Real Estate Nerds 46: Tax Free Investing Strategy with Dave Foster - Best Deals

Real Estate Nerds 46:

Best Deals

"Tax Free Investing Strategy"

Dave Foster
1031 Exchange Expert
Real Estate Nerds
Episode 46: "Best Deals"

Listen to the Podcast Here:

On today’s Best Deals episode of The Real Estate Nerds Podcast, we will hear about some of the ways investors can capitalize on tax strategy. Dave Foster’s best deal story is an example of exactly that, and he is all too keen to share his methods with our listeners.

Dave Foster on 1031 and Tax Free Investing Tactics

Our host and attorney Scott Smith welcomes Dave Foster. The two investors chat about Dave’s background and the strategy that led him to a string of best deals.

[1:00] Dave has been a “deal junkie” for over a quarter century. He began investing in Denver following economic collapse in the 1980s. He describes this as a cowboy era rife with both booms and busts.

[3:45] Scott probes Dave’s strategy further. Dave bought his first fix-and-flip in 1996. It was a success until tax time came. The amount of tax liability lowered the overall quality of the deal.

[5:30] Dave points out some of the larger context of his story involving 1031 Exchanges and tax-free treatment. He describes how he was able to capitalize on saved tax dollars, putting them instead toward the growth of his portfolio.

[9:00] Scott and Dave dive deeper into his 1031 strategy. He includes a type of tax exemption that, when combined with a Tax Code update in 1987, allows for substantial savings. The exemption applied to primary residences.

[12:00] Dave explains how he was able to capitalize on these tax exemptions by moving into his investment properties every couple of years to convert tax deferred dollars into tax free dollars.

[13:30] Scott points out how Dave’s strategy is particularly smart in an appreciating economy. It has worked out for him. Dave currently lives on a sailboat–giving this investing story a somewhat idyllic ending.

Lessons Learned From Dave’s Strategy

Brian and Scott conduct a quick post-mortem to see what other investors can learn from Brian’s mistakes with this property.

[14:00] Scott points out that these are basic investment strategies anyone can take advantage of, even with a smaller portfolio.

[15:20] Dave points out that setting up entities and hiring an appropriate team of professionals can be essential for real estate success.

[17:00] Scott and Dave share about BiggerPockets, and the tools this online community offers investors. Scott regularly contributes asset protection content to BiggerPockets.

[18:43] On the topic of asset protection and long term real estate success, Dave comments: “Having great people on your team is so huge.”

Connect with Dave Foster

Connect with Dave on hard money lending or 1031/tax free investing via his web site, or by phone at 850.889.1031.

Listener Resources

Thank you for joining us on today’s episode of the Real Estate Nerds Podcast.

For even more free educational resources on real estate investing and the law, check out the Royal Legal Solutions blog. You can also reach our host Scott Smith directly, connect with him on LinkedIn, subscribe to the Royal Legal Solutions YouTube channel, or join our investor community on Facebook.

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When making business decisions that affect your long-term goals, like what types of investments to make with your retirement dollars and which vehicles to use, it really is best to be aware of all of your options. We frequently talk about the Solo 401(k) and Self-Directed IRA as tools for funding your retirement. But what about life insurance? And what about the stock market? What if we told you there is a tool that allows to to reap some benefits of both? It’s called Indexed Universal Life Insurance–and some investors have found it a useful addition to their retirement plans.

What Is Indexed Universal Life Insurance?

Indexed Universal Life Insurance (IUL) plans are a variety of permanent life insurance plan that features a cash-building element. One primary benefit of these plans is that the policy holder gets some of the gains of being associated with the stock market without all of the risk Wall Street is famous for. This is in no small part because of how these policies are designed. IULs earn in part because they are directly linked to a market index, such as the Dow or the S&P 500.  Any gains remain within the policy, albeit a cap rate will limit how much you can make. However, you are protected during a particularly bad year for your index with an IUL. The worst case scenario with these plans is that you make nothing, but you never actually lose money no matter how poorly your index performs. The protection of your principal is actually derived in part from the same cap rate that limits your gains.

How much money do policyholders stand to make? Historically, returns run between 5-9%. The S&P Index has actually returned at 9-11%, but the upside limit on UILs stems from the account’s cap rate. For this reason, many advisors argue that the UIL can make a wise addition to a retirement or estate plan once more traditional and self-directed accounts are maxed out.

Tax Benefits of Indexed Universal Life Insurance (IUL) Plans

There are three key tax benefits of IULs. First, you may pay into the policy with pre-tax or after-tax funds. Withdrawals from the policy may be made tax-free if you are under 59 1/2. Such withdrawals are regarded as loans, with your death benefit serving as collateral. Any funds paid out to the beneficiary are also tax-free, including normal benefits upon your passing. This is true regardless of their value.

Ask the Experts at Royal Legal Solutions About Your Retirement Planning Options

Regardless of where you are in the retirement planning process, Royal Legal Solutions an assist you. We have extensive experience educating investors about self-directed investment options. Many of our investor-clients love our Solo 401k information, product, and compliance services. Our Self-Directed IRA services can also be helpful for retirement planning, as the SDIRA is yet another vehicle that allows you to diversify and take total control of your investments. To determine which of the available retirement planning strategies are best for you, consult with one of our experts at Royal Legal Solutions. You may also contact us with any questions you may have about your options.