Resourceful Investor's Guide To Structuring a Short-Term Lease

You've decided to get into the short-term rental industry. As a result, you need to know how to structure a short-term lease.

A whole host of situations and challenges come with this type of property. One of the primary challenges is the level to which your state regulates the industry. There are many laws and regulations that may apply to your city.

As with any real estate agreement, you want to protect yourself with an enforceable contract containing legally binding terms. Your agreement must encompass the landlord's and tenant's rights and outline essential details concerning the local occupancy laws.

To help you, we will review the 9 essential items you should include on a short-term lease agreement.

What is a short-term rental?

A short-term rental is an investment property that is rented for a short time. These properties, sometimes called vacation rentals, are an alternative to hotels. They have seen their popularity rise since AirBnB emerged in 2008.

Owning a short-term rental comes with some distinct benefits, including the following:

The rental rate is higher than longer-term rentals.
You can use it as a second home or a vacation home.
Tenant turnover is frequent and by design.

Before Creating A Short-Term Lease, Do Your Research

First, you must ensure you can have a short-term rental in the property's location.

Local laws

As a real estate investor, you must check local laws and regulations. Laws vary between jurisdictions: in some places, there are no regulations, and in others, short-term rentals are outright banned.

Protect yourself

Short-term rentals have more tenants shuffling through them. An increase in the number of people coming and going on the property increases your potential liability.

We've long championed the usefulness of an LLC to shield yourself from liability; without an LLC, you may be liable (sued) for incidents that occur on your short-term rental. And a lawsuit can be costly.

In addition to an LLC, it's a good idea to work with an attorney to create a short-term rental agreement. A legal professional can advise on safeguarding yourself from potentially problematic tenants who steal from or damage your investment property.

Screen your tenants

Screening your tenants is incredibly important. You will run into fewer issues and save time and money if you thoroughly vet your tenants. Make things easier on yourself by having a platform that lets you directly communicate with your tenant.

After you've done due diligence, you should establish a short-term lease agreement.

Short-Term Lease Agreement: The Essential Ingredients

As a real estate investor, you may ask yourself, "what should I include in my short-term lease agreement?" The answer depends. Local laws and regulations may stipulate precisely what you have to include, and the rules may apply at the granular level.

In general, every short-term lease should have the following 9 elements included.

#1. Property details

The first item on a short-term lease should be a clear description of the property. Your description should include every item inside your vacation rental. Also, be direct and to the point, and do not leave any room for misinterpretation or ambiguity.

#2. Tenant information

Your short-term lease agreement must include relevant information about the tenant. At a minimum, you should have the following:

Name
Home address
Phone number

#3 Tenancy period

The tenancy period is a critical portion of the lease agreement. The length of the stay starts on the day (down to the hour) that the tenant enters your rental property. The period ends the day (and hour) the tenant departs.

Suppose you fail to list the tenancy period. In that case, you may run into severe legal issues-like a tenant refusing to vacate the property.

#4 Payment

This potion should include everything that has to do with payment. You will want to include the following:

Security deposit information
Agreed upon rent amount
The date that rent is due
Whether you offer a grace period for late rent

#5 Tenant duties

You must define the tenant's obligations in the short-term rental lease. The duties might include maintaining the property and paying the agreed-upon amount at the agreed-upon time.

#6. Cancellation process

This section explains how the tenant should cancel the rental agreement. Typically, you'll want a written cancellation request from your tenant.

#7. Amenities

You can use this section to add more details and information about the property and what you have available. You can include information about AC, TV, and a pool.

#8. Additional clauses

Consider including additional clauses that limit your tenant's acceptable activities. A standard additional clause is the prohibition of pets from entering the premises.

#9. Signature

Your contract is legally binding only if both parties sign it. Consequently, you need to leave room for signatures.

Key Takeaways About Crafting Your Short-Term Lease

A short-term lease agreement is critically important because it protects you. As a result, you should always remember to have one for yourself and your tenants' safety and protection.

This legally binding contract makes it so that you can enforce the terms of agreements and ensure that your rights are safe.

To learn more about short-term rental properties, or the real estate investment industry, join our Royal Investing Mentoring sessions. It's FREE and comes with no obligation; we want to help you learn more about real estate investing so you can secure your financial future.

Tax Filing with Partners Using an LLC or Series LLC

While having a partner may make business sense, tax filing with partners can be complex and confusing. Paying taxes is painful. It’s tough to part ways with your hard-earned money when you have business expenses and maintenance to handle.

This article doesn’t include every tax break or loophole available. But it provides helpful, clarifying information about tax filing with partners in an LLC or Series LLC.

Tax Benefits Of An LLC Or Series LLC

There are several advantages of selecting a series LLC as your business structure. It provides you with asset protection and anonymity, but there are also tax implications. Let’s check out some things you need to know about how tax filing with partners works with an LLC.

Remember, a series LLC is unique because it has a parent LLC and a series of children LLCs under it. Each entity in the structure provides its own layer of asset protection and anonymity and is protected against risk from other series. As a real estate investor, this allows you to segregate risk and hold several different properties without incurring the cost of setting up new business structures for them.

First, the IRS treats a series LLC as a single entity. Since it’s a pass-through entity, you can choose how you want to be taxed by the federal government. You have the option to choose between being taxed as a:

Corporation
Disregarded entity
Partnership

We will focus on the partnership or filing taxes with partners.

What Options Do I Have For Filing Taxes With Partners?

Filing taxes with partners depends on a few factors. But first, let’s talk about what it means to be a partner. The IRS considers any individual who owns an asset with another individual to be partners.

In most cases, partners must file a Form 1065 to report their income, gains, losses, deductions, and credits. An exception to that is if you are married to your partner. In the case of marriage, you can file Form 1065 and then do your taxes as you normally would.

There are some benefits of filing taxes with partners using Form 1065.

Cash In On These Tax Tips

Filing taxes with partners using Form 1065 can benefit you and your partner. Recall that if you’re in a partnership, you’ll have to file a Form 1065 (unless you’re married to your partner). The 1065 (and Schedule K1) may be beneficial.

For instance, Form 1065 allows you to:

Protect your assets
Simplify your expenses
Secure loans

Protect your assets

When you file Form 1065, you can move the tax liability of your business entity to the partners who have an interest in it. The form tracks your and your partner’s financial participation in the business on Schedule K1.

The 1065 and K1 protect your assets because the total income and expenses are a single line item. There aren’t separate spaces for your properties, just for your overall income and expenses.

Simplify your expenses

Through the ordinary course of business operations, you may encounter expenses that do not directly tie to one of your properties. When you file with Form 1065, it’s easier to specify those expenses and claim them on your taxes.

Some examples of typical expenses you may claim on Form 1065 include the following:

Attorney fees
Business travel
Marketing fees

Using Form 1065, you can enter the whole number as an expense, preventing messy records and bookkeeping.

Secure loans

Banks sometimes favor Schedule K1 income over Schedule E income when you apply for a loan. The bank may look at your Schedule K1 income and accept the number of expenses you claim.

On the other hand, if you supply your Schedule E income, banks will have predetermined vacancy credits, repairs, and maintenance that may lower your income. This may be especially harmful if you have new houses in your portfolio where you can get dinged for nonexistent expenses.

There are some considerations when filing Form 1065. For instance, it takes a long time to get a K1, so your taxes are due on March 15. If you need to file for an extension, you must submit it by September 15. Another issue is that a 1065 and K1 can be complicated, so you may need a professional to help you prepare the forms.

Key Takeaways

Filing taxes with partners through an LLC requires you to complete Form 1065 and Schedule K1. That rule applies to all partnerships unless you’re married to your partner. In that case, you can file a 1065 or in a different way.

There are some benefits to filing using Form 1065, including, but not limited to, its ability to:

Protect your assets
Simplify your expenses
Secure loans

It takes a long time, and it may be complicated to file taxes with partners using Form 1065, but we’re here to help. Book a free discovery call to find out how we can best solve your tax needs.

Entity Structures to Protect Business Partners

As a real estate investor, you know you need asset protection for yourself. It would be best if you also had asset protection for partners. You need that layer of protection to insulate yourself against any potential liability exposure caused by your partner's actions.

You may trust your partner completely. But when it comes to business, you've got to plan and limit your liability.

There are several entity structures to protect business partners, but in this article, we'll focus on the Series LLC and Delaware Statutory Trust (DST).

Can A Series LLC Be Used In Asset Protection For Partners?

A series LLC provides asset protection for partners and you via its novel design. The articles of formation allow a Parent trustee with an unlimited number of series entities.

Each of the series can have individual:

Assets
Membership
Operations

Each series should have an individual name, bank account, bookkeeping, and records. For each series, you can have different partners and other managers. Also, each series entity's rights, responsibilities, and ownership are unique.

In other words, each one of the LLC's entities can act independently of others in the series. That segmented design provides asset protection to you and your partners.

How Does A Series LLC Provide Asset Protection For Partners?

The crucial component of a series LLC is the liability protection it provides for you and your partners. Each series owns the assets in it, and those holdings are shielded from the other entities within the same series.

You can use your LLC to set up a shell company and trusts.

If you use a shell company, you will break your company up into an asset holding company which isolates your assets into individual entities. For instance, the asset holding company would split each property into its series if you have multiple properties.

The second component would be an operations company that handles your company's daily operations. You can shield your asset-holding company from lawsuits; even if you get sued, the operations company holds nothing of value.

If you use a trust, you hide your assets completely. That works because you name an anonymous trust as the owner of the holding company LLC. Anonymous trusts do not need to list their holding publicly, so your assets are virtually invisible to people who would sue you.

You can do this efficiently because you don't have to pay to set up new entities within a series.

All in all, a series LLC provides assets protection for partners and yourself by providing the following:

Anonymity
Isolation of assets
Asset protection

What About An LLC And Taxes?

You can probably save on taxes with a series LLC.

A series LLC is represented in its home state. If your LLC is in a state with no sales tax, you won't have to pay sales tax. For a real estate investor, rent payments between series aren't taxed by the state.

Usually, no matter the number of entities, you'll only file one tax return. Typically, your operating or parent company is the only company you must put on your tax form. You're still paying taxes on the other entities in the series. For filing purposes, you only report as one single entity.

What Is The Delaware Statutory Trust (DST)?

The Delaware Statutory Trust (DST) protects partners by compartmentalizing assets, providing anonymity, and defending wealth from lawsuits.

The DST is similar in structure to a series LLC. Both asset protection vehicles separate assets into individual series. Each major asset can be placed inside its own company. For instance, if you own three properties, you'll have the parent DST with three series beneath it.

How Does A DST Provide Asset Protection For Partners?

With a DST, you have an asset sorted into a separate series. Suppose you and a partner own a property in one of those series and get sued. The damage is limited and contained to that one series.

The legal action does not affect any other properties in your DST.

What About A DST And Taxes?

The DST can help real estate investors avoid California's franchise tax. In most cases, other investors outside of California would be better served using a series LLC.

But California investors are better off using a DST because LLCs and other corporations must pay $800 per entity annual franchise tax.

A DST does not incur that franchise tax because it is classified as an estate planning tool.

Key Takeaways

You'll buy more properties as you grow your real estate investment portfolio. Each property adds another layer of liability, so it's essential to protect yourself against potential lawsuits and other risks. You might partner with others as you get more properties, and you'll want even more asset protection.

Asset protection for partners and yourself is secured using an asset protection vehicle. A series LLC or a Delaware Statutory Trust (DST) are among the best ways to protect you and your partner.

Both an LLC and DST provide similar protections through anonymity, asset isolation, and asset protection.

Royal Legal Solutions helps real estate investors like yourself protect their assets. Sign up for FREE Group Mentoring where we collaborate with other successful real estate investors, CPAs, and attorneys.

Stop Bleeding Leads: How Virtual Assistants Help REIs

Virtual assistants are a necessity for real estate investors.

You wear a lot of hats. On any given day, you might find yourself generating leads, securing financing, chasing down deals, dealing with tenants and toilets, and more. That many responsibilities can stretch you thin.

Sound like you? If so, you're in luck.

Today, we'll talk about how leveraging a virtual assistant enables you to delegate burdensome tasks, spend your time on more profitable endeavors, and scale your business accordingly.

Why Should I Use A Virtual Assistant?

A virtual assistant has the potential to help you scale your real estate investing business. They will allow you to do more deals more efficiently, save on expenses, and reduce your workload.

A virtual assistant enables you to pass on some of the toils while improving the efficiency of the processes that make your business operate. The key is to have a dedicated, trained virtual assistant who understands the different nuances that accompany your specific industry.

Virtual Assistants Save You Time

Time is your most valuable asset; virtual assistants protect that asset by taking on lead generation.

Cold calling is among real estate investors' most effective lead generation methods. While it is effective, it is also challenging to stay consistent because of the time sink and the amount of burnout.

A dedicated, trained virtual assistant can make 400 to 600 cold calls daily. VAs:

Use a script to call
Alternatively, you can use text messaging
Are consistent
Set up your appointments
Pre-screening for motivated sellers and hot leads to you or your sales team

Virtual Assistants Consistently Follow Up

A consistent follow-up to your leads usually means money.

Most deals are closed by following up, but sometimes this is left by the wayside because of other equally pressing matters in your business. That costs you deals and money.

Bob Lachance at REVA Global puts the importance of follow-up in perspective:

Only 2% of sales close after the initial meeting
Sales follow-up usually drops off a cliff:
- 44% of sales reps stop following up after one rejection
- 22% stop after two rejections
- 14% stop after three rejections
- 12% stop after four rejections

All in all, 92% of people are done trying to convert a lead by the 4th rejection. You can automate your follow-up through the use of a virtual assistant. It takes several touches to close a deal.

Optimal Tasks For Virtual Assistants

Another task that you can have your VA do is the property and lead research. While you are out looking for deals and securing financing, your VA can vet the properties by:

Conducting due diligence on the leads using a checklist
Compiling comparables data
Researching the property's
- Tax information
- Title information
- Liens and judgments
Marketing
- Design graphics, posts, and flyers for properties
- Share listings on social media and listing sites
Lead intake
- Take all calls for you
- Gather relevant information
- Qualify the lead
- Set appointments

Once you train a virtual assistant on how to do these processes, you'll be free to spend your time doing activities that matter the most to you. That could be anything from finding deals to spending time with your kids.

Secrets To Scaling: Virtual Assistant

There are several tasks that you can delegate to your VA. These tasks are essential but may not necessarily be the best use of your time. As a result, it might be ideal to leverage the skills and expertise of a virtual assistant.

The most common tasks for scaling that a VA can assist you with include, but are not limited to:

Lead generation
Lead follow up
Marketing
Administrative tasks

Save Money With A Virtual Assistant

As you grow your real estate investing business, you'll need help. A VA can provide you with that help efficiently and for less money than hiring an in-person or in-house assistant.

Bob Lachance at REVA Global breaks down the savings:

Virtual Assistant	In-Office Hire
- 20 hours: $212 per week - 40 hours: $424 per week - Benefits: Paid time off Health insurance Company paid training - Technology and equipment are provided by VA - Office space provided by VA - No state or federal taxes	- Average Salary for College Graduate: $35,000 to $45,000 - You pay for the benefits package - Technology and equipment are your expense - Office space provided by you - State and federal taxes

Key Takeaways

Running your real investing business takes a lot of energy and time. It often requires you to take on several different responsibilities. You have to grow and maintain your business through steady leads.

You can reduce the time you spend generating leads by leveraging the skills of a virtual assistant. A VA can handle the following tasks with accuracy and ease:

Cold calling, texting, or direct mailing potential leads
Following up and locating motivated sellers and hot leads
Conducting due diligence

Generating leads is a time-consuming process for one person. The time sink and attention to detail it requires can cause even the best of us to miss leads or burnout. If you're not working efficiently, you may let leads languish, pile up, and ultimately lose those opportunities.

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.

Inflation Reduction Act Impact on Investors

Do you know much about President Biden's Inflation Reduction Act? If not, you're not alone.

This bill, signed into law in August 2022, is new and pushes many real estate investors into murky waters.

The IRS hasn't provided clear guidance on the Inflation Reduction Act, and many wonder what the new law means for the real estate industry.

We'll show you the most relevant portions of the Act and how it might affect you as a real estate investor. This discussion won't be a comprehensive guide, but it will demystify some of the sections of the Act that influence your bottom line.

What Is the Inflation Reduction Act?

The Inflation Reduction Act (IRA) was passed in the Senate and House of Representatives; President Bident signed the legislation into law on August 16, 2022. There is good news for real estate investors in the bill.

In most cases, the IRA should not raise your taxes; instead, to combat inflation, the IRA created the following ways to increase tax revenue:

Book minimum tax for large C corporations
Excise tax on stock buybacks
Raised money for IRS enforcement

The increase in enforcement might affect you as a real estate investor. An increase in enforcement probably means more audits due to more IRS agents, but you can protect yourself with good bookkeeping practices.

Reducing Interest Rates, Probably

It's in the name–the bill aims to reduce inflation. With a reduction in inflation, the Federal Reserve can start easing back the interest rate hikes it's been implementing. This change takes time, but the end is–ostensibly–near, and Chairman Powell might be willing to ease up on the aggressive measure taken to date.

That's good news for a real estate investor because lower interest rates should coincide with favorable mortgage rates; reasonable mortgage rates should result in more property deals.

One of the most relevant portions of the bill for real estate investors is the $369 billion earmarked for green energy and energy security.

The Impetus To Go Green

The IRA provides $369 billion to tackle the climate crisis in the United States. The primary provision is tax incentives and credits for homeowners, businesses, and investors.

Energy Costs For Real Estate Investors

The cost of energy increased to historic highs in 2022. As a real estate investor, you likely incurred increased utility bills in your properties, and that added cost significantly impacts your cash flow.

An investment in green energy ideally will lower the cost of energy across all sectors, including for you.

Another provision in the bill may help real investors mitigate the energy cost while also receiving tax credits by going green.

Focus on Solar Energy

The relevant section for the solar panel tax credit is §13102 of the Inflation Reduction Act. This section extends the commercial tax credit for solar panels to 2034.

Starting on January 1, 2022, your max tax deduction will be 30% of the solar panel's cost to your real estate property. The solar panel credit no longer has to go to your primary residence.

Here is an example illustrating how that credit works for a real estate investor.

Suppose you have a single property that you own and lease to tenants. You invest in a solar panel system that costs about $13,000. If you meet the requirements and earn the tax credit, the IRS will pay for 30% of the system, or $3,900.

That's a good incentive, but additional benefits have to do with depreciation. You already have the 30% tax break, but you also have the provisions of 26 U.S. Code § 168, which gives energy property a 5-year life. That means you can depreciate the value of the panel over five years.

That matters for real estate investors because you get multiple benefits from installing solar panels:

30% IRS credit
5-year depreciation on a solar panel that might last 25-30 years
It can be partially deprecated under bonus depreciation rules

The federal government has stipulations for these credits and benefits:

The solar panel system must be new
It has to be in the U.S.
Comply with the IRA provisions on wages
Must hold the property for 5 years or face recapture by the IRS

Exciting Electric Vehicle Rewards

These incentives apply to your real estate business' commercial vehicles. The IRA expands the 30d clean vehicle tax incentive through 2032. The incentive includes:

$7,500 tax credit on qualifying clean vehicles
$4,000 tax credit on qualifying used clean vehicles
New tax credit for clean commercial vehicles

Key Takeaways

The Inflation Reduction Act is probably a good thing for real estate investors, but we need further guidance from the IRS to understand its full impact.

While there may be minor changes to the law and enforcement, a real estate investor should enjoy the benefits, including:

Probable reduction in interest rates
Cheaper utilities
Tax credits for going green
Electric vehicle credits

Do you want to learn more about how to secure your financial freedom? Book a free discovery call to learn how to handle the new law and your potential taxes.

Save Big By Planning For The Inevitable With A Funeral Policy

It’s not something we like to talk about. Death. But you should have a funeral policy set up for your beneficiaries.

Why would you want to expend emotional and mental energy to plan for your inevitable death?

A funeral policy saves your beneficiaries the hassle of dealing with thorny legal and financial questions while they're mourning your passing. A good plan protects your heirs' time and money and frees them up to navigate the difficulty of dealing with your death.

What Needs to Happen When You Die?

Some actions need to happen when you die so that your life insurance policy pays out the death benefit to the appropriate beneficiaries. Here is an attenuated list:

The client and agent must make a claim
The beneficiary must provide proof of identity
A certificate of death must be issued
Carrier investigation

Guarantee Results With An Urgent Claim

For a death benefit to pay out, there must be a claim. No one notifies your insurance agent of a policyholder's death. That's why your beneficiaries must be aware that they are and are in a position to make a claim.

Here is a list of items that you and your beneficiary should have access to so that the claim is as painless as possible:

Copy of the insurance policy and policy number
Your personal information:
- Legal name
- Date of birth
- Social Security Number

Quick And Easy Proof Of Identity

Your beneficiary should have all the documents they need to make a claim. The next step is to provide proof of identification. Typically, a state-issued ID and a passport are the most convenient and best proof of identification.

Monumental Importance Of The Certificate Of Death

A certificate of death is an official, legal document issued by a medical professional that states when a person died. Your beneficiary must send the death certificate with the beneficiary's claim. Generally, there will be an investigation, which can take an extended time, anywhere from two days to three months.

When you get the certificate of death, you'll want to get 10-15 original, certified copies from the medical examiner, the state, or the coroner, depending on who issues the certificates. You'll need these original, certified copies to send to:

Insurance carriers
Banks
Other accounts with assets

The Truth About Carrier Investigations

Once the insurance carrier gets the claim and the certificate of death, they also conduct an investigation. This investigation can vary in time; usually, it takes between 2 weeks and 6 months.

Timely Access To The Death Benefit or Funeral Policy

From the time you die to the time the death benefit pays out may take several months. When the money is ready, it can be delivered in two ways: directly to the beneficiary or through the insurance agent acting as an intermediary.

The better option is for the check to come directly to your beneficiary. An insurance agent may unduly influence someone who is grieving, emotional, and just inherited a sum of money. When your beneficiary gets the death benefit, it may be large enough that they need to consult a financial advisor to manage the funds.

Life Insurance Funeral Policy Timeline

Death certificates can take from 2 days up to 3 months
Agent submits a claim with needed documentation
Carrier investigation can take from 2 weeks to 6 months
90% of all death benefit claims settle within a month

Your Beneficiary Got Funeral Policy Money; Now What?

The beneficiary can use the money at their discretion. Once the beneficiary gets the funds, there can be claims against the proceeds. Some examples of claims that your beneficiary might have to deal with:

Probate court
Liens
Creditors

You can mitigate this risk with purposeful estate planning.

What Is My Beneficiary's Tax Burden?

The death benefit payout is tax-exempt, so your beneficiaries will pay no taxes on the principal amount.

Suppose that your beneficiary receives the death benefit and then invests the money. Any subsequent gains on the principal are taxed.

Another way that your beneficiary might pay tax is with the nature of the policy's purchase. If you bought the policy using a corporation and wrote off the taxes as an expense, the beneficiary will have to pay taxes on the death benefit.

Key Differences: Prepaid Funeral Vs. Final Expense Policy

The median funeral cost in 2021 was $7,848, and the average funeral cost is $9,914.

Prepaid	Final Expense
Deals directly with the funeral home	Deals with the actual insurance carrier
Discounts of 10% to 15%	Discounts of 50% to 80%
Paid in full before death	Pays out as fast as 3 to 5 days

Final expense policies cost about $3,000 to $5,000 and provide about $10,000 to $20,000 in coverage, and you pay a monthly premium or a single payment.

What Is A Modified Endowment Contract (MEC)?

A whole life insurance policy has two components: the premium that funds the death benefit and the policy's cash value.

When you buy a life insurance policy, you pay your premium. If you overpay the premium, the IRS no longer considers it a life insurance policy; instead, it becomes a modified endowment contract.

A modified endowment contract might be a valuable way for your to protect your money:

It grows on average by 8% annually
There is no cap on how much you can contribute
The principal is protected from the market losses
It's tax-deferred: acts like an annuity when you're alive and a life insurance policy when you die
It offers the same protections as standard life insurance policies

Key Takeaways

No one wants to think about dying, but you want to leave behind a legacy and generational wealth for your heirs. To ensure their future, you should plan to use all means available to you. One aspect of estate planning is a life insurance policy.

Here are the key things you need to do to prepare your beneficiaries for your eventual passing:

Make sure that your beneficiary understands that they need to submit a claim once you die
Collect all relevant documentation and share it with your beneficiary
Go over the importance of the death certificate with your heirs
Prepare the beneficiaries for the carrier investigation
Consider purchasing a final expense policy rider
Decided if a modified endowment contract might be suitable for you

Royal Legal Solutions helps real estate investors protect their assets. Secure your financial future, and sign up for our FREE Insurance Quiz!

Top Tips I Wish I Knew When I Started Real Estate Investing

Imagine if you had a roadmap that helped you reach your real estate investing goals based on what you like, your interests, and your risk tolerance. A roadmap that saves you time and money by optimizing your investing experience to acquire your properties and make your money.

That's what you get with this article; a roadmap gleaned from the experiences of a real estate attorney and investor, Jason Marino, ESQ. This list of tips benefits those just starting who don't have much real estate investing experience. Anyone can grow their real estate business if they are willing to follow some fundamentals and learn the basics.

This beginner's guide will look at the top tips a real estate investor should know when investing in properties.

Your Team Of Industry Insiders

As you find deals and decide where to invest, you may not be acquiring properties where you live. Sometimes the best deals are properties in another part of the state or a different state altogether. You'll have to learn how to acquire and manage your real estate remotely.

As a real estate investor, time is your most valuable asset. To save time and money, you should build a team. At a minimum, your team must include the following types of people:

Real estate professionals
- Agent
- Flipper
- Wholesaler
Conventional and creative lenders
- Banks, conventional loans
- Crowd-Funding
- Hard-money
- Private lenders
- SDIRA
- Venture Capital
Rental managers
- Take the stress off you
- Deal with tenants and toilets
- Understands local laws
- Let you free up your time for more lucrative activities
Contractors
- Do renovations for a living; they do it better; they do it cheaper
Accountants
- CPA
- Save yourself from audits
- Investment specific that go with your scaling
- It saves time and money
Legal Team
- Professionals that focus on investors
Title Company
- Use multiple title companies
- Answer you questions
- Look into the chain of title

Work with professionals who have real estate investing experience

All professionals will bring something of value to a conversation, but a specialist will be better for you than a generalist. A generalist won't know how to address your pain points. Some professionals lack relevant experience and won't understand your specific needs as a real estate investor.

Find a team of professionals who have direct personal experience or business experience in real estate investing:

Shop around to find the right pros to work with
Ask for recommendations
Don't hesitate to make a change if you find a professional who is more aligned with your goals

Make Money With Market Research

Market research is the difference between profitable properties and losing time and money. It also allows you to take emotion out of the equation.

You want details and data for your market research. Some research your team on the ground will provide. You can also do plenty of initial research on the internet:

Home prices
Neighborhoods
Rental prices
Market needs and suitability for long-term, medium-term, and short-term rentals
Know the average time on market
Vacancy rates
Landlord and tenant codes to gauge the friendliness of the local law to landlords; this evolves; check into this biannually

Focus Is Key To Profit

Most people will succeed more by focusing on a single aspect of real estate investing. Diversifying too much can be detrimental and counterproductive because you will have to spend time managing various types of investments.

An aphorism highlights the importance of focusing: "A jack of all trades is the master of none." More pointedly, if you had to have brain surgery, would you rather have your general practitioner or a neurosurgeon with years of experience?

Pick a lane, pick a focus, and be intentional. Scattered focus is scattered resources.:

Syndications
Notes
Flipping
Wholesaling
House hacking; rent out part of a house, guest house, apartment, or duplex

Mentors Reveal Insider Secrets and Tricks

In this industry, you have to network and speak with someone who has experience in the same focus area that you're prioritizing:

Experience is invaluable
Learn from other people's mistakes
Develop the connections you need to be successful
Relationships can be paid but are often free

Analyze Your Real Estate Investing Deals For Profit Margins

Emotions are your enemy when you're investing in real estate. Remove emotion from the transactions, carefully calculate, and be intentional with your decisions.

Find a metric that works for you that applies to your area, and be open to multiple metrics to evaluate the feasibility of a property
Use a calculator or a system to run the numbers on all of your transactions before making an offer
Avoid getting attached to a single deal and have a backup option and contingency

Frequently Asked Questions

Should I diversify?

It could make sense. Risk mitigation and higher returns are a possibility. Make sure you don't spread yourself too thin. You could end up putting too much time into managing different markets. External factors like deals and available time should guide your choice to diversify.

It's probably best to stay within a real estate investment type, you know, and diversify by geography. Find an entirely remote team you trust; this will be your biggest challenge.

What is happening with the short-term vs. long-term market?

Short-term properties started unregulated, but that's changing. It's becoming popular. More laws and more saturation are making mid-term and long-term rentals more attractive. Eventually, oversaturation of the market should force prices to drop.

Key Real Estate Investing Takeaways

As a real estate investor, you need to have a plan for your investments. As you grow, so will your strategy. But anyone can get started by learning the basics and adhering to these fundamentals:

Build a team
Market research
Pick a Focus
Find a mentor
Analyze your deals

Are you ready to start your real estate investing journey? Sign up for FREE Royal Legal Solutions Group Mentoring to learn more from our real estate investing experts.

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:

Health insurance deduction: Deduct the cost of health insurance for yourself, your spouse, and any dependents. The cost is taken from your gross income before you reach your adjusted gross income.
Business expenses: Deduct the cost of your operating expenses. Some ordinary expenses include assets, equipment, services, travel, and utilities. You may qualify for the home office deduction if you run your business from home.

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:

Set up as an LLC, or a C-Corp
Fewer than 100 shareholders
One class of stock
U.S citizens or legal residents as owners and shareholders

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:

Health insurance
Employee expenses reimbursed by the S-Corp
Pass through of income
Retirement planning

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:

As an owner, you can take a salary and no dividends. Salaries aren't taxed at the corporate rate of 21%.
Corporate accounting lets you determine your fiscal years. That allows you to decide when to pay for profits and losses.
Reinvest income into the company; the income doesn't appear on a personal tax return.
Shareholders can take a salary as an employee; you can deduct those salaries as payroll expenses.
Tax write-offs include but are not limited to medical reimbursement, disability, and long-term care.
Deduct charitable contributions.

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:

Open the Solo 401K
Fund it to reduce your taxable income
Invest in real estate
Use the Solo 401K as the purchaser

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:

Wages
Stock trades
Business activity

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

Material participation regularly, continually, and substantially
750 hours per year in the real estate business
50% of your working time

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:

Set up an effective entity structure (LLC, Sole proprietorship, S-Corp, or C-Corp)
Fund a retirement plan to reduce taxable income
Designate yourself as a real estate professional

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:

It's without attorneys
For claims less than $10,000
The court guides you through the process

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:

Wage garnishment: you may be able to collect a portion of someone's wages to satisfy your judgment
Bank levy: you have your tenant's bank info, and you're a creditor that needs payment
Sell the judgment to an enforcement specialist: you'll get paid some, but not all the judgment

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:

Use the safety deposit to recoup your losses
Go to small claims court and get an enforceable judgment
Sue in assumpsit

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:

The average home price is over $330,000
Surging inflation that is outpacing wage growth
Rising mortgage rates

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:

skyrocketing education costs and student debt coming out of college
a workforce that doesn't value their labor the way generations past could count on
lack of benefits or secure employment (gig economies and independent contracting are still on the rise)
multiple "once-in-a-lifetime" economic downturns
astronomical and rising rental rates

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:

addressing maintenance quicky
provide targeted amenities
renovate and upgrade where it's financially feasible

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:

holding cash assets
taking advantage of foreign banking privacy laws
protecting income from legal attacks

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.

An actual cash value policy would pay out $193,000 for your property.
A replacement cost policy would pay the full $200,00 for your property.

#2. What Property Insurance Is Available To Me?

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

Dwelling
Detached structures on your rental property
Personal property you use to maintain the rental
Legal and medical liability
Rent loss during a covered loss

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

Cost to evict
Maintenance
Repair and replacement of appliances
Tenant's personal property

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, the lowest, cash value
DP2, average, replacement value
DP3, the most comprehensive, replacement value

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:

Fire
Smoke
Vandalism
Vehicles
Volcanoes
Windstorm & Hail

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:

Electrical Damage
Fire
Freezing
Riots
Smoke
Vandalism
Vehicles
Volcanoes
Windstorm & Hail

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:

Earth movement
Eminent Domain
Intentional Loss
Mold
Neglect
Nuclear Hazard
War

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:

Property type
Number of units
Location

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:

A cash value policy has lower premiums but pays the depreciated value of your property in the event of damage or loss.
Replacement cost has higher premiums but pays out the total value of your property in the event of damage or loss.
The most comprehensive policies offer coverage for rent loss.
Insurance companies don't always cover arson.
Include your land trust on the policy to ensure a smooth payout.

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.

Tax Code Updates 2022: Unlock The Opportunities

It's been a few months since you had to pay taxes. Let's face it, paying taxes stinks. No one likes to think about next year's tax code updates already. You probably haven't thought about next year's taxes yet.

Let me tell you why you should start planning. Failing to plan is planning to fail is a cliche, but it holds a nugget of wisdom. The truth of the matter is this. If you start planning now for the tax code updates, you'll be able to save more money when tax season rears its ugly head again.

There were several tax code updates for 2022. Also, inflation has been a bugaboo and political football this past year. Because of the rule changes and inflation, the 2022 tax tweaks are here. It would be best if you prepared for them.

Our Royal Tax Group Mentoring Session covered 2022's tax code updates with Pete Schindele, CPA.

To help you navigate the murky waters of tax season 2022, we compiled a list of the four most important tax code updates from that session. These changes are most likely to affect you as a real estate investor. Use this list to prepare for the future so you can keep more of your cash next year when it's time to file your taxes.

#1 Tax Code Updates On Income Brackets

Tax rates didn't change, but tax brackets did. The changes occurred due to inflation from September 2020 to August 2021. See below for the updated tax brackets:

Tax Rate	SingleTaxable Income	Married Filing JointlyTaxable Income	Head of HouseholdTaxable Income
10%	up to $10,725	up to $20,550	up to $14,650
12%	$10,276 to $41,775	$20,551 to $83,550	$14,651 to $55,900
22%	$41,776 to $89,075	$83,551 to $178,150	$55,901 to $89,050
24%	$89,076 to $170,050	$178,151 to $340,100	$89,051 to $170,050
32%	$170,051 to $215,950	$340,101 to $431,900	$170,051 to $215,950
35%	$215,951 to $539,900	$431,901 to $647,850	$215,951 to $539,900
37%	$539,900+	$647,850	$539,900+

2022 Tax Brackets for Single/Married Filing Jointly/Head of Household

#2 Standard Deductions Increase For Everyone

The standard deduction amounts increased for 2022. The increase in deduction amounts accounts for inflation. Here are the increases:

Single: $12,950 up from $12,550; $14,700 if 65 or older
Married filing jointly $25,900 up from $25,100; plus up $1,400 for each spouse 65 or older
Head of household: $19,400 up from $18,800; plus $1,750 if 65 or older

The standard deduction allows you to save money on taxes by reducing your taxable income. You do this by paying your children to work for you up to the standard deduction.

Here are some general rules that you should follow if you have children who can work for you:

Children have to be doing work for you.
Pay your children in a way that is commensurate with their age and the tasks they are doing.
Although technically, you don't have to file a tax return for less than $12,950 in wages. It's probably a good idea to do so just so that you have proof that you paid your children in case you get audited.

Read our article Hiring Your Children Has Monumental Benefits: Decrease Taxes, Increase Profits. It gives you an in-depth look at how you can hire your children, claim an expense for your business, and keep your wealth within your family.

#3 Safeguard Your Health And Money With HSA Contributions

You can reduce your taxable income by contributing to a health savings account. This account helps you pay for medical expenses.

The deductible contribution increased to $3,650 from $3,600 for a single person. For families, the HSA deductible went to $7,200 from $7,300.

#4 Tax Code Updates Means More Money For Your Family

The lifetime estate and gift tax exemption surged from $11.07 to $12.06 million ($24.12 for couples). Also, the annual gift tax exclusion went up to $16,000 from $15,000.

That means you can give your child $16,000 (or $32,000 for couples) to each child, grandchild, or person without filing taxes on the gift. You won't have to use your estate and gift tax exemption either.

Key Takeaways

No one wants to think about paying taxes before taxes are due. But, you should plan to keep more money in your pocket and out of Uncle Sam's coffers. To hold onto your cash, you must stay abreast of the tax code updates that may affect you in 2022.

Some critical updates that may affect you as a real estate investor include the changes to:

Tax brackets
Standard deductions
HSA contributions
Lifetime estate and gift tax exemption

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:

Insurance
Maintenance and repairs
Pest control
Property taxes
Utilities

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:

Save money
Cut debt
Work on your credit score
Be creative with investing opportunities

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:

Subletting your space, but make sure to clear this with your landlord, or you can get into legal trouble.
Real estate investment trusts (REITs); REITs are companies that own rental properties. The companies pool together all the capital from investors and then distribute back the profits.

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:

own the real estate and lease it to an operator
own the real estate and operate the business
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:

get twice fair market rent
have long-term, low-impact tenants
have little or no maintenance

#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:

residential living is not a nursing home, but it is not independent living either. It's somewhere in between.
demography is changing, and the country is getting older
elderly people need places to live too
Options to invest:
- you can own the real estate and lease
- own and operate the land and business
- provide capital for an owner/operator

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:

existence of structure
occupancy
structure type
square footage
lot size
number of bedrooms and bathrooms in the structure
year built
county name
population size
violent and property crime ratings
rents
comp sales, use “like for like” comparison and data

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:

research on the internet
call the tax office
ask for tax deed sale or tax sale lien
find out who paid the taxes (borrower or bank)

#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:

Property valuation: do your research, and have someone local to supplement
Verify the property: your local team is invaluable here
Inspect the asset: banks mess up sometimes; trust but verify
Check on the taxes: the tax man will always extract their pound of flesh, don’t get bloodied
Research liens: make sure no one skips to the head of the line
Follow the chain of ownership: find out any and everyone who has owned the mortgage

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:

performing notes are current.
non-performing notes are in default

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
income potential
secured by real property

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:

Not FDIC insured
You can lose money at the auction
A borrower may stop paying altogether and default, thus destroying your passive income

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:

potentially high ROI
good deals on delinquent properties
no real estate agents and their fees
generation of passive income

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:

don’t expose yourself; cover your assets
performing notes provides passive income
non-performing notes have a higher risk, but can be lucrative
there are both risks and rewards of note investing
becoming the bank with note investing mitigates risk a bit

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:

Realtors and brokers
Contractors
Real estate conference attendees
Convention-goers
Wholesalers
Fix and flippers

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:

you know the area
you like to spend your time there
you may be able to deduct your holiday as a business travel expense

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:

How much you spend every month
Types of issues that arise
Where the money is going

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:

Quickbooks
Stessa
Wave
Xero

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:

Fix and flip
Convert to rental
Sell down the line

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:

Establish a network of trusted professionals
Keep detailed and accurate accounting and bookkeeping records
Decide how to split profits
Establish flexible exit strategies

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:

Sole proprietorship, or a partnership consisting of both parents: wages for a child under 18 are not subject to FICA
Corporations, partnership, estate: wages are subject to FICA

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:

Keep the money in your family
Reduce your taxable income by $18,950

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:

Your child must be between 7-22 years old
Work must be real work, age-appropriate, and for the business
Wages and compensation must be a reasonable rate that you would pay another employee
Fill out the necessary paperwork, including:
- W-4
- Form I-9
- SSN
- EIN
- W-2
Keep good records of the type of work and hours

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:

Create a new sole proprietorship from your S-Corp that you or your spouse owns
This sole proprietorship supports your S-Corp and employs your child:
- Scheduling
- Monitoring
- Bookkeeping to keep in line with IRS
- Payroll to document wages for the IRS
The sole proprietorship charges the S-Corp a management fee and pays your child $12,950 (standard deduction)
Your child is no longer on the S-Corp's payroll
The IRS' Family Help rules apply to the sole proprietorship
You don't have to deduct payroll tax

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.

Keep more of your money with a Royal Tax Review

Find out about the tax savings strategies that you can implement as a real estate investor or entrepreneur by taking our Tax Discovery quiz. We'll use this information to prepare to have a productive conversation. At the end of the quiz, you'll have an opportunity to schedule your consultation. TAKE THE TAX DISCOVERY QUIZ

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.

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:

Duplexes
Fourplexes
Townhouses
Apartment complexes (with 5 or more units on the property)

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:

Saving time, you're still only managing one property
Less work per unit
The break-even point is lower

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:

Population
Crime
The economy of each city
School district
Landlord friendly

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:

Enjoy that passive income
Build a team
Scale accordingly
Do due diligence

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:

what it means to be a first-time homebuyer
income limitations for the tax credit
when you can claim it
paying the credit back
what happens if you lose the home

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:

$125,000 for single filers
$225,000 for joint filers

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:

Have maxed out your Solo 401K
Have contributed to your SDIRA
Have three to four years of stable profits from your properties
Want to protect additional income from taxes
Want to lower your tax burden

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:

You have substantial excess income over three or four years.
You are nearing retirement age.
You can absorb the setup and maintenance cost.

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:

Limited to a $61,000 investment
Subject to market forces which means the market can tank, and you have nothing

With a self-funded pension, you are:

Not limited to the amount of money you can put into it
Guaranteed pension

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.