Synergistic Strategies – Video

Have you ever thought of ways to combine short and long term real estate investment strategies?

 

Transcript:   Hi I’m Jeff Brown the “BawldGuy”. Today we’re going to talk about synergistic strategies and we’re going to be specific. Today, I talked to a bunch of flippers who do very well, some of them just got started, they might be doing one or two a year and they want to get started in a long-term investing. They may already have more than one long-term hold property. What I try to tell them is, you can do both. As a matter of fact, you can take those two strategies — total different ends of the spectrum — and you’ve got short-term, long-term… What you do is, you’re doing say, one a quarter: take the after tax profits and apply them to the pay down of the loan or loans of your existing long-term investments. Now if you’re doing a lot of profits in a quarter, it might make sense for you to not to pay down your holdings that are long-term and just quickly save up a down payment for the next one. But let’s just talk today about using the short-term profits, after tax, synergistically to pay down those loans on the long-term properties without affecting your ability to keep your short-term flipping profits rolling. So what happens is, you’ve got the guy that bought a couple of small properties; they’re income properties — he’s going to hold them for retirement — he may own them for five years, he may own them for thirty-five, but the bottom line is, he knows that the faster he gets them paid off the more options appear on his menu. So here’s the deal: have him take his profits periodically, that are after-tax from flipping, pay off those loans as fast as you can. As soon as he pays off those loans, and if he can do it predictably, chronologically, he can use other strategies — for instance, what we have talked about earlier, say cost segregation depreciation — which allows him to then treat the sale, not the exchange of his long-term holds such that no capital gains taxes are owed, no depreciation recapture tax is owed, and by the way, in case you didn’t know: the depreciation recapture tax is much higher than the capital gains tax. A lot of people are really shock by that, when it’s far too late to get prepared for it. Now, as we go along, the flipper gets better at flipping — that’s what happens — they either start making more profits on the same number of flips over any period of time; they make more flips in that same period of time; they end up making either more money for down payments or they pay off their long-term holds faster. The faster they’re paid off, the more they acquire, the faster they get to retirement and the sooner they can stop flipping and start enjoying their retirement. This is Jeff Brown the “BawldGuy”. Thanks for joining me today, we’ll hit something else next time. See you later.

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About BawldGuy

I'm second generation real estate, first licensed in fall of 1969. Having been mentored by several iconic brokers, I'm also CCIM trained, having completed all 200 hours back in 1980. Have successfully executed well over 200 tax deferred exchanges, many of which have been multi-state in nature. Strong points are analysis and the creation and real world application of Purposeful Plans employing several strategies synergistically. The idea is to arrive at retirement with the most after tax income possible, backed by the largest net worth.

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3 thoughts on “Synergistic Strategies – Video

  1. Glenn Espinosa

    Thanks a lot for this video, Jeff!

    I totally agree that as flippers do more homes and get more experienced that they start to earn more profits and are able to apply that to their rentals.

    Any tips on how to balance between keeping profits liquid for future flips and rental pay down. Is there a ratio that works best. I know this question is very dependent on individual goals and other factors as one’s market.

    Thanks!

    Glenn

    Reply
  2. Wayne Connelly

    Jeff, I am unaware and very curious about what you call “cost segregation depreciation” and how it allows one “to then treat the sale, not the exchange of his long-term holds such that no capital gains taxes are owed, no depreciation recapture tax is owed” as you state. avoid capital gains and depreciation recapture tax on the sale of an asset. Is there another tape that further explains this in detail?

    Reply
  3. BawldGuy

    Hey Wayne — It’s a ‘pay here, but save over there’ thing. You WILL owe any capital gains and/or depreciation recapture taxes incurred by a sale. Sorry for the confusion, which is my fault. What the investor does is to apply the leftover, unused depreciation to their personal income tax return in the year of sale.

    Since the property is no longer owned by this taxpayer/investor, the IRS can no longer ban them from applying depreciation to their income, regardless of that income exceeding $150k. So, what happens is that they create a significant personal income tax savings. In my experience this usually ends up offsetting the cap gains/recapture taxes owed due to the sale, though not always all of it. I’d say it averages somewhere in the range of 70-100%, depending upon the specific set of facts for the individual taxpayer.

    Make sense?

    Reply

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