Wise Tax Moves to Create Wealth Through Real Estate

We're going to start a new series that What Should I Invest In series? And today we're going to talk about the professional real estate tax status. Hello, this is David Xie with the Xie mortgage team. A topic that's near and dear to my heart, you watched my videos, you'll see I love investing in real estate.

So I recently had a call with a friend of mine that we went to college with. They're both physicians and they're practicing physicians. However a couple months ago, or even a couple years ago, I talked to them about what I was doing with real estate and how I'm able to pass on a legacy and build that multi-generational wealth.

And something stuck with him because he started doing a lot of research and he's like, Hey, we're just making all this money. However, a large portion of our income is going out in taxes and we have nothing to really show for it other than investment accounts. And we all know what the stock market's done recently.

A lot of research, that really sparked my interest in talking more about this topic because this can provide that legacy to your family that other industries can't really help with. So he went part-time as a doctor, he could spend time dedicated to this real estate. And the reason he wanted to do that is because he wanted to be able to write off a lot of deductions in real estate whether it's building equity or whether it's cash flow.

But having 750 hours of real estate activity that is performed on wholesaling, flipping rental properties, whatever type of rental or real estate investment, qualifies you for a significant tax break if you do your taxes correctly. Once you qualify with a 750 hours, you have to track your hours in everything that you do that's real estate related.

This is not real estate, so you're not getting a real estate license and having to hold open houses and run buyers and sellers around. However, you can do that, but we'll go into more of that in our next series.

However, as a real estate tax professional or professional real estate status, you'll also be able to do cost segregation when you buy properties, and that is accelerating your deductions. That will then allow you to write off a portion of that expenses in your first couple years. The beauty of all of this is typically when we're writing our properties off year after year without cost segregation, what happens is you're dragging out that tax deduction over a long period of time.

However, once you've written off everything, you can then do a 1041 exchange and that is a light kind exchange. And that allows you to basically reinvest in something that's similar to what you just Take those profits and defer your taxes for later on. However, that gives you the ability to call segregate. Once again.

You'd want to consult a company that has an attorney accountant and they know how to do this. I can share a link below in the video of who I personally use for these. However, what they will do is they will evaluate your entire tax portfolio as well as your real estate portfolio and they'll let you know how to protect your assets as well.

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So if you're an investor like me, they may talk about having a corporation in certain states. And then at that point, if you have leases set up and then you have different LLCs just to protect yourself. This is a great way to help build equity.

I've talked about in previous videos there's long term rents and there's short term rents. That's really good because long term rents are at all time highs because there is a housing shortage. And then with the material cost and the cost of transporting the material, those have gone up significantly too.

Recently, I had a friend of mine who sold his house and decided to move to a flyover state. And when he did that, he was actually able to take all that equity that he had in his house and invest it into his current house, as well as take the extra money and pay off some debts.

And then invest in a separate property, which he's going to have significant cash flow on because when he looked in that state and in that county where he wanted to live, the cost of rents were between $1,700 to $2,500, where his mortgage payment on a $200,000 house with the significant down payment that he had was right at a thousand dollars.

That really helped him out a lot, allowed him to have that additional investment, which is going to yield $1,500 in rent every month on a thousand dollar mortgage. So he's $500 positive cash flow every month. I've also talked to him about taking part of that money that he receives every month and putting it in as a reserve.

If you're a homeowner now, or if you want to be a homeowner, one of the things that you want to know is that there are going to be expenses that come up. There could be septic issues, there could be plumbing issues, there could be electrical issues, and there's ways around that too.

You can always have like a home warranty. That's a really good thing that covers a lot of your major systems. You can also have a homeowner's insurance policy, which has a mechanical breakdown coverage on there.

The long and the short of this is that you could build your money in a lot of different ways and you can invest it in a lot of different ways. However, one way that's tried and true, and I grew up in a family full of landlords and investors, is this strategy right here of owning real estate.

If you want to learn more about this, you want to learn how to leave a legacy to your family and build this multi-generational wealth, feel free to reach out to me. And my name is David Xie with the Xie Mortgage Team. I can be reached at (757)-478-8493.

Be sure to hit the notification bell for new videos that come up like the channel. And give us a thumbs up because I love talking to you guys about this and I love the interaction that comes along with it. Until next time, I will talk to you later. Bye.