Real Estate Investing Through Purposeful Planning
In yesterday’s post, in which I addressed why Texas is the place to put your real estate investment capital, Dave, a reader for some time, apparently, asked a couple questions. They were so good, especially the second one, I thought the answers deserved center stage. So, thanks Dave.
Here’re Dave’s questions, verbatim, with text before and after, edited out. You can still see his comment in its entirety by going to the link above. [Read more...]
Depreciation in the simplest of terms is merely the admission that whatever we build on the dirt, and sometimes below, deteriorates over time. Things get old and wear out. Who’d a thunk? The idea is that the real estate investor has put risk capital into improved real estate, an asset that by definition will be subject to breakin’ down. Therefore the Internal Revenue Code (IRC) allows the owner to assign a ‘life’ to these components, with various options as to how.
Without turnin’ this into rocket science, if you own residential income property, except for the land (Yes, Technical Tommie, there are exceptions. Leave us alone.), you’ll divide the value of the investment by 27.5 years. Every year you’ll be able to apply that ‘loss’ (A paper loss, as you haven’t lost a penny.) to the property’s cash flow. If there’s any of that year’s depreciation left, it can then be applied to your job income. The IRS calls that ‘ordinary income’. Tell me that doesn’t come off as condescending.
So, if you paid $250,000, and the market says the land value is $40,000, you’d figure your depreciation like this. [Read more...]
Charlie came to me not all that long ago. He’s a pretty high earning professional ($200,000+), living on the east coast. He’s just 29 years old, wicked smart, but more importantly, fun as all get-out to talk to. His only bad point is that he’s a Red Sox fan. I can hear him now, muttering under his breath, ‘at least I’m a fan of a winner’. Touché.
So Charlie came to me already the proud owner of an ancient three unit, located in his hometown in New England. He liked the idea of investing in Texas. Liked even better the concept of having a Purposeful Plan. Having lived frugally he’d saved more than enough to acquire a new duplex there. It closed awhile back. Part of his Plan was to get an EIUL (Equity Indexed Universal Life) started, once he’d closed his first purchase in Texas. [Read more...]
This will be short and sweet for a couple reasons. First, tonight’s post is over at BiggerPockets Blog. If you’re not acquainted with it I give my full and energetic endorsement to it. I’ve been writing there for a couple years, or at least in a few weeks. It’s the best membership site for real estate investors in the country.
Anywho, I wrote about an ongoing case study over there this morning. It’s about combining several strategies dynamically to improve your end game results, which is spelled — Retirement Income.
BawldGuy Heads Up: Tomorrow (Wednesday) I’ll be out of touch with the world completely. Gettin’ some dental work done, and they wanna knock me out to do it. Works for me. 
I’ll be available for calls beginning at noon Thursday. ‘Course by then I’ll be Jonesin’ for a fix. You can help me with that by callin’ me at 619 889-7100. Or you can, if you prefer, send me a note using the Contact BawldGuy button up top. Have a good one.
Sometimes we’re so close to something day to day that a question can get us doin’ the RCA Dog impression without warning. One such question is probably one asked of me the other day — which I thought might be on more than just her mind. She asked,
“When you say the ‘after tax’ cash flow is $X, what gets taxed, and is it like my paycheck’s ‘after tax’ sadness?”
Well, sometimes it’s the same. For many however, the after tax cash flow is actually greater than the before tax cash flow.
How can this happen?
Paradoxically, when your after tax cash flow is higher, it’s due, the vast majority of the time, to a loss. It’s a paper loss to be sure, but a loss nonetheless. In this case it’s what’s called ‘depreciation’. Simply put, depreciation is the IRS agreeing that buildings and many of the things inside them, even things appurtenant to the land, ‘depreciate’ in value over time. In other words, they wear out. [Read more...]
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