Why Are 90% Of Real Estate Investors Overpaying Federal Income Taxes?

Death and taxes. These are two guarantees in life, but you shouldn't be stuck overpaying taxes. 

Paying the government doesn't always feel great, and overpaying taxes feels worse. Do you feel a pinch of pain when the government separates you from your hard-earned money? If so, you're in luck. 

This article doesn't list every tax-saving strategy available to you. 

What we'll show you instead is a handful of strategies that work. These strategies are easy to execute for your business and can potentially lessen your tax burden. 

Effective Entity Structures Reduce Overpaying Taxes

When you set up your business, you should make sure that you have an effective entity structure. Typically, your options are an LLC, sole proprietorship, an S-Corp, or C-Corp, depending on your financial situation. 

Limited Liability Company (LLC)

An LLC enables you to access a swath of tax benefits you might not otherwise have as a sole proprietor. Using an LLC as your business entity might save you from overpaying taxes. 

The primary strategy for tax savings via an LLC is pass-through. Pass-through is when an LLC's earnings are "passed through" to you, the owner. You do not have to pay corporate federal income tax on the income. 

Another thing is that the income from an LLC isn't subject to withholding tax. Instead, you'll file tax payments every quarter for federal income tax. 

You can choose how you'll be taxed as an LLC by filing an IRS Form 8832. But, there are some limitations. 

An LLC with more than one owner cannot choose to be taxed as a sole proprietorship. Typically, the government will tax your LLC as a partnership if you have multiple owners. 

Sole Proprietorship

The IRS views you and your business as a single entity. On the one hand, you have a level of freedom. On the other hand, you have additional tax responsibilities. 

You can avoid overpaying taxes by leveraging: 

The drawback to a sole proprietorship is that you have to pay the self-employment tax in addition to income tax. Self-employment taxes include Social Security and Medicare taxes.

S-Corporation  

An S-Corp is a small business entity. It'sIt's separate from the owners, which means that neither the owners nor shareholders are responsible for the business's finances. 

To form an S-Corp must have: 

An S-Corp provides tax benefits mainly on self-employment taxes (SS and Medicare). That means you can avoid overpaying taxes. Keep in mind that an S-Corp must pay any employee a reasonable salary.

The following is an illustration for educational purposes. 

Suppose you are self-employed and make $100,000. You would owe $15,300 in self-employment tax. 

In an S-Corp, you earn that same $100,000. In this example, you pay yourself a reasonable salary of $50,000. Only that $50,000 salary is taxable at 15.3% totaling $7,650. Compared to the self-employed taxes, you would be saving $7,650. 

The other $50,000 is a distribution reported on your income tax return.

Other tax savings might include: 

C-Corporation

A C-Corp is a business entity with room for growth and several tax benefits. It'sIt's a separate entity from its owners and offers a layer of protection to the owner's assets. 

A C-Corp tax structure differs from an S-Corp or an LLC. A C-Corp has to pay federal corporate taxes, also called double taxation. On the surface, that sounds terrible, but a C-Corp has benefits that may prevent you from overpaying taxes.  

A C-Corp is taxed as a corporation first, and then shareholders pay taxes on dividends personally. Here are the ways you offset that tax burden:

Retirement Funding Vs. Overpaying Taxes

Another way you can avoid overpaying taxes is through innovative retirement funding. You can deduct the funds you set aside for your Solo 401K from your taxable income. 

You use the power of Solo 401K to invest in real estate. Here is the process:

You are the trustee of the Solo 401K, but the purchaser of the real estate is the Solo 401K as an entity. That way, you avoid paying the UDFI tax when you purchase the property.

Stop Overpaying Taxes, Save Money As A Real Estate Pro

As a designated real estate professional, you aren't subject to the passive activity loss rule of IRS Sec. 469(c)(2).

As a real estate professional, you can avoid overpaying taxes because the passive activity loss rule doesn't apply to you. That means you can deduct losses from nonpassive income from your real estate business, including: 

To qualify as a real estate professional, you have to pass three tests: 

Key Takeaways

No one likes paying taxes. It's an even worse tragedy to overpay taxes when remedies are available to you. 

To avoid overpaying taxes, employ the following strategies: 

Are you ready to speak with an expert? Learn about our comprehensive solutions you can use to legally reduce your tax burden. Book a FREE discovery call now.

How Do I Collect Rent From Renters That Have Moved Out?

You have to collect rent that is past due. That's not fun, but it's sometimes necessary. This whole process can be a sticky situation for any real estate investor. 

Maybe you disagreed with your tenant over their excessively late rent. Or maybe they broke the lease and added another pet without your knowledge. Maybe their kids dropped a firecracker in the toilet, and it exploded. 

For whatever reason, either you had to evict, or your tenant packed up and moved out, denying you the ability to collect back rent.  

That's not an ideal situation. It's an unpleasant annoyance that a real estate investor contends with as part of doing business. But it doesn't have to be. 

In this article, we'll cover three practical and actionable strategies that enable you to collect back rent for the services you rendered. 

Collect Back Rent From The Security Deposit

You can't control that your tenants violated the terms of their lease, broke it, and left. You can control how you respond to their actions.

Suppose your tenant left without paying rent. Their violation is a situation in which they surrender the security deposit to you. Being behind on rent or breaking the lease is probably enough for you to collect back rent. 

Check with your real estate attorney to be safe. You never know when your absent tenant might demand the security deposit back. 

Use The Courts To Collect Back Rent

Even if your tenant left, they still have the responsibility to fulfill the terms of the lease agreement. First, you should try communicating with the tenant to explain their financial obligations. That doesn't always work out.

A lease is a legally binding contract. In other words, your tenant signed a legally binding contract stipulating that they would pay rent to live on your property. Once they violate the terms of the agreement, you have legal recourse in the form of your state's small claims court system. 

How Does Small Claims Court Help Me Collect Back Rent?

Small claims court is a relatively cheap and time-efficient way to collect back rent. The process differs from state to state, but in general: 

You'll get an enforceable judgment if you win in small claims court. With that enforceable judgment, you can collect back rent from your tenant via:

Use Other Legal Remedies to Collect Back Rent

Another excellent, straightforward legal remedy to collect back rent is to sue in assumpsit. 

When you sue your former tenant in assumpsit, all you're doing is asking the court to get them to pay what they owe you. That's it. Some states don't believe you're entitled to just back rent but also interest on the unpaid rent. We're fans of such landlord-friendly statutes.

It's always a good idea to check local laws and retain counsel if you plan to go to court. The court may be a worthwhile endeavor for large enough sums that the tenant could plausibly pay. Others may prefer to negotiate directly, arbitrate the dispute, or seek small claims damages as alternatives.

When Is Suing Worth it?

Your mileage with success in court will vary. The most significant considerations are their likelihood of success and the value of their own time. State law largely determines the former, how much you can recover, and in what venue.

The second consideration--about the value of your time and how you wish to spend it--is far more personal. Lawsuits are lengthy, often painful affairs. Most people will go well out of their way to avoid one. The reward and chances of victory need to be sufficiently high for the stress to be worth the trouble for most of us.

That said, court remedies exist for a reason. They're there when all your other, more straightforward solutions to your problems fail. When diplomacy, asking nicely, raising your voice, lowering your voice, offering to solve it between yourselves, offering to "release" from or any won't do anything. 

If you've lost money from nonpayment, you can be made whole financially. Just understand that with anything court-related, there are never any guarantees.

Key Takeaways

It's never fun to have to collect back rent. It's time-consuming for you and takes you away from running your business. Unfortunately, collecting back rent is a necessity sometimes.

You have several options to collect back rent that we covered. You can use each or all of the following strategies to get your money:

Royal Legal Solutions helps real estate investors protect their assets. Secure your financial future, and register for your FREE Royal Investing Group Mentoring Wednesdays at 12:30 pm EST! 

Why Millennial Homeownership Is At A Record Low: What Real Estate Investors Should Know

Millennial homeownership is historically low. According to the most recent Census data, about 49% of millennials own homes. It's become a national pastime or running gag to blame the millennial generation for killing different industry types. Or they are chalking up the low millennial homeownership to avocado toast and overpriced pumpkin spiced lattes. 

In this article, we give an overview of the struggles that millennials face. Also, we cover how you, as a real estate investor, can benefit from understanding their plight. 

Millennial Homeownership Is Historically Low

Millennials want to own homes but can't afford the price tag. More than 75% of millennials still view homeownership as part of the American Dream. But, a growing number (more than 20%) believe they will never own a home and will be eternal renters. 

Millennial homeownership is much lower than the rate of 26-41-year-olds of the past. There are reasons beyond any person's control for that. 

Several factors characterize the low rates of millennial homeownership:

All these factors combined are squeezing millennials as they enter the financial prime of their lives. But the issues are forcing many millennials to delay marriage, kids, and homeownership. 

First-time home buyers are in a disadvantageous position; home prices are to the moon; mortgage rates are spiking. Low wages and debt make wealth generation more difficult. These realities form the perfect storm for low millennial homeownership rates. 

America has become a much more difficult place to secure an affordable mortgage. "First homes" (single-family homes, even multis under $250,000) make up less of the market than ever before.

After the 2008 crash, real estate investors scooped up hot deals on all kinds of properties, enjoying a single-family budget property free-for-all. By now, most investors have upgraded these homes, upsold them, or maintained them to be competitive in today's market.

That means the homes are worth more than appreciation alone. Yet, it's the same asset investors got cheap after the crash. Millennial tenants are now more likely to become lifelong tenants instead of purchasing their own homes. It's bleeding down into Generation Z too. They're the generation with the most people in crisis. As a whole, they're the generation struggling to transition from renters to buyers. 

Yesteryear's Stats Don't Apply to Millennials: What REIs Need to Know About This Population

Even assuming 18-35 years olds are still the "homebuying age group" is foolish and inaccurate. Ask any 18-year-old how likely they are to own a home soon. Seriously. Any college student, even. The American Dream of homeownership isn't dead, but it's on life support.  

Millennials faced a different world: 

These factors present difficulties and challenges that prevent millennial homeownership.

Renting is often tricky. Millennials are more likely to move in with their parents than any other generation. Many in their 20s and 30s move home under financial duress, while others lack that option and live with housing insecurity.

These problems are natural barriers to home ownership. We haven't even delved into this generation's many cultural crises. Everything from later marriage age to the ongoing opioid crisis that continues to rage through mid-2019 can affect how this population rents and buys.

Why Millennial Homeownership Trends Matter for Real Estate Investors

Most investors count Millennials among their tenants or desired demographic. Single-family investors and those starter homeowners can stand to benefit in a seller's market. While the housing market has cooled somewhat, there are still ways to benefit from understanding your tenants. 

Millennials as tenants

As millennials learn that homeownership is just one path to building wealth, their preference for renting may align with your investment goals. Attracting and keeping these tenants is essential. 

You want consistent rental income, spend less time preparing a unit for rent, and avoid uncertainty with a new tenant. To keep your millennial tenants, consider: 

In general, Millennials are well-educated and tech-driven. For them, home prices, supply chain issues, and low cash reserves have made renting a certainty for the foreseeable future. Typically, a well-educated, employed tenant is an ideal tenant for you to have. 

Millennial homeownership as an exit strategy for you 

Millennials want to buy a home. That desire may provide you with an exit strategy. It's not all doom and gloom. A NAR report from March 2022 shows that millennials make up 43% of home buyers. Instead of McMansions, they are looking for good deals on properties and efficient use of indoor and outdoor space. 

If you have a property worth under $250,000, you're sitting on a high-demand property. Millennial buyers are competing, and investors can play fair while profiting.

Key Takeaways

Millennials sometimes turn to real estate investment to "escape" debt or employment barriers. Knowing this group's challenges helps you relate (or understand the real estate issues if you're a Millennial) to life and business. All real estate investors benefit from understanding their Millennial tenants, partners, and fellow investors' struggles. 

Come strategize with us. Secure your financial future, and register for your FREE Royal Investing Group Mentoring Wednesdays at 12:30 pm EST!

Why Ordinary People Set Up Offshore Bank Accounts - Offshore Banking And Asset Protection

We often get questions about offshore bank accounts here at Royal Legal Solutions. Offshore bank accounts are one avenue for real estate investors to protect their assets.  

We thought it was time to give you a straightforward guide to how these accounts work. Also, what you need to do to open one, and how to manage an offshore bank account like a pro. 

Aren't Offshore Bank Accounts for Criminals?

Of course not. You might see criminals talk about their offshore bank accounts bursting with hidden millions. That's for primetime television. It's storytelling stuff, and the truth is less glamorous and much saner. Almost anyone can open an offshore account. Furthermore, almost anyone can enjoy asset protection benefits, privacy, and other perks.

An ordinary real estate investor may use an offshore bank account for a few reasons. Some primary uses include:

You can prevent lawsuits altogether if used with other asset protection tools. But that's making a dent in the surface of the power of these accounts.

These accounts are not "for criminals." But, it would be dishonest to imply criminals don't use offshore accounts to hide their money.

So, have certain types of criminals exploited offshore bank accounts? Sure. But most countries don't like hosting criminals, even in their banking systems. Many have enacted legislation to discourage crimes by using an offshore account. Such crimes include money laundering or establishing offshore accounts. 

Pay attention to how any country you're considering banking responds to these threats. A strict rule of law is desirable in your banking host country. It provides stability. 

Benefits of Using Off-Shore Bank Accounts: The Appeal for the Ordinary Investor

You can expect a lot of variation between countries. Each gets to make its banking laws, and how financial privacy is one thing to consider. Yet even amongst this variation, there are some common threads. It's vital to be clear that your situation will determine which benefits you use.

Here are a few top reasons ordinary people take advantage of offshore banking. It might surprise you how downright innocent or dull they are. 

Stability and Control: Break Free of Banking As Usual

Destabilization of currencies isn't the stuff of dystopian fiction. It can and does happen worldwide, more often than you think. You may feel you have to be ultra-wealthy to worry about global banking stability. That's far from true. This problem impacts a considerable percentage of people. 

Most Americans don't worry about the U.S. Dollar. Look at what happens in countries like Zimbabwe that experience genuine financial crises. It got so bad that the government lopped zeros off their bills to combat hyperinflation. The country set a world record by printing trillion-dollar bills. That trillion-dollar note may seem like a fun novelty to buy on eBay. But, it was serious business for everyone who relied on that currency to live.

Americans suffer from thinking instability happens to "other" places like Zimbabwe. But if you look at actual statistics, you might find our system isn't as secure as you think. Our banks over-leveraged themselves. That caused a crisis many times in recent history. Even if you assume financial crises are flukes, we can still look at worldwide economic data. 

For instance, the World Economic Forum measured the soundness of banks in countries worldwide. Their Global Competitiveness Report measured the perceived safeness of a country’s banks. Then, they ranked the world's nations in order of perceived safety. The results may surprise you! 

Where do you think the U.S. ranked? At the top? 

The American banking system is the 18th safest in the world. 17 countries outranked the USA. They're the ones you want to look at if stability is a significant motivation for your accounts.

Offshore banking can mitigate instability. Even if the world outside is in chaos, you can rest easy if your money's sheltered offshore. You can use an offshore bank account to protect your money from conflict and uncertainty.

Currency Options and Diversification

With offshore accounts, the U.S. Dollar doesn't confine you. You will select which currency or a mix of money you'd like to default to for your bank account. The ability to diversify appeals to many real estate investors. There may be economic advantages to exploring possible alternatives to your primary currency. Insufficient research could cost you. When in doubt, call a pro. 

Asset Protection Benefits of Offshore Banking 

Litigants file 15 million new lawsuits yearly in the U.S. That's one lawsuit for every dozen adults. Real estate lawsuits, in particular, are always a genuine threat. The threat grows as you become more successful. In our litigious society, protecting your money is ideal. 

You can protect your assets with domestic tools. Offshore bank accounts offer you the luxury of moving everything of yours into security. You're moving the assets into a different jurisdiction rather than an entity structure. The principle remains the same. 

Because you choose where to place your funds, you stay in control without being at risk. Generally, it is more difficult to "go after" foreign-held assets than domestic ones. Also, you may receive extra asset protection from your host country. You get to choose which legal rulebook you will play by. That's a tremendous advantage for anyone building wealth with their business.

Taking Anonymity Even Deeper: Banking Privacy 

Your privacy is one reason to consider offshore banking. Switzerland is famous for their protections. If privacy is a significant motive for you, ask yourself: from whom? Because it is possible to have privacy from people and governments alike. It will likely help you plan to know if your primary concern is, say, creditors over the Taxman or vice versa. You can evade interaction with either through the intelligent use of offshore bank accounts.

Greater Selection, Financial Perks 

Interest rates with foreign bank accounts are often higher compared to American banks. Instead of shopping from a few select banks, you now have the entire world of finance from which to pick and choose. If you want a high-interest savings account, you can have that. 

An attorney and financial advisor may be able to offer more insight into your situation. The benefits of offshore banking aren't even specific to real estate investors. Anyone in the West may want to consider the higher interest rates to find better deals overseas.

Off-Shore Banking Can Be For Everyone

No true one-size-fits-all asset protection plan involves only offshore banking. Reaping its benefits is easy and not time-consuming. There's a final one that is huge but more difficult to quantify. There are emotional benefits. Knowing you have an emergency plan that can withstand a financial disaster. It's tough to hang a price tag on genuine security.

Are you ready to speak with an expert? Learn about our comprehensive solutions you can use to achieve financial freedom. Reclaim your time, protect your assets, and build your legacy. Book a FREE discovery call now.

Property Insurance: Pros and Cons of Cash Value vs. Replacement Cost

While sifting through a 40-page property insurance policy, have you ever wondered–do I need this? You're not the only one to have that thought. 

Insurance is sometimes enigmatic and inaccessible to people. This situation is worse for a real estate investor because you may have multiple properties. That means multiple insurance policies for you to pore over. You may be thinking, Which is better–cash value or replacement cost? What type of property insurance is right for me? Do I need to have my trust name on my policy? 

These are quotidian questions; everyday real estate investors like you wrestle with insurance questions. To help, here are 3 straightforward insurance explanations.

#1. Cash Value Vs. Replacement Cost: Pros And Cons

After a claim, the cash value is the amount of cash needed to repair or replace your property. The cash value of the property is affected by depreciation. In other words, the cash value is what the property is worth today. 

Here is another way to envision cash value: Cash value = cost to buy your property new - depreciation of property. That’s called the depreciated cash value. 

The pro of actual cash value policies is that there is a cheaper premium. That means you pay less cash over the life of your policy. The con is that if you suffer a loss, the actual cash value might not be enough to cover the total cost. 

The replacement cost is the money needed to repair or replace your property. Replacement cost replaces your property without a depreciation deduction. 

The pro of replacement cost is the payout in a loss covers the cost of the property. The con is that your premium will be higher over the policy's life. 

Determining which option is best for you is a personal decision. You have to assess your risk tolerance and decide how much coverage you're willing to buy.

Suppose you have a $200,000 property. You've owned the property for one year with a depreciation rate of 3.5%. You had a total loss that was covered by your insurance policy. 

#2. What Property Insurance Is Available To Me?

Landlord insurance is a type of property insurance available to you. Generally, landlord insurance covers:

In some specific cases, your property insurance will cover rent lost. Landlord insurance will usually not cover:

Landlord insurance isn't a legal requirement in most cases. But, your lender may require it if you're financing the property. 

Property Insurance For Real Estate Investors

Real estate investors use rental dwelling policies (DP) to protect their assets. The different levels of dwelling policies are:

DP1 Property Insurance

DP1 is a basic property insurance policy. It's usually the cheapest and covers named perils in the insurance policy. Here are a few examples of what a DP1 policy commonly covers: 

Often, DP1 is a cash value policy. Imagine a car wiping out your 10-year-old porch. The materials used to build your patio are old. Suppose it costs you $20,000 to replace your porch. In that case, the insurance may only give you $13,500 because the materials have depreciated 35% over those ten years. You'll be on the hook for $6500. 

DP2 Property Insurance

DP2 is the average property insurance policy. It is also a name peril property. Some common perils you might find that DP2 policy covers include:

DP2 policies are usually replacement cost policies. There is no depreciation deduction, and it covers more events. 

DP3 Property Insurance 

DP3 insurance provides the most coverage for real estate investors. It is a non-named peril policy or an open policy. That means it covers all perils except for a very few. In general, a DP3 insurance policy will not cover:

DP3 insurance is a replacement cost policy. That means no matter the age of your home. The policy pays for the total replacement value of the property. No depreciation. 

DP3 also offers loss of rent protection. That protection occurs when your home is unlivable due to a covered peril. While repairs are ongoing, the insurance policy pays out rental income. 

Intentional Loss, Windstorm, and Hail Exceptions

A word on intentional loss. One of our clients shared this anecdote. He was a property owner. The property burned down. Neither he nor the tenant was accused of arson. The insurance company will not pay out. It would be best to ask about your protection against arson when shopping for your policy. 

Windstorm and hail coverage is another thing that can catch unsuspecting real estate investors off-guard. Your windstorm & hail policy might determine your cover based on the following: 

Each of those factors could add risk. Risk means a higher premium for you. Work with an agent you trust to get the right coverage for your properties. 

#3 I Have A Land Trust; Do I Include It On The Policy?

Yes, include the name of the land trust in the insurance policy. The insurance company will deny your claim if the land trust appears on the deed but not your policy. 

What if I don't have a land trust? 

You may be exposing your assets. Don't get caught with your pants down in the event of a lawsuit. Check out how a land trust can cover your assets and provide protection through operational anonymity.

Recap: Cash Value Vs. Replacement Cost

Property insurance is a requirement for real estate investors. While it may not be legally required, lenders will not let you borrow without insurance. Your risk tolerance will guide what insurance policy is right for you: 

Insurance is your first line of defense against accidents and natural disasters. Things get complicated for real estate investors as more assets are acquired and more policies need to be purchased. Learn how we can offer you a single point of contact and the best coverage for all of your policies by booking a free discovery call.

How Renting Can Be Profitable For Astute Beginner Real Estate Investors

Starting in real estate isn’t easy. It isn’t easy. The challenge is why most beginner real estate investors struggle to build their business regardless of the blood, sweat, and tears they invest. 

Sound like you? Good news, you’re in precisely the right place! 

This article doesn’t list out a million mindless strategies. 

What we’ll show you instead are targeted strategies that work. These strategies are easy to replicate for your real estate journey. These strategies help you grab onto the bottom rung of the property ladder and climb your way to financial freedom. 

Surprising Path To Financial Freedom For Beginner Real Estate Investors

Renting is a solid option for beginner real estate investors. I know it seems counterintuitive, but let me explain. 

Should I rent, or should I buy a home? That question is especially salient now with interest rate hikes and inflation. Despite the projected drop in home prices, interest and inflation may make purchasing your first property too expensive. In other words, beginner real estate investors find it tough to get on the property ladder. Tough, but not impossible. 

The reality is that when you buy a home, you take on debt. Taking on debt is always a risky proposition, no matter how secure it seems. Renting enables you to mitigate that risk. 

I want to disabuse you of the notion that renting means throwing your money down the drain. That’s a lie. In exchange for rent, you get a place to live. No matter where you live, it’s going to cost money.

Indeed, you aren’t building equity in a home with rent. The thing is, not all that money goes to building equity in the house. For instance, mortgage interest eats up a large chunk of the cash a homeowner pays in the early life of the loan. 

Also, there are many associated costs that a property owner incurs that a renter never sees. A few of those costs include: 

The landlord typically covers most or all of these expenses when you rent. That means you have an opportunity to keep more cash in your pocket. As you build a nest egg, you should look into the following so that you can get on the property ladder as a beginner real estate investor: 

The ultimate goal is to transition from renting to owning a property.

How Do I Start As A Beginner Real Estate Investor?

To start as a beginner real estate investor, you must plan. Some of the more immediate options include:

Another way to invest in real estate is through a Federal House Authority Loan. 

An FHA loan is typically for home buyers who do not meet the requirement of a traditional loan. These loans have low credit scores and down payment requirements. Also, FHA loans are for buyers who intend to use a property as their primary residence, also called the occupancy requirement. 

If you decide to use an FHA loan, you must possess the home within 60 days and use it as a principal residence for one year. 

As with all things, some exceptions apply. You can use an FHA loan to help you start your real estate investing business by buying a multifamily property.

Here is how it works. The FHA allows property owners to buy homes with up to four units (fourplex). The only rule is that the owner has to live in one of the units as their primary residence. That way, the owner can rent the other three units for income. 

Here is an illustration of how that might work: 

Suppose you use an FHA loan to buy a multifamily home for $250,000. The mortgage for that home will be about $2,000 per month. You have to occupy one unit, but three units are available. 

The average renter pays about $1,330 per month in rent. That means you could potentially live in your unit and charge three other renters $1,330 per month (or more, depending on market forces). In this case, you will earn $3,990 per month, have a place to stay, and a way to progress up the property ladder as a beginner real estate investor. 

No matter what step of this process, you need to protect yourself. Royal Legal Solutions offers expert advice and proven strategies to help secure and keep your assets safe. Take our FREE 5-minute quiz to get powerful wealth-building insights. 

Key Takeaways 

Renting is not throwing your money away. Remember, you get a place to live and don’t have to deal with the pesky taxes and costs associated with home ownership. For beginner real estate investors, renting is an opportunity to save money and reduce your debt. 

While renting, you can consider subletting out (if you’re allowed) or dabbling with REITs to increase your cash flow. Ultimately, you will want to transition to your first property. An excellent way to do that is with an FHA home loan, provided that you meet the requirements. 

Want to learn more about how to get started in real estate investing? Register for FREE Royal Investing Group Mentoring Wednesdays at 12:30 pm EST.

Residential Assisted Living Facility Investing

Why would you be interested in residential assisted living facility investing when you could stick with single-family and multifamily homes?

Residential assisted living facilities have the potential to provide a greater return on investment than other types of properties. Also, the country is aging and needs a place to live its golden years. This type of investing should be pretty lucrative in the coming years. 

Below you will find a simplistic guide that explains the fundamentals of this emerging investment opportunity. Keep reading to see if residential assisted living facilities are a promising addition to your portfolio. 

Check out our video replay with residential assisted living facility investment expert Isabelle Guarino Smith. 

What Is Residential Assisted Living? 

Residential assisted living is a group home for seniors that helps the residents with their daily lives. The help runs the gamut from hygiene, eating, and physical therapy. These are typically in single-family home neighborhoods with homes made accessible for seniors.

These are not nursing homes, nor is it independent living. It's somewhere in between.

Is Residential Assisted Living Facility Investing Feasible?

Yes, residential assisted living facilities are a reliable investment. The facilities are a reliable investment because of demographics. Like Bob Dylan says, "The times they are a-changin'."  

Let me show you how times are changing. To put a finer point on it, let me show you how the US is getting older. There are more than 73 million baby boomers in the United States aged 70 or older. By 2030, all boomers will be at least 65. In general, US citizens are living longer, and in 2034 there will be more older adults than under 18 children for the first time in history. 

More elderly means increased demand for certain goods and services. One of those goods and services might be a residential assisted living facility. You can take advantage of this inevitable shift in the country's demographics by investing in a facility. After all, aging boomers will need a place to stay.

As with all real estate investments, you want to be protected. Please look at how we provide asset protection strategies in all 50 states for all asset classes. 

Debunking 7 Common Residential Assisted Living Misconceptions

If you're anything like me, you hear "assisted living facilities" and think of bed sores and elder abuse. It doesn't have to be like that, though. Here is a list of 7 common misconceptions. 

#1 You have to work at the home

The facility is an investment that is similar to your other assets. But it's also a business. As with any business, you will need to dedicate time to the front end to become operational. One aspect of this involves hiring staff. You do not have to work at the home.

#2 Liability insurance is expensive

Insurance does cost money. However, if you shop around, you'll be able to find the appropriate amount of coverage for the right price.

#3 Seniors all died from COVID

Seniors did not all die from COVID. While they were the most at risk and constituted the most deaths, many older people still need a place to retain their dignity and call home. Also, aging boomers are entering this market, so there will be plenty of residents on the horizon.

#4 Good employees are hard to find

Good employees might be hard to find for huge nursing homes. Those types of homes have a 50 to 1 resident-to-employee ratio. With that many people, it's hard for anyone to give the required level of care and attention. In contrast, a residential assisted living facility has a much lower resident-caregiver ratio, meaning better care.

#5 You don't need medical experience

You didn't need to be a contractor or real estate agent to invest in real estate. It might have helped, but it wasn't a requirement. Likewise, you don't need to have medical experience. It might help, but it is not a requirement. 

#6 HOAs can't prevent you from creating one

The Federal Fair Housing Act outweighs and supersedes any complaints. 

#7 Seniors can't afford the service

Since the pandemic began, boomers have a combined wealth of $71 trillion. This means they have the money to spend on dignified housing for the final stretch of their lives. 

3 Simple Routes To Investing

Here are the three ways to invest in residential assisted living: 

  1. own the real estate and lease it to an operator
  2. own the real estate and operate the business
  3. private lender or partner

#1 If you own the real estate and lease it to an operator, you are a preferred real estate provider. That's important for you as a real estate investor because you potentially:

#2 You own the real estate and operate the business. Owning the real estate and owning the company might be profitable. Here's why–the average cost of care in an assisted living facility is $4,500 per month. There are no standard configurations for a residential assisted living facility. Still, anywhere from 6-16 people can stay on your property.

#3 You act as a private lender or partner. Maybe you have cash, and you invest in someone who is going to be an owner and operator of the business. 

Key Takeaways

Residential assisted living facility investing might be a solid investing strategy for you. Here are the key takeaways from the discussion today: 

Are you ready to speak with an expert? Learn about our comprehensive solutions you can use to achieve financial freedom, reclaim your time, protect your assets, and build your legacy. Book a FREE discovery call now.

Due Diligence: 6 Tips for Notes Deal Vetting

Due diligence involves investigating, auditing, or reviewing circumstances and facts around a deal. As a competent real estate investor, you’ll want to conduct due diligence so that you have a clear understanding of the financial ramifications of any agreement. 

Doing your due diligence is especially important when you consider note deals. Suppose you want to invest in first-position non-performing notes backed by real estate. Non-performing notes are when the borrower has stopped paying. You want to ensure that the investment you are committing to is fiscally sound, right? 

After all, notes are an asset class with growth potential. Like all investments, note deals carry some risk. Royal Legal Solution mitigates the risk to your property with our asset protection strategies in all 50 states, for all asset classes–including notes. 

This article outlines six factors you should consider when vetting your note deal. Continue reading to get a primer on due diligence best practices.

#1 Property Valuation

Property valuation is essential when looking at what notes to buy. You can analyze the property using online research tools. The next step is to have someone who is boots on the ground do an inspection and value the home for you as well. 

The property valuation is the basis for your discounted purchase price. You won’t necessarily pay the unpaid principal balance. 

#2 Verify The Property 

Sometimes note investors can get into a sticky situation by only doing online searches. You need to follow up by sending someone to see the lot and verify that a structure is on the lot. 

If you don’t do your due diligence here, you might buy a note and end up with an empty lot. That’s a devastating oversight!

Here are the things that you will want to get verified: 

If you choose to get into note investing, you’ll want a good return on your investment. Reasonable due diligence maximizes your profit and minimizes your risk. 

#3 Inspect The Asset

The bank might tell you that the property is a single-family home. What might happen is this–it might be a mobile home or a condo. Those types of structures might not be in your plan. Trust but verify because the banks get it wrong sometimes. 

#4 Check For Unpaid Taxes

Make sure that you know how much delinquent property taxes are. When someone stops paying a mortgage, they usually stop paying their taxes. In this case, you will want to know when and if a tax sale is scheduled. 

Steps to take when checking for unpaid taxes: 

#5 Research Liens Or Judgements

You will want to verify any liens, judgments, or junior lien holders. Knowing about other lien holders is vital if you accept a deed instead of foreclosure. 

For instance, suppose you receive the deed as payment in full for the loan from the borrower. Even though you are in the first position, someone with a lien, HELOC, or judgment against the property will move ahead of you. That means you become responsible for those liens. That could be costly.

#6 Follow Chain Of Ownership

You have to follow the chain of ownership with notes. Make sure you are intimately familiar with where the loan originated and all the subsequent note holders.

The county courthouse will have records of all assignments of mortgages for each transfer of the mortgage to subsequent note holders. These records will be in the correct order, so you should be able to follow the chain of ownership. 

Due Diligence Key Takeaways

Suppose you decide to get into note investing. Don’t you want a risk-free return on your investment? You’re in luck because doing due diligence maximizes your profit and minimizes your risk. Here are six critical factors in doing your due diligence when vetting notes: 

Are you ready to speak with an expert? Learn about our comprehensive solutions you can use to achieve financial freedom, reclaim your time, protect your assets, and build your legacy. Book a FREE discovery call now.

Note Investing: You Become the Bank

What options are available when inventory is low and priced too high to be profitable? You become the bank with note investing!

For a real estate investor, note investing might be an excellent option for you. With this type of real estate investment, you won’t have to manage property or deal with other types of transactions actively. It’s passive income. 

As with any asset, you need asset protection. We provide asset protection strategies in all 50 states for all asset classes, including real estate notes. 

Use this guide to start you down the right path. Are you in the market for an investment that provides passive income without the dregs of property ownership? If so, note investing might be the answer to your prayers. Keep reading to evaluate the feasibility of this investment for your financial situation.

Note Investing Explained

Note investing is when you purchase real estate notes. The idea is that you change the terms of the note by reselling it, or you foreclose on the property to generate cash flow. 

What’s A Real Estate Note?

Simply put, the real estate note is two things. The first is the promise to pay or a promissory note. The second is a lien. A real estate note is the same thing as your mortgage note. 

In other words, it’s a written promise to pay money plus interest for a predetermined time. The mortgage places a lien on the title of real property to secure the written contract. If you default on your mortgage, the property may go into foreclosure. Defaults and foreclosures provide unique opportunities for real estate investors. 

When you start note investing, you know the difference between performing and non-performing notes:

Why Should I Invest In Performing Notes?

Performing notes provide passive income. There is less risk in note investing with performing notes because the borrowers are keeping up with their mortgage. That means they make on-time payments. Those on-time payments provide a source of relatively reliable passive income. 

Why Should I Invest In Non-Performing Notes?

Note investing has several advantages. They are: 

Cheaper: The non-performing real estate is secured by the equity in the property. If the borrower defaults, the real estate is more affordable to buy. You can purchase these notes from .38 to .62 on the dollar. 

Income potential: Another advantage is that depending on how you resolve the note, you could experience an excellent return on investment or create ongoing passive income. 

Secured by real property: Inflation. Stagnant wages. Whatever the reason, people are increasingly defaulting on their homes at a higher rate. For instance, there has been a 24% increase in foreclosures post-Covid indicates. Those homes represent a tremendous opportunity in this note investing space.

How Do I Get Started? 

You will need to find someone who will sell real estate notes to you. Typically, you will be able to buy notes from banks, other investors, note investment funds, and real estate brokers. 

Risks of Note Investing

No investment is without risk. Before making any financial decision, you should consult a qualified financial advisor or attorney to decide what’s right for you. There are a few perils associated with note investing:

Rewards of Note Investing

Note investing has several rewards if you decide it’s the right investment strategy for you. Number one is it might make you a lot of money if you do it right. 

The first step, you have always got to cover your assets. You don’t want your assets exposed, so protect them. 

After that crucial step, you could potentially enjoy the benefits, including: 

What Does It Mean To Become The Bank With Note Investing?

When you buy a note, you become the bank. As the bank, you have complete control over your exit strategy. As a real estate investor, that will bring some peace of mind. 

Key Takeaways

There are several things to consider when deciding whether note investing is right for you. Here are the primary takeaways from this guide:

Are you ready to speak with an expert? Learn about our comprehensive solutions you can use to achieve financial freedom, reclaim your time, protect your assets, and build your legacy. Book a FREE discovery call now.

Pro Tips to Acquire and Manage Real Estate Remotely

Why would you want to take the time and effort to acquire and manage real estate remotely?

Due to the demand, legislation, or tax laws, investing in your local real estate market is not always feasible. Remote real estate investing provides some distinct advantages that we discuss below. These advantages may provide the right mix of value and autonomy that you desire as you balance your investment strategy.

We featured this topic of discussion in a recent session of Royal Investing Group Mentoring. This session featured guest host Chris Weiler, who spoke in-depth about his experience investing in real estate opportunities outside of his immediate geographic location. Watch the Royal Investing replay.

Why Invest in Real Estate Remotely?

When you invest in real estate remotely, vast swaths of markets become available. You are no longer looking at markets in your state but all 50 states. In some cases, you may be looking globally for deals. That means you will have more chances to find properties with favorable terms.

Suppose you live in California. Typically, an investment property in California will cost more than one in the South or the Midwest. For instance, California's median sales price is $505,000; in Ohio, the median sales price for a home is $145,700.

In reality, people in Ohio also have to find a place to live. If they can't buy, they will need to rent. As a California resident, you may want to stay local and purchase a single-family home for the median sales prices.

Or it might be financially sound to shift your investment to Ohio, where you could purchase three homes for the less. Then you could convert each of those homes into rental properties.

An unintended benefit of remote investing is that it's more passive. You won't be there to contribute your sweat equity. Instead, you will be able to find better and more profitable uses for your time–like finding more deals.

How Do I Find Deals With Remote Investing?

Here's the thing, you don't find the deals. To successfully invest and manage real estate remotely, you must establish a strong network of trusted partners. Networking is a critical step in increasing your net worth.

Partners include, but are not limited to:

Your partners should have skills and core competencies that you can leverage. Also, offering your partners an incentive to work with you is essential. It can't be a one-way relationship that only benefits you.

Another way that you could potentially find real estate opportunities is to look where you vacation. Investing where you enjoy visiting can be advantageous because:

How Do I Track My Remote Investments?

All the day-to-day considerations are the responsibility of your partners. In other words, they are your boots on the ground. Preferably, you will provide strategic decisions and capital while your local network will handle the operational decisions.

Delegating requires a lot of trust and communication, which is why having a solid network is crucial to your success.

One thing that is non-negotiable for your success is following accounting and bookkeeping best practices. At a minimum, you and your network will need accounting practices to know:

Detailed and dedicated bookkeeping provides an accurate assessment of your ROI. It enables you to make the best decisions for your future. Since you are working remotely, you will need to do online accounting and bookkeeping. It's just more convenient.

Here is a list of accounting and bookkeeping products that may work for you:

How Do I Split Profits?

When it's time to decide how to split the profits, everything is negotiable. There is so much fluidity because every situation is unique to you and your partner. A potential way to divide the profits is to structure the partnership based on each party's value to the deal.

One key fundamental is to get everything in an ironclad contract. A contract provides clear expectations about how the business should operate, who is responsible for what, and how you split profits. As an added protection, you might consider including an anti-embezzlement clause.

Can I Scale Investing In Real Estate Remotely?

Scaling is entirely possible, but you have to make sure you delegate responsibly and appropriately. It's much easier to scale with a reliable and solid network.

What Are My Exit Strategies For Remote Investing?

In remote real estate investing, you exchange control for an opportunity. Protect yourself by being flexible and having multiple outs. You may decide to have plans to do the following:

Your decisions will rely on the market conditions and your discussions with your network of trusted professionals.

Real Estate Investing Remotely Sounds Good. What Are Some Drawbacks?

Some things may give you pause. You may not have the risk tolerance that remote real estate investing requires. After all, you may experience fear from being so far away to be on-site and control what's happening.

Another thing is that you have to be reliant on others and trust them to do their job right. That's tough because finding the right team can be challenging. When you find the right people, you still have to incentivize and grow the team.

Key Takeaways

If you have an internet connection, risk tolerance, and an ability to delegate, remote real estate investing might be right for you. To be successful, you will want to:

For more education about opportunities for real estate investors, join our Royal Investing Group Mentoring on Wednesdays at 12:30 p.m. EST. We meet weekly for an hour as a large group to learn, share, and collaborate on relevant topics in a fun and friendly format.

Hiring Your Children Has Monumental Benefits: Decrease Taxes, Increase Profits

Finding money-saving strategies for your real estate investment business isn't easy. It's hard. That's why the most successful investors are vigilant and proactive when finding powerful tax breaks. Have you considered hiring your children to decrease tax liability?

Does saving money on taxes sound attractive to you? You're definitely in the right place.

This article lists the remarkable tax benefits of hiring your children.

These benefits work to reduce your taxable income. These strategies are easy to use for your real estate investment business and save you money. You'll have more available cash to grow your business and secure your financial freedom.

The Truth About Hiring Your Children

The benefits of hiring your children are a massive advantage for running your own company. The type of business you have matters.

The IRS has guidelines for Family Help, but in general, the rules for your business are:

No matter what type of business structure you have, you will want to find ways to reduce your taxable income. Royal Legal Solutions can help. Be sure to check out our robust collection of Tax Strategies and Services. You will find expert advice about a myriad of tax strategies that you can leverage as a real estate investor.

Quick And Easy Tax Relief

The tax benefits of hiring your children are substantial. The standard deduction for 2022 is $12,950. Your child does not have to pay income tax on the money owed. It's tax-free!

Those wages matter to you as a business owner because you get to deduct your child's wages which lowers your business' taxable income. That's a win-win! There is an additional way to save $6,000 with the cunning use of a 401K or Roth IRA.

Suppose you pay your child $12,950. Additionally, you pay $6,000 into a tax-deductible IRA in which you are the custodian. A retirement account is an extraordinary exploit because you:

This strategy works for each of your children who you employ. That means if you have 2 children, you can potentially deduct a little more than $37,000 from your company’s taxable income.

IRS' Reliable and Direct Rules About Hiring Your Children

There are several benefits of hiring your children. The IRS is aware of the benefits of you hiring your children to work for you, and they keep close tabs on taxpayers who try to abuse the system.

To avoid running afoul of the IRS, here are some guidelines you need to keep in mind when you decide to hire your children:

Free Money: Defeating FICA

If you have an adult child who works for you or a corporation, you have to pay FICA. Don't fret, though; you have a few strategies at your disposal to enjoy the benefits of hiring your children.

The first strategy is to hire your adult child on an ad-hoc basis. That means you hire your child for single, one-of projects. For instance, perhaps your child is good at programming, and you pay them $7,000 to create a software program for you. In that instance, you would not have to pay FICA.

You have to be careful here, though, because you might have to pay FICA if you hire your child consistently. A consistent basis might be several projects in one year or a project every single year.

The rules are clear if you are an S-Corp. You have to withhold FICA taxes from your child's paycheck. In that case, you need to be innovative.

Here is how you can still avoid paying payroll taxes on your child's wages:

Key Takeaways

Exploit the powerful tax benefits of hiring your children for your real estate business. You will be able to save substantial money on taxes, up to $18,950 per child. When employing your children, follow the IRS rules and keep pristine records.

Dividend Stocks In Turbulent Times For REIs

By Josh Arnold for Sure Dividend

Volatility and market downturns are inevitable in financial markets. It is more important than ever to maintain an investment strategy during turbulent times. Bear markets make it an emotional challenge for investors to stay the course. However, times like these can be an excellent opportunity to buy dividend stocks at discounted prices.

When looking to invest in tough times, it is still prudent to start with the best-of-the-best of dividend investing. One place to find such stocks is the list of Dividend Aristocrats.

The Dividend Aristocrats are a group of just 65 stocks in the S&P 500 Index that have all increased their dividends to shareholders for at least 25 years. Therefore, these stocks have proven successful through challenging periods like this before. This article will explore the advantages of investing in high-quality dividend stocks during volatile economic periods.

Investing In Tumultuous Times

Rocky periods in the financial markets have several painful consequences. When prices fall, wealth declines as well. That can lead to panic selling investors should avoid. It also means that some investors can lose sight of the end goal in favor of stopping the short-term pain experienced as the value of their portfolio declines. However, these times create the opportunity to pick up outstanding dividend-paying stocks at discounted prices, resulting in a better value proposition with higher yields.

Buying high-quality companies at higher yields and lower valuations is perfect for long-term wealth creation; it also enables investors to earn income while capital gains are difficult or impossible to achieve at the same time.

After all, if we’re advocating for buying in down markets, the capital must come from somewhere. One way to do this is through investing savings or labor income, such as regular investments every pay period or monthly. Yet another way is through dividend reinvestment.

Dividend reinvestment involves taking one’s dividend income and reinvesting that cash in more shares, rather than saving it or spending it on expenses. Over time, this has a double compounding effect on an investor’s portfolio while the investor’s equity builds more quickly, compounding gains on both the original position and the dividend reinvestment.

If an investor needs their dividend earnings to contribute towards their living expenses, dividend reinvestment may not be feasible. In that case, it is even more prudent to focus on dividend investing. 2022 has shown investors what can happen to capital gains if market participants become fearful.

Now, let’s take a look at the case for dividend growth investing.

Dividend Growth As An Investing Pillar

Dividend growth investing has many advantages and unique qualities. For instance, it can be a hedge against inflation. Consumers, businesses, and even investors have been affected by inflation in 2022, and this is another area where dividend growth investing can help.

Lowe’s Companies (LOW), the chain of about 2,000 home improvement stores across the US, has paid rising dividends for six consecutive decades. It has also boosted its dividend, on average, by more than 20% in the past ten years. Investors who held those shares saw their income grow exponentially and outpace inflation by a wide margin.

Dividend growth investing is also taxed advantaged; this makes it an excellent option for generating earnings. Primarily, the tax is calculated at a much lower rate than other types of income. The tax rate can be anywhere from 0% for low-income earners to about half of the highest bracket in the US on labor.

Other asset classes such as real estate investing, fixed-income investments, and corporate bonds carry a higher tax burden than dividend growth stocks. For this reason, dividend growth stocks continue to be an attractive option for investors.

Lower tax rates are important to investors who can reinvest more of their own money and grow their wealth more quickly. Over ten years, the value of a portfolio will be significantly higher when paying less tax making dividend stock investing a clear choice.

Final Thoughts On Dividend Stocks

Tumultuous periods in financial markets, such as what we’ve seen in 2022, remind us that staying the course on a proven strategy is preferable to panic selling and shifting focus to the short-term. Remember that these situations result in opportunities to build positions in high-quality companies that pay rising dividends over time.

Dividend stocks are preferred because other types of income generally don’t rise over time, or if they do, not as quickly as dividend growth stocks. You can hedge against inflationary pressure while achieving increasing amounts of income. Finally, since stock dividends carry a lower tax burden, they are an excellent option for successful long-term investing.

All kinds of income-focused investors can benefit from dividend growth stocks in their portfolio, particularly when they’re available with higher yields and lower valuations, as many are today.

For more education about opportunities for real estate investors, join our Royal Investing Group Mentoring on Wednesdays at 12:30 p.m. EST. We meet weekly for an hour as a large group to learn, share, and collaborate on relevant topics in a fun and friendly format.

Multi-Family Real Estate Investing Benefits and Nuances

Are you ready to move beyond single-family home investments? If this sounds like you, multi-family real estate might be a good investment.

Before you invest in any asset, you must consider the pros and cons of each move. Also, you need to know what you specifically want as an investor. For each decision you make, there will be a variety of outcomes.

Here is a list of 4 multi-family real estate investment tips and tricks.

These tips may be just the thing you need to make an addition to or transition from single-family home investments. You'll enjoy these tips if you're ready to move in a new direction on your real estate journey.

Tip #1: Passive Income: Sensational Value!

A multi-family is any residential property that contains more than one housing unit. These properties include, but are not limited to:

With more units come more tenants and more rent. Keep in mind that in the United States, the average rent is $1,326 per month.

For a real estate investor, that means more sources of cash flow.

Maybe you don't want to deal with finding deals, securing financing, and hiring a property manager. You still want to invest in multi-family real estate. A real estate syndication might be best for you.

With syndication, you pool your money with other investors and invest in a property. You get to spread the risk and responsibility among multiple investors.

Finally, multi-family real estate investing is an excellent way to create a diverse portfolio. When you diversify, you collect a variety of asset classes. A combination of assets reduces your risk. Any single asset class's performance doesn't tank the rest of your portfolio.

Tip #2: Professional And Reliable Team Fundamentals

When you invest in multi-family real estate, you need a reliable team to help you.

Multi-family is different from single-family home investments. It's both real estate and a business based on net operating income. So part of your team needs to be a mentor who has experience in the industry of multi-family real estate. Also, a mentor can find the sweetest deals and craft a safe exit strategy.

Next, you'll need a person to manage the asset. Your management might be a local person who can handle the property's day-to-day operations. For instance, you might employ a property manager who oversees the maintenance, finding and managing tenants, and emergency repairs.

Generally, people struggle with multi-family real estate investments when they mismanage the property. This type of investment takes a team and reliable partners.

It helps to increase your net worth when building your team. Part of growing your net worth is networking. You enter into a mutually beneficial relationship with someone who shares your vision.

Tip #3: Colossal Profits From Scaling

Economies of scale provide advantages when the cost of business spreads over a large number of units. With multi-family real estate, math and the law of averages works in your favor. Keep this in mind; people need a place to live regardless of market conditions.

You might have started with a single-family home and had success with your tenant. That's the limitation of your single-family home; you will only ever have one tenant. You can't scale that rental income.

With a multi-family property, you can scale exponentially. When you have more units in a property, you get more benefits, including:

Tip# 4: No Compromise On Due Diligence

When looking for the right place to buy multi-family real estate, you must do your diligence. At a minimum, you need to research:

The population needs to be growing. Typically, people want to live in a safe area of town, so you have to know the crime statistics for your investment area.

The economy needs to be both strong and diverse. For instance, Killeen, TX, is home to an Army base called Ft. Hood. The entire economy revolves around the base. In most rental properties, you will find a soldier renting. The thing about soldiers is that they move or get deployed. When that happens, you are subject to the Servicemembers Civil Relief Act.

Find areas where the economy and renters are not homogeneous to avoid being stuck with empty units in the case of deployment or an economic downturn.

Good school districts are attractive to tenants with children. 32% of renting households have children, so you should keep that large chunk of the market in mind when doing your due diligence and research.

Key Takeaways

If you are ready to change your investment strategy or are looking for additional investment opportunities investing in multi-family real estate might be for you.

When you invest in multi-family real estate, you should:

For more education about opportunities for real estate investors, join our Royal Investing Group Mentoring on Wednesdays at 12:30 p.m. EST. We meet weekly for an hour as a large group to learn, share, and collaborate on relevant topics in a fun and friendly format.

First-Time Homebuyer Tax Credit: Can You Qualify?

Are you a first-time homebuyer? Good news, there are some excellent tax benefits for you!

You should know about a tax credit that puts more money in your pocket. The first-time homebuyer tax credit currently provides a refundable credit equal to 10% of the purchase price. The maximum tax credit is $8,000.

In 2021, President Biden and the 117th Congress submitted H.R. 2863-First-Time Homebuyer Act of 2021, which increases the tax credit to $15,000. Congress referred the bill to the House Ways and Means Committee, where it still sits. 

Read on to learn more about: 

First Time Homebuyer Rewards

According to the IRS, a first-time homebuyer is a person (with your spouse) who has not owned any other principal residence for three years prior to purchasing the new principal residence for which the credit is being claimed.

A principal residence is the dwelling where you and your spouse live most of the calendar year. You can only have one principal residence at any one time. 

You can either be a first-time homebuyer or a long-term resident and still qualify to get the tax credit. As a long-term resident, you are entitled to receive up to $6,500 in credit for purchasing a new principal residence.

First-time homebuyers are subject to gross income requirements.  

Income Tip And Secrets 

The income requirements to qualify are different for single and joint filers. The IRS looks at your modified adjusted income (MAGI) for this credit. Your MAGI is your adjusted gross income plus exempt or excluded income and certain deductions.   

MAGI limitations for the first-time homebuyer tax credit are:

How To Circumvent Challenges

Several situations can arise in which you are ineligible for the first-time homebuyer tax credit. First and foremost, if you exceed the MAGI limitations, you will not qualify for the tax credit. That’s not ideal, but you should know about the myriad of tax deductions available to you as a real estate investor. 

Check out our expert and informative articles on taxes to see what strategies you have available. 

Another reason the tax credit would not apply is if you purchased a home outside of the United States. In addition, you cannot sell the house or have the home stop being your principal residence in the year you bought it. That means you cannot use this tax credit to help you flip a house. 

If you received your home as a gift or inheritance, you cannot claim this tax credit. 

Shrewd Strategies To Stay Profitable as a First-Time Homebuyer

There are some situations where you will have to pay back this tax credit. For instance, suppose you decided to purchase a home and qualify for the credit. If you choose to sell the house within 36 months of the purchase date, you will have to pay back the credit. 

Perhaps you buy this home as your residence but decide to convert the home to a business or rental property. That means the house is no longer your principal residence. Since the home is no longer your principal residence, you will have to repay the credit. 

If you cannot keep up with the payments on the home and it goes into foreclosure, you will have to repay the credit.

You will have to include the credit amount as an additional tax on your tax return to repay the credit. 

If I Lose The Home, Do I Always Have To Pay The Credit? 

In some situations, when you lose the home, you will not have to pay back the tax credit.

For instance, suppose an act of God or some other disaster destroys your home. You do not have to pay back the credit if you purchase a new principal residence within two years of the home’s destruction.

Suppose the government finds your house unfit to be lived in and condemns it. No one is allowed to live on the property because of the safety hazards. In the instance of condemnation and your subsequent property abandonment, you don’t have to pay back the tax credit provided you purchase a new principal residence within two years of the condemnation. 

Maybe you get a divorce and lose the house to your now former spouse, the person who receives the home is on the hook for the tax credit.

Spotlight: The Bottom Line for a First-Time Homebuyer

As it currently stands, first-time homebuyers can earn up to an $8,000 credit to purchase their principal residence. Long-term residents can also qualify for a more minor $6,500 credit if they buy a new principal residence. 

The income limitations are $125,000 for single filers and $225,000 for joint filers. There are some situations where you will either not qualify or have to pay back the credit. Overwhelmingly those situations involve selling or losing the house. 

Taxes can be complicated, but they don’t have to be. To learn more about powerful tax savings strategies that you can use to keep more of your earnings, book a tax consultation by taking our tax quiz. The information you provide will enable us to have a productive discussion the first time we speak.

Self-Funded Pension Plan to Reduce Taxable Income

Are you interested in reducing your yearly taxable income? Like most keen real estate investors, you are looking for ways to save money and increase your cash flow. A self-funded pension plan might be right for you.

A self-funded pension plan, also called a defined benefit plan, is a powerful tax strategy for self-employed investors who have a steady income. The main idea behind setting up a self-funded pension plan is to lower your current year's taxes and provide you with options when you retire.

We recently chatted with Royal Legal Solutions' tax expert, Pete Schindele, CPA, and discussed this powerful tax strategy. Feel free to watch our discussion, "Self-Funded Pension Plans for Entrepreneurs," for more information.

If saving money on taxes and having an additional income is something that interests you, please read on.

What Is A Self-Funded Pension Plan?

Also called a defined benefit plan, a self-funded pension is a retirement tool. A pension is a retirement fund for employees paid by the employee, employer, and in some cases, both. When the employee retires, the fund pays out an annuity.

Now that you know what a pension is let's delve a little deeper into the self-funded part. Anyone can set up a retirement fund, even if they are self-employed. For instance, suppose you have an LLC or an S-Corp as your real estate business, and you are the only employee.

As an employee in your business, you can create your pension and fund it with the profits from your company. It would help if you considered some things before setting up a self-funded pension plan.

Who Should Set Up A Pension?

Anyone can set up a pension. Here are some things to consider before you make that decision–ideally, you:

If this sounds like your situation, a self-funded pension plan might be just the right tax savings vehicle for you. As with every business decision, you need to consult with your tax professional to ensure that a self-funded pension is a prudent business decision.

When Is The Right Time To Set Up A Self-Funded Pension?

There are no hard and fast rules for setting up a self-funded pension. It would be best if you talked to your financial advisors and tax professionals to determine the ideal time for you. Our tax expert, Pete Schindele, CPA, provides some general guidelines that might indicate that the time is right for you:

Is Setup And Maintenance Of A Pension a Hassle?

There are forms you will have to fill out with the help of a financial professional to get started. In addition, you will need to have at least three years of W-2s. The tax documents provide information to your tax professional about how much you will invest in the plan.

To maintain the pension, you must submit an additional tax document every year. Then, yearly, an actuary does a study to ensure that you funded your retirement plan appropriately. The actuary's fee ranges from $1,000 to $2,000 per year.

How Does A Self-Funded Pension Save Money In Taxes?

Suppose you have maxed out your other retirement plans, but you still have an additional income you want to protect from taxes.

Let's say that you have an additional $30,000. You would set up a pension and fund it with that extra $30,000. That money is tax-free, and you have saved about $9,000 in taxes, minus the actuary's fees.

That is not to say that a self-funded pension is without drawbacks. There are some things to keep in mind before you decide on making this decision.

What Are the Drawbacks to A Pension?

The self-funded pension is ideal for businesses or investors with a stable income. Wild swings in revenue are not going to work. Remember, you have to fund the plan every year–this is a fixed cost.

The actuary fee is steep. It ranges between $1,000 to $2,000 per year.

If you overfund the pension, you have to pay an excise tax.

Here is an illustration of how that would work. You have paid into your pension to the tune of $600,000. The IRS investigates your balance and determines that your fund should have $500,000. You have $100,000 too much in the pension. The IRS will force you to pay an excise tax on that additional $100,000.

A self-funded pension is not great for younger investors because it will be long before they can enjoy the funds. It's much better for more experienced (age-wise) investors.

How Does A Pension Work With Estate Planning?

You have the opportunity to name heirs, or you can get a lump sum payment from the pension when you retire.

Another thing you might consider is using the pension disbursements to pay for life insurance to earn even more money. Term life insurance premiums will be expensive when you retire because of your age. Instead of drawing the money from the pension, you can use it to pay for the life insurance premiums.

The life insurance will not be taxed when you die, and the income goes to your heirs. The payout from the life insurance will be more than from the pension.

FAQs: Self-Funded Pension

How does the pension differ from a Solo 401K?

With a Solo 401K, you are:

With a self-funded pension, you are:

When should I set up a pension?

First, you should invest in a solo 401K, an SDIRA; then, you should set up a self-funded pension with additional income.

Is there a baseline minimum income requirement?

It depends on the situation. There is a cost to implement, and you need to check your tax rate. Those variables make it impossible to determine a baseline requirement. Any advice requires you to do a cost-benefit analysis with your CPA or tax professional.

Key Takeaways

A self-directed pension plan requires you to have a history of good revenue for three to four years. It's also ideal if you have already maxed out your Solo 401K contributions—a couple of years.

In general, the pension is ideal for older investors. Be careful with the excise tax. Work with your tax professional to ensure you don't overfund the plan. The operational costs to set up and maintain your pension plan are not prohibitive. Finally, you can pass the funds on through the pension or clever use of a term life insurance policy.

To learn more about this powerful tax savings strategy and others that you can use to keep more of your earnings, book a tax consultation by taking our tax quiz. The information you provide will enable us to have a productive discussion the first time that we speak.

Improved Accounting and Bookkeeping Best Practices

Why would you want to take the time and effort to learn accounting and bookkeeping best practices? It can mean the difference between the life or death of your business.

As a real estate investor, your accounting practices provide you with a valuable snapshot of the health of your business, expenses, and possible avenues of profitability.

With sloppy or inaccurate accounting and bookkeeping practices, you will miss critically important information and have no sense of your overall financial health. That ignorance may turn out to be catastrophic. Read on to learn more about the benefits and importance of accounting and bookkeeping best practices for you.

We also featured this topic in one of our Royal Investing Group Mentoring sessions that you can view a replay of.

What Are Accounting and Bookkeeping Best Practices?

It depends on where you are in your real estate journey. A sole proprietor or married couple investing together may be perfectly suited to self-managing their books. In that case, you can keep detailed records with Quickbooks desktop.

The software gives you local control. That means you don't need a CPA or an accountant. One factor to keep in mind is that doing your books is time-consuming.

Ultimately, maintaining your books is a best practice because it keeps you intimately familiar with the details of business:

There are additional benefits to keeping good financial records, especially if you are looking for a business partner.

Why Bookkeeping Best Practices Are Important for Partnerships

Sloppy books kill business partnerships. For instance, you can't have garbage books and claims transparency. Making sound financial decisions based on accurate information undergirds importance in bookkeeping.

It takes effort, but maintaining accurate financial records is worth it because it helps bring peace of mind to your investments. Sloppy books might cover up embezzlement. Detailed and accurate bookkeeping is a good return on your investment because it provides peace of mind. And you can't put a price on that.

You can't make well-informed decisions when your books aren't straight. Excellent books help you make informed, unemotional decisions. You have to make sure you keep track of your records no matter what.

Here are some benefits of following accounting and bookkeeping best practices:

When Is the Right Time to Outsource Bookkeeping?

Finding good deals and building wealth are your most dollar-productive activities. The right time to outsource is to define standards and what it means to have good bookkeeping. Hire someone as a bookkeeper to increase your ROI. Your time spent on bookkeeping produces less value to you than finding good real estate deals.

When you decide on hiring a professional, they should be able to give you a tax strategy. Whether you hire a CPA, CFO, or tax attorney, they will show you how bookkeeping is essential for peace of mind.

You will also learn how your business is performing and how much it makes. Getting a solid understanding of your financial situation is the first step you have to take before leveraging tax strategies. All in all, your relationship should produce detailed, robust tax strategies from good, accurate bookkeeping.

What Do I Need to Do for My Accounting and Bookkeeping?

All business owners must regularly review their monthly operational expenses. Only by understanding your financials will you be able to achieve your financial freedom goals.

Another thing you need to do is find someone whose advice you trust and who you can listen to. It might be a person who has experience with the same real estate investment or a similar business. Part of doing the research is determining the scope and need of your relationship.

What Does a Good Bookkeeper Do?

You should find someone who is competent. That means your professional would have:

A dedicated partner will listen to your specific situation and help you think through your scope and needs. Also, they are more likely to provide upfront value to you before you make a financial commitment.

The ability to communicate is essential. Your partner needs to be able to tell you what is happening with your business at your level of understanding.

They need to be familiar enough with you to be able to speak to you on your level, just like Goldilocks–not too high and not too low. That helps them identify pain points and how to mitigate them. One of the critical things you can do to help yourself out is to make sure your expectations are clear.

Your professional needs to be an expert in real estate. That means they focus on real estate and have excellent knowledge about real estate. Don't waste time here with someone who doesn't provide value, as developing relationships are expensive in both time and cost.

Key Takeaways

Regardless of an individual's situation and the appropriate approach they choose, maintaining and regularly reviewing your books is crucial.

For example, the scope of your investments may dictate the bookkeeping process or processes you follow. A sole proprietor or married couple investing together may be perfectly suited to self-managing their books. Alternatively, investors who enjoin with partners or have many properties will prefer a solution accessible from the cloud by their team of professionals.

Ensuring that you have a solid understanding of accounting and bookkeeping best practices for real estate investors is one of the first steps to sustained wealth development.

Do you want to learn more about how to secure your financial freedom? Register for FREE Royal Investing Group Mentoring on Wednesdays at 12:30 pm EST to learn more while networking in a casual, fun, and friendly environment.

Retirement Planning and Charitable Giving

Charitable giving is a popular strategy among the wealthy for diminishing their tax payments. But this strategy doesn't just have to be for the Michael Dells and Kim Kardashians of the world. Wouldn't you like to reduce your taxable income and save money too?

Intelligent real estate investors, just like you, can use charitable giving too. But even savvy investors don't always know that they can make charitable gifts from retirement accounts.

The funds in IRAs and 401ks are among the most heavily taxed that the average investor will hold. Whether you want to donate money from your 401(k) to a cause close to your heart, save on your taxes or both, this article is for you. Read on to learn more about your options for giving charitable gifts with your Self-Directed 401(k).

Why You Should Designate Your Retirement Funds for Charitable Giving

Ultimately, it would be best to consider designating your retirement fund for charitable giving to reduce your taxable income and save money. The tax break is why many highly wealthy individuals donate in large quantities. Sure, many of them may be philanthropic at heart, but there is also a distinct tax advantage to making donations. The higher your taxable income, the greater your tax responsibilities when Uncle Sam comes to extract his pound of flesh and collect tax bills.

Giving to charity also qualifies you to receive a Charitable Gift Tax Credit. Anyone can take advantage of this deduction. Generally, the credit is figured by taking the market value of an item or the actual amount of cash donated, then subtracting the percentage of your tax bracket.

This strategy can lead to thousands returning to your pocket. Of course, there are limits: you cannot donate more than half of your income in a given year. Similarly, for these benefits to apply, you must itemize each donation.

What Options You Have for Giving to Charity

Some of these may already be familiar to you. Others are less obvious. Here are some, but not all, of the many methods you can use to donate funds to a charitable cause:

⦁ Real Property Gifts (includes real estate, stocks, etc.)

⦁ Trusts (Charitable Remainder Trusts, Charitable Lead Trusts, and more)

⦁ Charitable Sales (purchases will benefit a charitable organization or purpose)

⦁ Deferred or Traditional Charitable Annuities (the donor receives a tax deduction and a fixed income for the remainder of their life)

⦁ Life Estate Gifts (allows donors to claim a charitable deduction for the remainder value of real property donated to charity)

⦁ Retirement Plan Asset Gifts (passes the retirement plan assets to a charity)

⦁ Life Insurance Gifts (name the charity as a beneficiary, and it may reduce the donor's taxable estate)

Which Options Are the Most Beneficial?

Life estate gifts, retirement plan asset gifts, and life insurance gifts are the most beneficial options.

While any of the previously mentioned options are undoubtedly beneficial and generous, intelligent investors may be wondering which will benefit their bottom lines. You may be surprised to learn that the final items on the list are among your most robust and lesser-known gift choices.

Many potential donors do not know much about life insurance or retirement plan asset gifts simply because charities are less likely to request them. Many nonprofit organizations need immediate cash that these donations do not address. They are nonetheless useful for the organizations--and you.

Ways to Give to Charity from Your 401(k)

Option 1: Donate Directly from the Plan

You can liquidate an asset (or several) held by your plan, then directly donate the funds to the nonprofit group or cause of your choosing.

Option 2: Name a Charity as a Beneficiary of Your Plan

Naming the charity of your choice as a beneficiary works the same way as designating any other beneficiary. However, this option has the advantage of allowing plan funds to pass through to the charitable organization completely tax-free. If you have tax-deferred funds, this is a more intelligent expense than passing those same funds on to your heirs. Your heirs would have to pay the taxes, but the charity does not.

Key Takeaways for Effective Retirement Planning and Charitable Giving

Charitable giving is a popular and effective strategy to reduce your taxable income and save you money. One strategy that most people don't know about is the ability to make charitable gifts from retirement accounts.

It would help if you considered giving to charity from your retirement account for the following reasons:

The tax benefits of charitable giving are multiple. It may result in you pocketing cash when tax season rolls around.

You have a lot of options available to you, but one of the most beneficial options is to give from your 401(k) by:

This strategy will reduce the tax burden on your estate and may save your heirs a hefty tax bill down the line.

Do you want to learn more about charitable giving or other strategic plays that may be useful to you? Join us and learn more! Register for your FREE Royal Investing Group Mentoring Wednesdays at 12:30 pm EST.

Augusta Rule: Homeowners Can Earn Tax-Free Income

Paying taxes isn’t fun. It’s a pain. The pain is why most real estate investors jump at opportunities to earn tax-free income using the Augusta Rule.

The Augusta Rule, or IRS Section 280A, applied to the residents of Augusta, Georgia, who would rent out their homes to attendees of the golf tournament.

Do you want to know more about how the savviest of real estate investors leverage this tax rule to their advantage? Read on to learn more about the Augusta Rule and its potential benefits to your real estate investing business.

What Is The Augusta Rule?

As mentioned, the Augusta rule originated with people renting out their homes. Subsection (g) of the code reads in part, “if a dwelling unit is used during the taxable year by the taxpayer as a residence and such dwelling unit is rented less than 15 days during the taxable year, then the … income derived from such use for the taxable year shall not be included in gross income.”

The rule applies to any taxpayer who owns a home in the U.S., provided that your home is not your primary place of business. One thing to note here is that the presence of a home office does not make your home your primary place of business.

The Augusta Rule IRS exemption applies to your (the owner):

That means you can rent out your residence for fourteen days and earn rental income but not have to report that income on your federal taxes.

How Does The Rule Work?

The Augusta rule works when you rent out a dwelling unit as a personal residence.

Here is a list of assets that are personal residences for Augusta Rule purposes:

You may qualify for the exclusion as long as you use that dwelling unit as a residence. While you can earn money through the rule, expenses related to your property rental are not deductible.

There is a 14-day limit on the number of days you can rent your property before claiming the rental income on your federal taxes.

What Is The 14-Day Rule In The Augusta Rule?

The rule has a provision that states you can only exempt 14 days of rental income from your taxes. On day 15 of rent, you have to report the entirety of the rental income to the government and get taxed accordingly.

The 14 days are cumulative, not consecutive. That matters because it gives you flexible options to generate rental income. For instance, at Super Bowl LVI in Los Angeles, a person who lived adjacent to Sofi Stadium rented their 2,500-square-foot home for $10,000 over the football weekend.

You may not see the same extreme prices, but there are plenty of ways you can maximize your rent for those 14 days. You might consider matching your rentals when an influx of visitors creates a spike in demand, including:

It would be best to charge a fair rental market price and avoid possible legal snags. To help you set the right rental market price:

An advantage of using rental websites is they track rent prices and rental rates that you can present to the IRS should they have questions.

Renting out while your market is hot is a good strategy. Another unique opportunity is having your real estate investing business rent the property from you.

Why Is Using The Augusta Rule Unique For Tax Planning?

The rule lets you shift income from your small business directly to you without paying taxes. For instance, you could rent your home to your small business to receive a tax deduction at the business level and exclusion from the rental income at the personal level.

Here is an illustrative example of how the August Rule could work for you. Suppose Jason is an owner of a small business.

Each quarter, the business rents Jason’s vacation home to hold meetings, strategize, and plan for the upcoming year. In total, the company rents the vacation home for fourteen days. The fair market rental rate for those fourteen days comes out to $10,000.

Jason’s business deducts the rental price as a legitimate business expense of $10,000. Since the company rented for only fourteen days, Jason does not need to report the $10,000 income.

What should Jason and the business do to ensure he does not get in trouble with the IRS?

In the preceding example, Jason potentially saved $3500 in federal taxes.

How Do I Determine The Right Rate?

Remember to call around hotels to get quotes and check out online rental sites like Airbnb, HomeAway, and Vrbo. Remember to look for similar properties to yours. For instance, suppose your house has amenities, like a pool and jacuzzi. It would be best if you found rates for similar spaces with extras, like a pool and jacuzzi.

Here is a list of things that you should consider when getting a quote:

It is critical to maximize the rent for these fourteen days. One way to do that is to remember the preceding list of invisible amenities your home provides.

Key Takeaways

The Augusta Rule is a way that homeowners can earn tax-free income from a residence.

Keep in mind these four fundamentals to maximize your income and minimize your entanglement with the IRS:

To learn more about this powerful tax savings strategy and others that you can use to keep more of your earnings, book a tax consultation by taking our tax quiz. The information you provide will enable us to have a productive discussion the first time that we speak.

Insurance Challenges Faced by Real Estate Investors

Getting solid insurance for real estate investors is a pain. It's time-consuming and confusing. Most investors struggle to juggle multiple carriers and policies.

Does that sound like you? You're in the right place.

I'll show you a way for you to streamline the insurance process, how it works in your asset protection plan, common issues you probably experience with your insurance, and how Royal Legal Solutions can help.

Where Does Insurance For Real Estate Investors Fit In My Protection Model?

Insurance for real estate investors is your first line of defense in protecting your assets.

The first advice you got as a real estate investor was, "buy deals." It's excellent advice and the first step in securing your financial freedom. Typically, that's where mentorship stops, and there is an information void on the next steps you need to take.

We're here to tell you that the next step is securing reliable insurance for real estate investors. Typically, banks require you to get property insurance to cover natural disasters like fires and floods. In addition, your property insurance provides partial protection (with some exceptions) if an accident occurs on your property.

You acquire more assets and need more policies as you invest in real estate. Thus, your insurance situation becomes more complicated. For instance, savvy real estate investors who want more asset protection also get umbrella insurance.

In general, an umbrella policy covers:

Remember, insurance is your first defense against accidents and natural disasters. Things get complicated for real estate investors as you own more assets, so you must purchase more policies.

What Issues Accompany The Insurance Process?

Some of the issues you might encounter when getting proper insurance include:

The lack of a holistic solution drives the risk of having unacceptable levels of coverage. You could be paying for more than you need or have gaps that make you vulnerable.

Reach out to discuss how Royal Legal Solutions can offer you a single point of contact and the best coverage for your liability, life / whole life, and annuities insurance. That frees you up to focus your energy on your business goals.

Why Do I Need Insurance Specific To Real Estate Investors?

It would be best to have insurance tailored to your needs as a real estate investor to provide total, bulletproof protection to your assets.

The reality of being a real estate investor in our litigious society is that someone will sue you one day. The question is, will you be proactive or reactive?

Your property insurance is limited to accidents and low-dollar claims. Luckily, it will cover most of the risk most of the time. Insurance is the most cost-efficient way to protect your property. Still, the way you get insurance is a sometimes laborious process.

The old way of finding insurance through a large commercial carrier is cumbersome. You have to deal with multiple points of contact who do not know your specific needs as real estate investors. That is a time and cost-inefficient system.

The new way of getting insurance finds real estate and small business specific providers that:

How Is Royal Insurance For Real Estate Investors Different From My Current Insurance?

Royal Insurance for real estate investors is a service level agreement that acts as part of the RLS one-stop shop for bulletproof protection. It works in conjunction with our:

The value comes from having a single, dedicated point of contact with Royal Legal Solutions. With a streamlined, single point of contact, you will have direct access to our insurance wing for assistance with the following insurances:

Our provider network consists of:

We will tailor your coverage specifically to your situation. The way we do that is with our provider network. That extensive network makes the providers compete and gives you a market edge. Ultimately, you will save money, cover any gaps, and reduce time wasted trying to contact an agent. And the best part? Our focus is on real estate investors and the nuances they face carrying multiple policies on various properties. Simplify your life with a single point of contact for all of your insurance needs.

Take our insurance quiz to get started and book your consultation.

If I Have Bulletproof Protection, Why Do I Need Insurance?

Insurance for real estate investors is its system of protection. Your LLC is the fallback position after your insurance carrier either pays the coverage limit or fails to protect you.

Cases in which your insurance will not protect include (but are not limited to):

You want to stack protections. That's when your LLC covers the rest via asset protection with your anonymity structures in place.

Key Takeaways

It's critical to invest in proper asset protection to mitigate your liability and risk. Otherwise, you'll be in a rough spot when you get sued, and the lawyers come calling. This means you need to get reliable insurance specific to your needs as a real estate investor.

If you want to learn more about how to protect your assets (and, by extension, your livelihood), watch the replay of Royal Investing, Episode #18: Insurance Challenges Faced By Real Estate Investors, with Scott Smith.

Buy Real Estate through a Solo 401K to Achieve Total ROI

Your Return on Investment (ROI) is the most vital metric to measure success. When you invest in real estate, you may be able to achieve total ROI with a Solo 401K.

Do strategic investments with high returns interest you? Then you're in precisely the right place. This article will cover investing in real estate using a Solo 401K.

What Is A Solo 401K?

Unlike a traditional 401K, a Solo 401K (or self-directed 401K) is designed specifically for self-employed individuals. To qualify for a Solo 401K, you must be the sole owner or operator of a business with no employees other than your spouse.

What Are Some Advantages of Investing Through My Solo 401K?

Your Solo 401K offers unique advantages that make it an efficient and powerful investing tool. For a real estate investor, those advantages include:

Another key advantage of using your Solo 401K to invest in real estate is avoiding the Unrelated Debt-Financed Income (UDFI) tax. For a real estate investor, you do not have to pay the 40% UDFI tax on income or gains on your investment paid for by your Solo 401K.

Here are two scenarios that illustrate the advantages of investing through your Solo 401K.

Scenario 1: Bob uses a Solo 401k and invests $100,000 of Solo 401k funds to acquire a real estate property. Bob also secures a nonrecourse loan from a bank for $100,000 and purchases the property for $200,000.

Assume the property generated $10,000 of net income in a year after calculating all eligible deductions. The UBTI tax would not apply to any of the income or gains generated by the real estate investment!

Scenario 2: Bob uses a Solo 401k and purchases a property for $200,000. Bob then sells the property three years later for $400,000. The $200,000 earnings Bob captured are tax-free!

How Can I Achieve Total ROI with a Solo 401K?

Typically you cannot use a traditional 401K to invest in real estate. However, the Internal Revenue Service (IRS) allows Solo 401K holders to invest in:

The Solo 401K is a powerful investment strategy that you can use for total ROI. Here is how you would go about using your Solo 401K to invest:

Step 1: Open Your Solo 401K Connected To Your Business Entity

The process entails making sure that your Solo 401K account is the only entity associated with:

Step 2: Fund The Solo 401K

You can fund the Solo 401K and make contributions using:

Step 3: Choose How You Want To Purchase The Property

Typically, you have three options when you invest with a solo 401K:

  1. Cash purchases: are the most straightforward options in which you use funds from your account to purchase a property
  2. Tenants-in-common: allow you to use both personal money and Solo 401K funds to invest in a property
  3. Nonrecourse business loans: protect your assets from lawsuits, bankruptcy, and other potential risks

Step 4: Conduct The Transaction With Your Solo 401K

Your Solo 401K must be the purchaser of any investment property. If you use your name on any documents on the purchase, the IRS will prohibit the purchase. Conduct the transaction by having your Solo 401K:

You are the trustee on the Solo 401K. As a real estate investor, you need to submit the purchase documents to your escrow agent. Store all the documents in a secure place.

How Can I Get Cash From My Solo 401K?

You can lend to yourself from the retirement plan, and the funds have no restrictions. You can take out half of your retirement account, or $50,000, whichever is lower.

For instance, if your retirement account had $75,000, you would be able to take out half of that amount, or $37,500. On the other hand, if your retirement account had $150,000, you would only be able to take out $50,000.

The loan money comes out of the fund as cash, but you must pay the retirement account back with interest. As long as you pay the market interest rate, you have the option to pay your loan back quarterly over five years.

For unique investing opportunities, check out our additional resources: Buy Tax Liens With Your Self-Directed IRA LLC OR Solo 401K.

Is A Solo 401K Plan Safe From Creditors?

Solo 401K plans do not automatically include protection from creditors. However, you do have protections under federal bankruptcy laws.

For non-bankruptcy creditors, protections fall at the state level. Solo 401K plans do not receive protection from the Employee Retirement Income Security Act (ERISA). State laws protect you in most cases subject to certain exceptions, such as child support.

Total ROI with a Solo 401K IS Possible

Investing in real estate may result in a total ROI with a Solo 401K.

There are some distinct and attractive advantages of investing with a Solo 401K:

We covered four critical steps to investing with a Solo 401K:

  1. connecting your 401K to your business
  2. funding the retirement account with your contributions
  3. choosing how to acquire the property
  4. using your 401K for all transactions

Are you interested in learning more? Register for FREE Royal Investing Group Mentoring Wednesdays at 12:30 pm EST.

Navigating Historically High Inflation Combined with Low Interest Rates

Let's discuss what's happening with the cost of goods and how you can navigate historically high inflation with low-interest rates. 

We recently held a Royal Investing Group Mentorship with Ron Galloway, an expert financial researcher with 35 years of experience to answer the inflation question. Galloway has been featured in The New York Times, CNN, CNBC, and The Wall Street Journal. 

Please keep reading to learn more about inflation, how it's measured, and the potential impact on low rates in your real estate investments.

What Is Inflation?

According to expert financial researcher Ron Galloway, inflation is "simply an increase in the money supply." In the past year, nations increased their money supply up to four times, says Galloway, which led to historically high inflation. 

The rate currently reduces your money's value and drives up prices. 

When you shop, do you notice that things cost a little more each time you go back?  

For example, last year your shopping cart cost $300. An identical shopping cart might cost you $320 or more this year. At its most basic, that's inflation.  

Contributing Factors

Galloway explains that the economy is not as strong as it is reported because of:

Each of these factors contributes to the inflation situation we are experiencing. 

How Is Inflation Measured?

We measure inflation by measuring the cost of many items over a specified period. The Bureau of Economic Analysis and the Bureau of Labor Statistics measures goods and services costs, categorizes the expenses, and creates different price indexes. 

Price Indexes

Price indexes are lists of prices. There are different price indexes; one measures households and their consumption of personal goods and services. Another price index measures commercial companies and their raw materials consumption and needs for machinery. 

Measuring Inflation

To measure inflation, we look at the level of a price index. If the price index level is higher than over a year ago, we know that prices are higher on average, and there is inflation. 

Galloway argues that inflation numbers provided by government statistics agencies do not adequately account for essential goods like food and fuel. Necessary commodities like food and energy cannot negate an increase in prices and other goods that aren't essential, like electronics. 

That means that real inflation for essential goods may be even higher than the reported rate of 7.5%.  

What Is the Impact of Low-Interest Rates on Banks?

The impact of low-interest rates is that banks are less willing to loan money. Banks have increasingly heightened their standards and investigated and thoroughly vetted potential borrowers. All in all, interest rates are low, but there hasn't been a corresponding increase in loans. 

Galloway explains that real interest rates are "the rate of interest minus inflation." Accordingly, the combination of low-interest rates and rising inflation disincentivizes banks from loaning money. 

As a result of that unprofitable combination, top institutions would instead use their cash for trading derivatives between each other. Galloway notes if one of those significant banks defaults on their derivative, we'd have a repeat of the 2008 recession. 

Expand your portfolio, diversify your assets, and hedge against inflation. To do that, you might consider investing in Carbon Credits. 

What Is the Impact on People Who Hold Assets?

Inflation eats up your cash, but people in debt and assets benefit from it. If you hold assets, like real estate, during an inflationary period, those assets increase in value. 

Now might be a good time for you to invest in real estate. 

Indeed, prices are up, but so is demand. So far, there are no obvious indicators that the housing market will slow down. In addition, as Galloway mentioned, real estate, a tangible asset that appreciates, is a good investment during inflationary periods. 

If you are ready to take the next step to secure your financial freedom, check out: 

Key Takeaways

Never in history have we had interest rates this low and inflation rate so high. As a result, you need to protect yourself and your assets. Here are the key takeaways from today's discussion: 

During this period, it is an excellent time to be a real estate asset owner. If you want to learn more about market trends or other real estate investment topics, register for FREE Royal Investing Group Mentoring Wednesdays at 12:30 pm EST.

Judgment Enforcement Effective Strategies for Collecting

Have you ever wondered how about judgment enforcement on non-paying tenants? Or maybe you want to know what your options are other than evicting someone and putting them out on the street?

If so, you’re in the right place. Keep reading to learn more about:

What Is Judgment Enforcement?

First, it’s helpful to know that a judgment is merely a court order or a decision from a lawsuit. Sometimes, the court will order the defendant to pay the plaintiff a certain amount of money in the judgment.

Lawsuits happen. In most cases, it’s not if but when they occur. As a real estate investor, you must protect your financial future and assets. Take our FREE, five-minute investor quiz to learn more.

Why does this matter for real estate investors?

Here is a typical example you may encounter as a real estate investor. Imagine you have a tenant who has stopped paying rent. While it may not be easy to evict your non-paying tenants, they still owe rent to you. You have other options available for judgment enforcement.

What Should I Do If a Tenant Stops Paying?

You don’t always have to evict. You can sue the tenant for breach of contract, get a judgment, and then enforce the judgment. Remember the tenant signed a lease agreement with you. You can sue the tenant in small claims court.

What is a small claims court?

First, you should know the rules that control your state’s small claims court system. Second, you should know that small claims court is a low impact, relatively cheap, and hassle-free way to get paid.

In general, small claims courts are:

How does small claims court work?

What’ll happen is this, you will file a suit in small claims court against your tenant for breaching their rental contract with you. After that, the court will set a hearing date. Then you serve your tenant with papers (this is easy because you know where they live).

Both you and your tenant have the opportunity to represent yourself in court. Present your facts:

After that, the court will most likely issue a judgment in your favor. Here are some things to consider about court decisions:

After you win a case, you will need to enforce the court’s judgment.

What Tools Do I Have for Judgment Enforcement?

If your state allows it, you can:

These options are convenient because you most likely have your tenant’s job history and banking information already on the leasing contract.

Wage garnishment

Suppose you’ve won in court against someone that is gainfully employed. In that case, you may be able to garnish (or collect) a portion of their wage to satisfy your judgment.

Just the threat of wage garnishment is enough for most defendants to pay. Generally, to garnish someone’s wages, you don’t have to expend much effort:

There are various rules and limitations to wage garnishment, but this is an effective judgment enforcement strategy.

Bank levy

You have your tenant’s bank information, so it might be better for you to enact a bank levy.

When you win a money judgment, you become a creditor, or someone owed a debt. As a creditor, you may be able to tell the bank to withdraw money from an account without the debtor’s permission.

Sell the judgment

Another option for judgment enforcement is to sell the judgment to an enforcement specialist. Selling is a win-win situation because it allows you to relinquish the responsibility of debt collection to a third party.

Selling debt might be a good option for you if you think the debtor cannot pay or will not pay. The enforcement specialist will usually enforce the judgment and pay you a portion of the debt.

Key Takeaways About Judgment Enforcement

You have rights as a landlord too. When a tenant does not keep their promise, you should follow the law because it’s the right thing to do.

We discussed what judgment enforcement means, how to take action against non-paying tenants, and what tools you have available to enforce judgments. Now that you know this information, you have proven strategies at your disposal to ensure that your real estate investment journey is successful.

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How to Maintain Operational Anonymity

How do I maintain operational anonymity after a structure is in place?

Maintaining operational anonymity isn’t easy, which is why most real estate investors worry about being the target of a lawsuit, regardless of the protection in place.

Does this sound like you? You’ve made it to the right place. In this article, we’ll explain:

We invite you to read on and learn how to maintain anonymity operationally.

Why Is Operational Anonymity Important?

Anonymity is essential because it stops lawsuits before they start, as belligerent parties will be unable to find the actual target of the suit.

How Do We Obtain Anonymity?

We obtain anonymity by using a variety of tools. These tools include using:

We hide assets using Anonymous Trusts, which allows you to keep ownership information hidden. The Anonymous Trusts keep you safe by owning your LLC and serving as the Title Holding Trust, the name disclosed when filing Articles of Incorporation.

In practice, it would look like this:

When someone goes to research the owner of the real property, the Count Clerk’s records will show the anonymous trust as the owner. Neither the trust owner nor you registered with the state, so your identity is safe.

How Do You Maintain Your Operational Anonymity?

There will be times when you need to maintain operational anonymity throughout running your business. As you continue on your real estate journey, you want to make sure that you protect your investment and your livelihood.

What follows are three common scenarios in which you will want to maintain your anonymity:

#1 How To Purchase A Home

What matters is how you plan to purchase the home. If you buy it:

#2 How To Enter Into A Contract With A Third Party

When you contract service providers, you will want to interact through an anonymous operating LLC. These providers include, but are not limited to:

The operating LLC will be the party that contracts with the service provider, and you will sign as the manager of the LLC.

When you contract with a tenant, you will interact through an anonymous operating LLC or a third-party property manager. The operating LLC will be the party that works with the service provider, and you will sign as the manager of the LLC

#3 How To Sell Your Property

When you sell your property, anonymity is not a priority. To sell, you should move the title back to your name and sell. When you sell the property in your name, it simplifies the closing process. Finally–as the seller–you ensure the proceeds check comes directly to you.

What Parties Can You Disclose True Ownership To?

In some cases, you will want to disclose actual ownership. Some of the most common parties to tell include:

How Should I Disclose True Ownership?

Sometimes you may not need to maintain complete operational anonymity and disclose true ownership. When considering whether you should tell your identity to each of the previous parties, ask yourself the following questions:

What Happens If Your Anonymity Has Been Compromised?

Don’t panic if someone compromises your anonymity. You have options available to you to address the situation. The initialism “STACK” details the steps you should follow:

Conclusion

Ideally, it’s clear how to maintain operational anonymity while managing your real estate investment.

Now that you know how to protect your privacy, here are some key takeaways about the protection provided by anonymity:

Do you want to join other savvy investors and learn more about how to protect or grow your investments? Register for FREE Royal Investing Group Mentoring Wednesdays at 12:30 pm EST.