Take Advantage of Real Estate

The main idea of this information is the importance of buying a house or investing in real estate as a form of wealth building. Real estate offers benefits such as tax deductions, the ability to pass down property, and the opportunity to employ others and positively impact the community. Investing in real estate allows for long-term financial success and the ability to take advantage of tax benefits for depreciation and capital gains. It is recommended to establish a separate business entity for real estate investments to fully leverage these benefits. Hi, how you doing, guys? Welcome back to another episode of Sweet Leaner Formula. Woo! How are you guys doing today? Today's episode is going to be about the importance of buying a house or investing into your first property, which I think is two of the top forms of wealth that are seemingly going to continue to be the pinnacle of which your wealth is formed. Real estate in itself, whether it's a duplex, single-family house, whatever you decide to buy or make your first real estate investment or your second or third real estate investment, having real estate in your portfolio and it being able to be passed down in your estate and being able to buy property. You can buy property with your LLC and your business name. Or now, this is what I wanted to make sure, that you don't have to put your business. So if you're doing makeup and hair and you want to form a separate LLC for your real estate business, because you can do credit repair with your real estate business. You can do all aspects of your credit business. You can do those things by making it a full company, by offering wealth management, by offering credit repair, by offering guides on how to increase your portfolio and maximize your portfolio by adding more real estate and being able to have the tax-deferred opportunities that come with building wealth by being able to put your real estate in your trust, in your estate planning. So I think that it's imperative that for today's society and building wealth that we talk about real estate and how important it is to invest into real estate and what are the benefits of investing in real estate. So if you guys don't know already, investing in real estate is one of the top forms of building wealth. And one of the reasons why real estate is those top forms of building wealth is because the biggest part comes not only from the income stream in real estate and investment tax deductions you're able to take as well. Those are other benefits. So you're able to write off your property tax. You're able to write off your property insurance. You're able to write off your mortgage interest. You're able to write off your property management fees and the cost to maintain and repair the building. But you are also able to, so if you have to, not only do you have to buy the property, but you have to pay a marketer to market the property for it to be sold, market the property for it to be rent, manage a property manager for the property to be maintained. And all of those things are expensive. That's why I'm advising you to make the real estate a separate business because you're going to have to hire employees. You don't want to continue with a makeshift, make this work, try to do everything mentality because the benefit comes in you leveraging the employees that you have to hire, the advertising that you have to do, you getting the office space. The office space has to be built up with equipment, computers. And so you get the full benefit of running a profitable real estate business by going all the way in instead of just looking at it as, oh, I have to do real estate. No, make it a business to do your real estate. Make it an actual opportunity for you to employ people in your community. And see, what I love about being able to make a real estate my business is I love the fact that I have the freedom to hire interns, high school interns. So those same teens that you want to not work at McDonald's, hire them on to work in your office. Hire them on as interns to go on to properties. And at 16, and 17, and 18, 19 years old, you're influencing the next generation. And I think that the whole scope of being generational wealthy is not just for your family, but it's for you to extend opportunities to your community and to extend opportunities to your family, extend opportunities to the people around you who you want to see come up. You have to be able to have leverage, and have space, and have office, and have roles for them to fulfill. In order for the generation to be moving forward, you have to make sure that you're doing what you have to do on your platform, on your own two legs, before you can expect, oh, they're just doing this, or oh, they're just doing that. All these kids go to jail, all these black men. But have you wrote books? Have you attended schools? Have you given them space to have an opportunity interning your company every summer? So when you think about generational wealth and having that impact, I believe that you have to make sure that you understand there is a scope, a full vision that's attached to the work that you do. And when you extend and you open up that opportunity, you're influencing, and you're affecting, you're pouring into to build up the next generation, because they're going to more than likely have children. I'm just long-term thinking, but once you've shown them, and they've been able to invest in their first property, that's success. That's what success looks like. Not because you have pictures of Balenciaga on and Chanel, and you took a trip to Costa Rica. That's not success. That's just something you do when you reach success. But being able to have longevity and have a real estate portfolio young is my definition of what success looks like. OK, so I want to get back. So when you're running a real estate business, part of that business is, like I said, advertising. So it's going to be a tax benefit, inter-tax write-off for you to advertise. And when you're advertising, you're spending money on ads. So the credit cards, and the companies that you're getting your loans from, or that's funding, your business credit in general, if you have the opportunity to make a full LOC and full business out of being a real estate investor, then you have office space. You have business equipment. You have legal and accounting fees. You're able to travel to different places to build more real estate. And I think that that's one of the full benefits of being able to be in a real estate business is that you have this newfound opportunity to expand your impact in your life, in your children's lives, and you have a better quality of life when you take the time to do things the correct way. Another benefit is that a real estate investor can hold the income-producing rental property. You can deduct depreciation as an expense on your taxes. That means you'll lower your taxable income and possibly reduce your tax liability. You're allowed to take the depreciation deduction from or the entire expected life of a property, which is set by the IRS at 27.5 years, and for residential properties it's 39 years for commercial properties. For instance, maybe you purchase a home you intend to rent out. The value of the building itself, including the land it sits on, is $300,000. If you divide that value by 27.5 years expected life of the building, you can deduct $10,909 in depreciation each year. Once you sell, though, be prepared to pay the standard income tax on the depreciation you claim. This requirement is known as appreciation recapture, which you can avoid if you pursue other tax strategies like a 1031 exchange. So you have the opportunity to gain tax benefits for 30 plus years on a depreciation, the incremental loss of asset value, and the wear and tear of the building. So being a real estate investor, not only are you able to sell real estate, but you're able to hold real estate, which makes it that much, that's where generational wealth comes in. Because if you're able to hold the property, the rental property, then you're able to put that into your estate, and you're able to pass that down to the next generation. And it's not that you have to die to pass the real estate down to the next person, OK? You don't have to die. While you are living, you can pass the real estate down in your trust. So this is why it's important to put your LLCs in your trust, because when you have the opportunity to have a property for 27 and a half years and be able to, each year, pay $10,000 deduction in tax write-offs, then that is something that you want to, over the years, you don't want to sell a property, and then you have this big tax hit. If you've taken all these years to have these tax opportunities benefit you, you want to make sure that if you put it in your trust, that your children are having the benefits of it being full, fully beneficial, and the cash flow being fully beneficial without taxes continue to suck up and eat up the benefits, the profits, OK? So that's another thing. So a pass-through deduction allows you to deduct up to 20% of your qualified business income on your personal taxes. When you own a rental property as a sole proprietor, be it a partnership or LLC or S Corp, the money you collect in rent is considered a QBI by real estate tax law, OK? So QBI is Qualified Business Income. So for example, if you have an LLC that owns an apartment complex, you could receive $30,000 in rental income every year. By using a pass-through deduction, you can write-off up to $6,000 on your personal return, of course, the rules and regulations must be followed. But you are able to avoid yourself $6,000 and having to give the IRS that money by you being able to write it off in your QBI by having it be Qualified Business Income and you being able to write-off $6,000. That allows you to continue to apartment that is, as long as your LLC is the person that owns the apartment complex, if you use the pass-through deduction, writing off $6,000, that saves you income from having to pay the IRS. That's what I'm talking about of being able to reap the full benefits of a cash flow. If you each year continue to give the government $6,000 for 27 years, how much money is that, guys? You want to take advantage of the capital gains. A capital gains tax may be assessed when you sell an asset like a piece of property for profit. There are two types to be aware of, short-term capital gains and long-term capital gains. By short-term capital gains, when you profit from selling an asset within a year of owning it, you realize a short-term capital gain. While you may not have a choice but to sell, beware that doing so can have a negative effect on your taxes because the gains get counted as ordinary income. So if you earn $100,000 from your day job and sell an investment property for $100,000 profit, your income essentially doubles for tax purposes. If you file single, that extra income puts you in the next tax bracket, which potentially means a larger tax bill than you expected. So when you buy a property, guys, I'm putting you all on so much game, OK? So much game right now. So when you have an investment property, you don't want to, you want to hold that property for at least two years or longer. Because the short-term sale and the capital gains that you get from a property have no comparison, and it's going to cost you more than the long-term capital gains, OK? So the long-term capital gains, if you profit from the sale of an asset that you held for a year or longer, if you can wait until the next anniversary of purchase to sell, you'll get to keep more money in your pocket. That's because long-term capital gains have a significantly lower tax rate than your standard income. And if your income is low enough, you may not have to pay a tax at all. So suppose you and your spouse make a combined $75,000 per year and file a joint tax return. The long-term capital gains are tax-free, since the tax rate for your income level is 0%. That means you can keep every cent of your profit you get when selling a property. So there is some amazing benefit to real estate and you being able to run a real estate company. And the deferred taxes and the 1301, let's, oh, I'm sorry. I mentioned the 1301 exchange. The 1301, oh, 13, the 1031 exchange, I'm sorry. The 1031 exchange exists because the government wants to reward people who reinvest their real estate profits into new deals. As long as a new property you buy has equal or greater value than the one you sell. The program lets you swap them for tax purposes. That means you can defer paying the capital gains tax on the sale of the first property. You can use 1031 exchanges indefinitely, guys, indefinitely. You have to know the tax gain and you have to know the benefits of owning real estate. So 1031 exchange allows you to indefinitely keep reinvesting into new properties, new properties, new properties. When you see people saying they have a portfolio of 100 houses, it's because they didn't have to pay the capital gains because they kept that property for two or more years. And they were able to take the profits from that property, reinvest to a property that has a greater value or higher value, and it allows them to, the program lets you swap them for tax purposes. That means you can defer paying the capital gains tax on the sale of the first property. So this is one-on-one. This is why you getting your credit together matters. This is why you being able to invest into real estate matters, because all of these benefits that come with having real estate allows you to continue to increase your income and it allows you to continue to be profitable as a generational wealth leader, guys. So leave your comments in the chat today. This is a very in-depth episode. We're dropping a lot of jewels today. And I definitely appreciate you guys for staying and tuning in to Sweet Millionaire Formula. We have classes and courses available online to break all these great things down. We have a private community that allows you guys to understand more in depth what are the things that we're talking about on this podcast. So leave your comments and tune in for the next episode. Thank you, guys.