REIA 345 Laura Adams: How to Create a Self-Employed Benefits Package

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Hello, enlightened investors. Welcome back to Real Estate Investing Abundance. I'm your host, Dr. Allen And it's a pleasure to be back with you again today, and we're going to take a look at how to create a self-employed benefit package. And with us today is Laura Adams, and she is one of the nation's leading personal financial insurance small business authorities. She's an award-winning author, speaker, and the host of Money Girl, a top-rated weekly podcast. Welcome, Laura, and take us into the show and share a memorable experience that helped you to be who you are today.

Alan, thank you so much. I'm really pleased to be with you and your audience. You know, when it comes to my career, I would say the most memorable experience for me was when I was getting my master's degree. I was in business school. I was with a really smart group of people. They were very well educated. Many of them had multiple master's degrees and were C-level executives at their company, but they were really struggling with their personal finances. And so, I kind of went into the program thinking I was going to come out wanting to work in corporate finance. And what I really found during that program was that you can be very smart, you can have a lot of education, and still fail miserably with your money. And so, that is what really led me into personal finances and got me interested in how to communicate perhaps complex topics in more simple ways. And how to help other people achieve success and take a little bit of the complexity and overwhelming aspect of finances out of it so people could really use money as a tool to achieve more in their life, not just use it for the sake of money, but to truly identify how they want money to shape their life. So, that experience in graduate school was very eye-opening for me, and it really changed my career trajectory.

Yeah, it is interesting how so many of us actually fail at our own personal financing, and particularly in thinking in terms of how do we take our money and invest it to give us not just more money, but to give us a sense of financial security so that we're not just going from one thing to another, but that we really have something to fall back on. And I think that's particularly difficult for people going into their own business, which is in the long run can certainly provide, I think, more security than a W-2 job. But it doesn't seem like that going into it. So let's talk about, Laura, how it is that a person can actually get started in the real estate investing business to not only bring them perhaps cash flow, but really to bring them that desired capital development that really gives them something to lean back on.

Yeah, it's a very common question. A lot of people really want to carefully make a transition, maybe out of that day job, the W-2 job, into something that they really lead and can develop and grow, but they're really afraid to make that leap. And so what I always recommend is doing it as gradually as feels comfortable for you. And for most people, what that means is really having— being very heavy on savings, having more emergency savings than the typical person would need, knowing that you might need that extra float to get through some tough initial startup phases in your business. There may be fits and starts to building it, and it may be something that really takes years to gradually develop, just depending on the type of business you're going into, what you're You know, your real estate goals are, whether you have partners, whether you know what kind of cash infusion you have. Is that something you're going to need to bring on all yourself, or do you have financing with partners, or could you even get a business loan perhaps to get started? You know, there's a lot of possibilities, and people can be as creative in getting started as they want, and and that's kind of the beauty of it. And so the more security you have, I think the more freedom you feel to be creative and do creative things. So it all really. comes down to making sure not only you have enough for yourself and your family to be safe, but enough for your business to also be safe. So you can get through those initial, perhaps rough periods when either it doesn't go as planned or the ramp-up phase is just a little bit longer than expected.

Well, that makes wonderful sense. I don't think I've talked to very many people who haven't discovered after getting into their endeavors that they were short on cash and needed more than what they had planned for. Very few exceptions to that. So excellent advice there. Well, should real estate investors become licensed agents or brokers, depending on the state you're in, they call them different things, but anyway, should they become licensed as a professional real estate provider?

Yeah, it really does vary, and I did get a license when I was just starting out. I come from a family on both sides that were very heavily into real estate, personally investing and also working with partners in real estate investing. And so I wanted to get licensed and begin doing deals. And I did find for me, it gave me a little bit of a jumpstart in terms of not only the education, going through the process of getting the license, kind of understanding the industry from a little deeper perspective, but also, of course, being able to save money on, on the commission side of it. It's certainly not necessary as agent, I worked with many investors who were using me, using my expertise to find their deals, and they did not need the license. But I think if you do want to be in the business long-term, it really can be a smart, you know, a smart tool, kind of another tool in your tool belt to have that. It may even also give you some expertise within your local market. Some relationship building there may allow you to know some people, do some things that perhaps you couldn't have done without that license. So I think it can open some doors for people, but again, it's, it's not required. If you have the time and the inclination to do it, I think it's a great idea.

And it generally doesn't take very long to get a real estate license, anywhere from— the courses depend on, on how you're taking them and where you're taking them, but they could be anywhere from a month to, to 3 months in terms of your initial coursework to get your license. Of course, in every state, you're going to have to take a test. And that's just test-taking.

Yeah, it is. And it doesn't have to be that difficult, especially if you're already working in the field, you've got a little bit of a head start, you'll probably know a lot of the concepts in that, in that licensing course. So it may be something that, you know, is a little bit easier to tackle than you think. I do work with a company called Aceable Agent that does online licensing. So you at least get to take pre- licensing online at your leisure. That's kind of a benefit. When I did my licensing, you had to sit in a classroom and, you know, it really took a lot of time away from your life to go do that. Now with online education, just doing it on your phone on the weekends or the evenings is a possibility. So it can fit into your life perhaps a little bit more easily now that, that online education is, is possible within real estate.

Yes. And, and there are a lot Do you, do you offer your courses in all 50 states, or?

They are in, I will say, many states, not all yet. That's obviously a goal for ACE Full Agent. But it is, if it's something that you're considering, I would definitely give it a look and just see if they are offering courses in your state. As you mentioned, there are lots of options, but the key is figuring out a way to do it that will work with your schedule. They're in most cases going to be affordable. It's just a matter of getting the schedule that's going to work for you and make sense for your goals.

Enlightened Investors, if you haven't done so already, be sure and click that like button and also click that share so others can take advantage of the content. And finally, be sure to subscribe so you don't miss a single one. of our upcoming episode. And online works for some people and, uh, and not necessarily for others. Some people—

That's right.

The seat-based contact. And so, so yeah, you need to look at the options if that's what you're going to do and consider. So, and, and then also in it, the initial coursework, though it doesn't take very long, there is always, I think probably in all states, there is post-coursework that has to be done as well. And there's different levels of, at least in North Carolina, there's different levels of broker and pre-broker kinds of things. So probably pretty much universal across all 50 states. But it's not that big a deal. And like you say, it can be advantageous to have the license in a lot of ways, giving you context, giving you experience, giving you knowledge that you probably wouldn't have without that work there. Well, how can real estate investors prepare for retirement? I think this is a really critical question. And of course, all of us that are investing in real estate are certainly concerned about that, but it can be challenging and it can be difficult to really set that up. So tell us about that.

There are, and there's a lot of confusion around real estate and retirement. I think a lot of people assume, well, if you don't have a 401, at a big company that, you know, you're just out of luck. But the reality is there are some fantastic options for the self-employed. So whether you are a solopreneur, you're just working on your own as a sole proprietor, or whether, you know, you've got an LLC, or whether you are fully incorporated, no matter your legal status, there are a couple of different options. One of them is a SEP IRA. Another is a solo 401. So just like the big company 401, the solo is really just meant for one person. So it really depends on whether you plan on hiring people or not down the road, which of those options might make sense for you. But there are several other options. Those aren't the only 2, but I mentioned them because they have very high contribution limits. So what that means is, whereas a lot of people may think, well, I can, I can only use an IRA that has very relatively low annual contribution limits, this year it's $6,500. Or $7,500 if you're over age 50. But the self-employed plans are giving you a lot of advantages because those contribution limits are much higher. In fact, it's over $60,000 as long as you have that much income. So you do have to have enough business income, net income. So it's based on that. It can also work for you if you do hire people, if you want to be the employer. You can also be your own employee as well as your own employer in these plans. So that's kind of how they work. But it is a fantastic option for really anybody, no matter what your profession is, to put away money on a tax-deferred basis. Going forward, we're going to have also some tax-free options, some Roth options within these self-employed plans. The SECURE II Act has kind of opened up more Roth potential for those plans. So that means you can either take a really nice tax deduction upfront on those contributions. Or if you prefer to pay tax upfront, use a Roth. That will give you completely tax-free income in retirement. So you're either kind of getting the tax benefit upfront or later on, both of which are fantastic. I would certainly opt for the Roth if you have the Roth option. And there are, um, you know, just some, some dependencies there on income. If you earn too much, you don't qualify for a Roth IRA. But you may still qualify for a self-employed Roth. So there are a lot of changes that have happened recently with retirement accounts that are quite favorable for the self-employed. So I would encourage anyone who does not have a retirement plan or is not— maybe you had one at an old job and it's just sitting there, you're not doing anything with it— get started with a new plan. It can be quite easy to open one up. If you have questions, go to a tax accountant, a CPA, maybe get some advice from them on, on what may make sense based on your, um, your legal entity and whether you plan on hiring people going forward or not. But they're quite easy to set up. They can also help you understand, maybe estimate based on what you think you're going to make this year, what would be a good contribution goal for you on a— whether it's a weekly basis, monthly, quarterly. Kind of setting those up based on what you expect that annual income to be can be a good way to just start at least making some regular contributions. What I find is getting in the habit of making retirement contributions is really actually more important than how much you put in, because if you're making those regular payments, you've got at least something automated. What happens is the account grows and it starts to mushroom over time, and, and you realize that you haven't really had to think too much about it. So I love it when it's happening in the background of your life without you having to think, okay, now I need to make this financial move or make— move money from here to there. If you set it up with some automatic recurring transfers into those accounts, it will really go a long way. And then at the end of the year, if something changes, maybe you overestimated income or you find that you can actually put more in, you typically have until your tax filing deadline of the next year to make those changes for the prior year. So you have time to kind of figure it out. And again, An accountant can help you figure out any overages or underages. And so, you make sure that you're maximizing the account.

Laura, tell us what you have to offer our viewers and listeners and how they can take advantage of that.

Well, one would be my book. I've got a pretty new book out through Entrepreneur Press called Money Smart Solopreneur. It's a great book for anybody who's willing and thinking about starting a business. If it's something that you're ready to do, there's a lot of good information in there about not only retirement accounts. Accounts, but also how to think about the legal entity that might be right for you, what the tax responsibilities and, and your liabilities will be as a small business person. I think it's really good to understand all of that going in. So many people get very surprised by their tax liability, especially after their first year in business, and they were not putting away money and not, not paying any estimated taxes. And it can be quite significant if you have not prepared for that, for that tax year. So everything that you can do ahead of time to think through not only retirement planning but potential tax liability is going to save you a lot of money and hassle in the long run. So I would certainly recommend that book for anybody who's getting started or really just wants to grow their business. And if you are thinking about a real estate, uh, license— getting a license for your state or even in multiple states depending on your business and, and how far you want to grow your business, I would encourage you to look at acableagent.com as one option for getting that license. Again, as we mentioned, it does vary from state to state. Those requirements do vary, but I do think in the long run it can be well worth it, especially if being an investor is a long-term goal for you. If you really want to grow the business and be as profitable as possible, having a license can really help you get there.

Laura, another aspect of entrepreneurship and business ownership is this aspect of insurance. And that is probably one of the more complicated aspects of it in terms of getting it right and correct, because there's personal insurance and business insurance. And of course we need both of that. So tell us about the insurance aspects of owning our own businesses.

Yes, there is a lot to it and it really does depend on things like whether you use your vehicle for business. Are you working from home? Are you working from a dedicated office? There really is room here to get advice. So I would recommend anybody who has questions to get advice from a licensed agent. But in general, you do definitely want to think about what are your liability limits? You know, what, what is at risk for you? What is your net worth? As you grow your business and grow your net worth, your insurance needs also grow. So thinking about having enough commercial liability or personal umbrella liability to make sure that if someone were injured on one of your properties, whether it's your personal home or an investment property, that you do have enough coverage for not only your personal liability but to cover your business liability. And there are a lot of different ways to structure this. You may put properties in separate legal entities. You You could, you know, get insurance that covers all of your properties or even get insurance per property. There's a lot of different ways to structure good insurance. And so this is why we really do need help and guidance. But it's something that you want to plan for. Again, as your business grows, you need to reevaluate this on perhaps an annual basis to make sure that as your portfolio grows, that, you know, you do have every every bit of insurance for, for yourself and your business, because those needs are going to change from year to year. Working from home also, if you're seeing clients, any customers at home, making sure that you are properly covered there. So many of us are working at home now and we are running our businesses from home. So truly thinking about that home office as a business that may need its own separate or additional insurance, even a rider on top of your homeowner's or renter's policy. You know, might be enough, but you may need a separate policy based on whether you are seeing clients or customers at home. So, there's a lot to think about. And the bottom line is just to remember that your needs are going to change from year to year, and you do need to reevaluate fairly frequently to make sure that you're not overinsured, but not underinsured either.

Laura, just one last question, and that is, what has been your most difficult setback in life? And how did you come through that? And what lessons did you learn from that?

Oh, wow. Great question. You know, from— and I'm thinking real estate here. I had property during the 2007 and 2008 crisis that was so difficult to sell. And that was a time where, you know, a lot of people were really questioning, why am I in real estate? You know, is this really for me? And it was a very challenging time for all investors. And what I learned from that is having staying power. You know, if you can keep properties when everybody else is panicking and trying to sell in a bad time, if you have the ability to really see the long-term view and know that this is a cycle, this too shall pass, real estate is very cyclical, and know that just Having the fortitude to get through that over the long term is going to pay off for you. That was very challenging, but a lot of folks who were able to hold on to those properties have portfolios that are incredibly valuable now. So it does mean being prepared for the, for the worst and, and knowing that if times change, you do have enough financial security to get through that rough time. And if you do, you'll come out on the other end much happier.

Laura, it's just been wonderful having you with us today. Thanks for being our guest.

Thank you so much. It's been great. I appreciate the opportunity.

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