
It’s worth noting that the intent of this tax incentive is to help spur development and economic activity in “distressed communities”. So this really is an opportunity to do good and do well.
I have a boatload of income this year, is a OZ project something I should look into?
The OZ is a pretty sweet tax haven and works in theory but I just caution that in the end of the day you are putting money into a shitty area. If you take the tax hit today you will lose 50% but if you invest in a crap area that does little growth then you might lose all of it in a 10 year period. Here are a few options: 1) Go into an opportunity zone fund – these things will be a shot in the dark and my concern other than not knowing these people personally is that these types of fund are a ponzu scheme waiting to happen. We could go with a Vanguard one which I am sure is “reliable” but the yields will be super low like 2-6%. The other funds that I were looking at are 6-10% a year. Perhaps we can spread it all around :/ 2) Find a 2-12 unit in a cash flowing area and run it as a mom and pop yourself
Definitions:
Qualified Opportunity Zone Business – A trade or business. Substantially all of its tangible property (whether owned or leased) is Qualified Opportunity Zone Business Property AND At least 50 percent of its gross income must be from the active conduct of a trade or business in an Opportunity Zone, A substantial portion of its intangible property must be used in the active conduct of its business in an Opportunity Zone, No more than 5 percent of the average unadjusted basis of its assets may consist of “non-qualified financial property,” Cannot be a golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other gambling facility, or any store the principal business of which is the sale of alcoholic beverages for consumption off-premises
Qualified Opportunity Zone Business Property – A tangible property used in a trade of business if: It is acquired by purchase (as defined in Section 179(d)(2) related party rules, but using a 20% related party test instead of 50%) after December 31, 2017; The original use in the Qualified Opportunity Zone commences with the Qualified Opportunity Zone Business OR The Qualified Opportunity Zone Business substantially improves the property; and During substantially all of the holding period for such property, substantially all of the use of such property is in an Opportunity Zone.
Substantial Improvement Test: Property is treated as “substantially improved” if, during any 30-month period beginning after the acquisition of the property, additions to basis of the property exceed an amount equal to the adjusted basis of the property at the beginning of such period. Land excluded
Between 2010 and 2017, population growth averaged 5.5% for the US as a whole. Delaware boasted the highest growth rate, 15.3%, over these years. A state with a relatively small population, however, needs fewer new residents to achieve such a high growth rate. The double-digit rates recorded by Texas (up 12.6%) and Florida (up 11.6%), both high-population states, are therefore that much more impressive. There were three states that posted population decline between 2010 and 2017: West Virginia (down 2.0%), Vermont (down 0.3%), and Illinois (down 0.2%). – ITR – 19.02.28
Since I feel we are in the 9th inning of an 11 inning ball game, I decided to pass on a recent Class-A apartment deal in a secondary market.
Here is my thought process…
First off, Robert Kiyosaki has a saying: “There are three sides to a coin.”
People like to argue that it is either a good time to buy or a bad time to buy. For example, they say that “MFH” is overheated or commercial is getting killed by Amazon and e-commerce. I think these are mental justifications by tire-kickers who are scared to act. I mean really how many of these people are under the accredited status (not sophisticated) or not obtained their “Simple Passive Cashflow number.”
Sophisticated investors still trying to grow live on the edge of the “coin.” They buy deals out of the reach of amateurs due to the amateurs’ lack of network/knowledge. These opportunities are undervalued, with undermarket rents, with value-add opportunity. Sophisticated investors are patient; they don’t stray from standards that force them to get crushed in a market correction. (Cashflow from other investments makes this possible.) They invest following the macro- and micro- trends and don’t gamble on gimmicks such as guessing where Amazon’s next HQ is going or where the hurricanes just drowned a market.
The trouble is that an unsophisticated investor or an outsider (in terms of having a poor network) is figuring out which of these deals transcends the two sides of coin and is on the edge. Stating the obvious (though often ignored by many)… starting out as an investor is going to be slim-pickin’s due to the lack of network. But you have to push through this rough part. You are not able to decode the noise until after a few deals or having someone mentor you.
With that out of the way let’s continue…
Real estate is one of the best risk-adjusted investments out there. In private placements or syndications, we are able to crowd-invest in larger & more stable assets while maintaining control with operators who are aligned in our best interests. By going into a project properly capitalized with adequate capital expenditure, budget, and cash reserves, you are able to remain steadfast through softness in the market where rents stagnate and vacancy decreases.
(If you are starting out you should start with turnkey rentals even though they are much more volatile)
Pause there. In troubled times what happens?
People lose their jobs and there is a bit of shuffling.
Yea, people need housing, but there will be some vacancy as some people will lose their jobs and be displaced elsewhere.
Following this train of thought…
In a recession, the high end or class A will be hurt the most. It is Class A workers who fulfill much of he discretionary services. We are already seeing softness in rent by rent decreases in class A of the high-end markets such as Seattle and San Francisco.
For example a once $1,700 one bedroom is now $1,625.
Most deals model for 1-5% in annual rent increases or escalators. Other than the Cap Rate to Reversion Cap Rate truck, this is the second most manipulated assumption in investment modeling.
In this unfortunate but natural event, the A-Class renters will fall to class B housing. Some homeowners will even lose their jobs creating foreclosed investments for smaller investors in the single-family home scale.
What’s happens to the B and C class renters?
It is likely that they will also lose their jobs at higher or lower rates, but that is up to debate. In the same fashion as the A-Class renters, the Class B/C renters will downgrade to make ends meet.
I imagine this similar to a game of musical chairs (where the chairs are getting crappier and crappier). Or it looks a lot like the natural housing shuffle in the summer near colleges with people moving in and out. The landlord/investor is likely to see increased vacancy.
Multifamily occupancy varies from 85-95% in stabilized buildings. Some markets are hotter and some are colder. It is important to use the correct assumptions depending on the markets. For example, Dallas typically sees 92% occupancy while Oklahoma City sees 89%.
One of the reasons we love multifamily is because of the decline of the middle class and the need for more scalable workforce housing. [And those millennials can’t save] The population is increasing too.
[I like to use this image cause I make fun of millennials… this is the millennial version… cause they can’t seem to afford (or want) to own anything]
When I travel to Asia (which I see as a more mature society, for better or worse) there is a much larger wealth gap than in the USA. People are living in cramped apartments or very rare single-family homes. And they are driving a Mercedes on barely enough money to share a family moped. This is the trend that the USA is following.
As with many things, you need to look past the headlines and the general data. Instead of analyzing a whole asset class, as the media likes to do, let’s break down vacancy in terms of classes.
Here are some typical vacancy rates (notice the spread).
Class C 4.5%
Class B 5.0%
Class A 5.5%
Why? Because there is just more demand for the lower class properties cause there is more demand than supply.
Many times the business plan is the be the “best in class.” For example, businesses want to be the best mobile home park or best high end remodel because you attract the richest customers in that niche.
I like to monitor the number of new units coming online because that is your downward pressure. It is rare that new builds are for Class C or Class B.
The micro-unit trend is an attempt to build for Class C and B tenants due to the need. But often the numbers don’t make sense when you have purchased the same building materials and mobilized the same crews to build a Class B asset as opposed to a class A asset.
Let’s go through that Armageddon example again.
Class A will have to drop rents severely and see great vacancy.
Class B and C will see vacancy come up too as people are losing their jobs but should see some absorption from ex-A Class tenants.
Mom and dad will also see some absorption as deadbeat son or daughter move back home.
Shows like Friends and How I Met Your Mother will go on for another decade.
Note: one can argue that class A+ will not be affected at all which I believe is true. That’s why we are trying to invest right to enter that untouchable status.
I remember when I sat through the same economic presentation at work from 2010-2014. The sentiment at the time was that it was going to be an extremely slow recovery. It makes sense that the length between the 2008 recession and now is very long which is why I mentioned an 11-inning ball game.
This is why I took a set back from some pretty Class A deals because I asked myself the following questions:
1) What will happen to the rents if IT should happen?
2) Is the modeled 90% vacancy rate going to get blown up?
Class B and C apartments in strong submarkets will perform best over the long term. If you ensure the loan term is long enough so you don’t get hurt then you should Outlast the bumpy ride ahead.
Beware of the self-destructive behavior of not investing. You know what I mean… are you someone who self-sabotages?
Understand the micro and proceed if the numbers make sense.
I have to admit Class C and B assets are boring but work especially in a seller’s market because 1) they cashflow and 2) have a forced appreciation value-add component to give you levers to pull in tough times.
Again going back to Mr. Kiyosaki’s three-sided coin quote, investors go through three stages.
Stage 1: Go into MFH… Duh (I did well at single-family rentals let me try apartments)
Stage 2: Be a contrarian investor so go into other asset classes most decent investors are afraid or don’t even know about
Stage 3: Do special projects such as Affordable house taking advantage of tax credits or specialized operators (ie take abandoned big-box space like movie theaters and convert to the latest consumer needs)
Experienced investors who were in the downturn in 2008 say its interesting that the sentiment in 2006 was exuberance that it was going to keep going up. Now in 2018 the sentiment is fear… This is a good thing.
Remember that in this market we still have:
Historically low-interest rates
Historically high rent increases (not 8% anymore but still 2-4%)
Historically low vacancies
Things to monitor if you really need to geek out on numbers:
2 and 10 yield t curve. When that crosses you have just-a matter do time. Because its a measure of fear.
Automation and AI – huge shifts in jobs. People need to work but technology has been increasing since the beginning of time.
Wage growth
Bankers prospective: how deals are getting funded and by who (institutional or dumb capital)
There is a saying out there that real estate is location specific. However, when I invest in more stable asset classes its a National market based on the economy both USA and international. When you invest in a micro-economic fix and flips then its location specific. When you invest in commercial assets it’s with more stable tenants and based on the aforementioned larger economy.
How affordable is rent really? – “During the same span, median effective rent nationally has risen by about 26%. That rent appreciation pushed the median monthly rent nationally to around $1,220 per unit to end 2018. With the US median household income being just over $62,000, this rent accounts for 24% of monthly income. Using the typical benchmark of monthly rent being 30% of monthly household income for affordability, a margin remains for renters.” – [If you stick to using 2% and under rent growths and stay away from Tier I or Primary markets you should be fine] – ALN 19.02.24
A lot of people point to the Yield-Curve as a big indicator. In the end, I do believe that real estate will go down because of consumer instability. But if you have stocks you should sell those before even thinking of lumping it into cashflow type rental real estate.
“The guy not investing right now and hoarding cash (with net worth of under $1M… because if you can live off your cashflow then cool you can do what you want) is just afraid and lacks deal flow. Its like the person who complains that there is nothing to do during the weekend in LA (insert city with a vibrant scene) when in actuality they don’t have any friends (lack dealflow)… and by the no one likes (has a bad attitude and that person who makes excuses”
Doomsday theory: Everyone talks about national debt but we are far far behind debt to GDP ratio that of Japan. When Japan hits the wall lookout. Her is my theory… watch out post-Japan Olympics when they have to let loose the belt (after a holiday period of excess calories). Leading up to a period where Japan has to save face while they are in the Olympic spotlight (and I’m not being racist cause I am Japanese and it is a thing). I don’t have the latest data but Japan is at around 250% where the USA is at 100%.
Household debt KPIs: student debt, car loans, housing debt. Which is why I like these assets that are used by the poor and middle class! #RenterForever
Lane’s theory: I’d rather be in deals that cashflow today that do better in a recession like Class C and B assets. Say it cashflows a 8%.
The guy who is stilling on the sidelines with the “hoarding cash” mindset will lose because they will make 0%.
I, on the other hand, might dip from 8% cashflow to 4% cashflow. On paper, I might be in a market with compressed cap rates but hopefully, I have forced appreciation potential if I really needed to sell – the counter move is to get 8-12 year debt to effectively bridge you to the next side of the market cycle. In the meantime you cashflow 4% which is 4% more than the “hoarding cash guy”.
In addition, remember back in the 2008 crash. 2009-2012 people did not know if that was the bottom and it was so hard to close deals in that Phase IV (see below). “Hoarding cash guy” in 2009-2012 and the few years after the next recession will likely be in the same clueless situations.
Wouldn’t you like to be in solid Class C and B assets that continued to cashflow?!? 4% x 4 years is still 16% ahead!
Now if you are “hoarding cash guy” with no deal flow then I get it. Saving cash is the best thing to do for the guy with no deal flow or does not know how to run the numbers. I guess everything does suck.
[Investors are chasing for decreasing yield these days] – REI.com – 19.03.4
[Sophisticated Investors know interest rates and caps go up and down together and their money is made in the delta between the two] – REI.com – 19.03.4
Of course, all the Pro-Apartment publications will say this: Get Ready: Recession-Proofing An Apartment Portfolio – National Apartment Association 19.03.7
But enough of this doom and gloom because most gurus out there call recession everyday just so they can have Tweetable content. And they make a living selling subcriptions to their $79/month newsletter. But we are better than the average investor! And understand that future softness could very well be slowdown before the next great bull market.
To join our Hui Deal Pipeline Club and stick with the group join below:
