Kindle Notes & Highlights
What I care about is living a purpose-driven life. I want to be a good steward of the blessings I have received, and I want to use those blessings to have a positive impact on my tiny little corner of the world.
we can qualify as a Real Estate Professional, we can use our accelerated depreciation to reduce all taxable income, regardless of where it comes from. In other words, we could use it to offset all other income sources, including W2 income or revenue from other businesses.
we are consistently buying properties every year, it’s likely that we will accumulate $20,000 or more in carry-over losses for each property. If we are a real estate professional, these losses will flow through and reduce our taxable income by the same amount—not just our income from the properties.
So to qualify as a Real Estate Professional, we must log 750 hours of work on real estate in the given year. And we must show that we didn’t spend more time on another job or business.
The easiest way to get the rest of the hours we need is to manage a property or two ourselves in our local area. This could be a long-term rental if we invest locally. It could also be a short-term rental—an AirBNB or VRBO—if we do not buy long-term rentals locally.
One idea is to buy a small house or building and lease it to a small business for office space. This could be our own small business or somebody’s else’s. Then we could be the property manager for that space. We could clean it weekly and handle all routine upkeep, just as we would with a short-term rental. As you can see, there’s certainly work involved if we want to qualify as a Real Estate Professional. But if we stay on top of it, fourteen hours a week isn’t too hard to handle.
So even if you work full time and make all the investments, if your spouse can get 750 hours and not spend more time on another business, he or she can get you to the promised land. Then you can use accelerated depreciation to offset your W2 income.
This is the holy grail for any households who generate active income—either from a salaried job or for a non-real estate business. If we have active income, we can use our real estate investments to reduce our tax burden in a major way. That’s how we shatter the glass ceiling. Here’s the key—we need to work very closely with a skilled CPA if we want to use the Real Estate Professional designation. Our CPA can advise us on the best practices we need to follow. And they can probably give us some tips for things we can do to get the hours we need as well.
starts with this—we shouldn’t associate all of our accounts with our home address, personal cell phone number, and personal email address. Doing this makes us very transparent on the internet for those who know how to do a little sleuth work.
To do this, I use a service offered by Traveling Mailbox. This is a company that maintains physical mailing addresses in a number of states, and it will accept mail on our behalf at these addresses.
As for alternative phone numbers, I use a smartphone app called MySudo. This app allows you to claim phone numbers with various area codes for yourself. Then, any calls or texts going to those numbers come right to your cell phone.
As for email addresses, I use ProtonMail to create different email addresses for different purposes. The great thing about doing this through ProtonMail is that I can manage all of my emails from the same account. And ProtonMail gives me the option to send encrypted emails very easily.
As real estate investors, we should absolutely carry an umbrella insurance policy covering at least a few million dollars. These policies cover us personally, and they would kick in to cover any damages awarded in a lawsuit against us—up to our coverage limit, that is.
That said, an umbrella policy does not cover our rental properties once we move them into an LLC. So let’s talk about how to use LLCs correctly to maintain strong asset protection.
The number one rule when it comes to asset protection is to treat every property or groups of properties as their own independent business. We do this by having a separate LLC, bank account, and credit card for each property or groups of properties. Then we keep everything
However, if we group properties within the same LLC, we should be careful not to keep too much cash in that LLC’s account. Cash in the bank is the easiest thing for a plaintiff to go after. And remember, as our equity builds we would want to eventually isolate those properties into their own LLCs. That said, I highly recommend using Series LLCs to manage multiple properties.
Now, we still need to set up a new bank account for each independent Series within the Series LLC. And we need to treat each Series as an independent entity. That’s critical. But if we do this, we get top-tier asset protection without as much clutter.
That said, Series LLCs are only recognized by certain states. As I write, the states with advantageous laws around Series LLCs are: Alabama, Delaware, Iowa, Kansas, Nevada, Oklahoma, Tennessee, Texas, and Utah.
The good news is that this is an easy fix. All we have to do is transfer the property’s ownership to our LLC. The county courthouse can do this for us. To do this, we must prepare a new warranty deed that conforms with the requirements within that particular state. That deed basically says that we are personally conveying ownership of the property to the LLC in exchange for consideration—maybe it’s $10. The deed must state that this transfer is subject to existing encumbrances on the property. That means we acknowledge the mortgage on the property is still valid and must be paid.
we’re running our business correctly, the LLC’s only assets are the cash it has in the bank and the equity it has in the property. This is why I build a six-month cash reserve for my LLCs and then distribute surplus funds to my personal account.
There’s a nifty trick we can employ when we get to that point. We can create our own “funding company” and have it loan money to the LLC that’s carrying significant equity. We would need to have a binding contract in place for this. But if we do it right, that loan becomes a claim on the LLC’s equity. This is how we can use debt as an asset protection tool.
Building a rental portfolio is a rather slow and, oftentimes, a boring process at first. We have to save up enough money to put 20 percent down on each new property we buy, and that takes time, especially when we’re dealing with larger new construction properties. Coming up with our down payments becomes easier over time as we build equity in our first properties. We can tap into that equity to turn one property into two or three with no extra money out of pocket.
this way, cash value life insurance policies are an asset for us. They produce a rate of return, tax-free—even though that’s not the reason why we buy these policies. We buy them to support our families if something were to happen to us. Meanwhile, term life insurance policies will always be an expense on our balance sheet. This is where strategy comes into play. We can borrow against our life insurance cash value at any time, for any reason. And again, that’s not a taxable event. We don’t owe taxes on money we borrow. And guess what? There’s no repayment schedule for cash value loans. We will
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For anyone with young children, cash value life insurance is a great idea. It’s a savings vehicle for the kids. And it can help us build our rental portfolio until the kids are of age to take over their policies.
For those working to save up money for real estate down payments, earning out-sized returns through crowdlending may be a good way to go.
contribute $100 to my crowdlending portfolio every week. I use those funds to buy new notes according to my own risk assessment criteria. I also reinvest my interest income into new notes every month. This allows my portfolio to snowball very quickly.
My ultimate goal is to take these funds and use them to buy new rental properties. Crowdlending just helps me work up to my n...
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In practice, Bitcoin is the hardest money the world has ever seen. That means bitcoins are incredibly scarce and no government, corporation, entity, or individual can create more of them on demand.
The idea is that anyone who owns a material position in Bitcoin can tap into its value without selling the underlying asset. We do this by borrowing dollars against our Bitcoin—and we then use those funds to finance real estate down payments.
Keep in mind the fact that it’s not more expensive to produce homes, cars, and food today. In most cases production costs have come down dramatically. The rising prices that we have seen are mostly explained by the dollar’s fall in purchasing power.
we take out a 30-year fixed rate loan to buy that $325,000 house, our principal-and interest (P&I) mortgage payment will never change. Yet, our nominal income is likely to rise materially as the dollar’s purchasing power falls, just as nominal incomes have risen dramatically since 1970.
As inflation eats away at the purchasing power of the dollar, our nominal income goes up as well. This is true of active income and it’s true of rental income. As that happens, a fixed mortgage payment becomes much easier to pay, because it doesn’t go up like everything else.
That’s what I mean when I say that debt burdens fall as the value of the currency falls. The debt becomes easier to pay over time.
The big takeaway here is that debt is a powerful financial strategy, as long as we use it to acquire assets. I know it’s common middle class advice to say “get out of debt.” And that’s true when we are talking about consumer debt. When it comes to asset-backed debt at a fixed rate, it’s not a bad move to get into debt. As crazy as that sounds, asset-backed debt is good within an infl...
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The same thing applies to real estate. Simply refinancing a property and taking out equity is a tax-free event. So you get tax-free dollars, and you still keep the asset.
Borrowing against assets we already own allows us to put the same dollars to work over and over again. And if we use these dollars to buy more assets, this process grows exponentially over time.
We can use either a 1031 exchange or accumulated carry-over losses to mitigate our taxes when we sell a property. We talked about how carry-over losses work earlier in the book.
But you know, life just doesn’t need to be that hard. To get ahead, all we have to do is play the game. It’s called debt and taxes. The rules of the game are very simple. Acquire cash-flowing assets with fixed debt. Follow the tax code to reduce or eliminate taxes. Buy more cash-flowing assets.
Do this and financial independence is all but baked into the cake. We can grow our passive income such that it covers all of our expenses. At that point we can spend our time doing only things that are important and truly meaningful to us.
