Rental Real Estate - Tax-Free Wealth - Live Q&A

All right, welcome everybody to this week's live broadcast with yours truly, Mark Kohler, business owner, myself since age six with my lemonade stand out, hawking lemonade. And attorney, cpa, author, Main street business consultant. Help clients around the country just loving small business. And I want to help you all here every week answer your tax and legal questions. That can be really complicated or sometimes hard to get a straight answer. And you can find any answer you want on the web. But then is it the right answer? Well, I'm a partner in a law firm, accounting firm, and a trust company with amazing team members, partners, paralegals, accountants all around me making sure I say the right thing. I just happen to be the face for TV and it's not pretty people. So hopefully you can put up with me today. So thanks for being here. If you're on Facebook or YouTube, you have an Instagram. You have an opportunity to type down below some questions. Our topic today is real estate. I'm not going to take a lot of time on it. I want to make some addition important points about real estate and the tax benefits of it and the wealth. So many benefits. So I'm going to hit them as many as I can here and field questions. I've got so many questions I won't be able to answer them all. But I'm going to do my best today. And I think we will do our best. Oh, and I got Instagram over here, so they're going to think I'm cross eyed today. So Instagram, I apologize, you're going to have to deal with. But you're still important, even though I'm, you know, not looking at you directly all the time here today. But I've got a lot of the Instagram questions right here in front of me. I've got another attorney with me, Darren Charington. You can't see his face, but I assure you is here. Say hey.

Hey, everyone.

Hey. There he is, that masculine deep voice over there. Corey, my producer. Over here, Ashlyn, my marketing director, today helping me out, answering questions. So we're gonna try to put together a good live presentation for you. All right? Real estate. Now let me give you a couple disclaimers. I know some of you do not want to buy real estate. You're like, real estate is a stupid idea. It takes too much work, it's too risky. Yada, yada, yada. Just put your guard down for just a moment, if you could. Let me tell you why I like real estate. And it may not be the real estate you're thinking of if you're being critical of it. First of all, sometimes you can be your best tenant. For example, you might have a commercial location already. You're running an online store, Internet business, shipping, landscaping, consulting, maybe multiple employee employees, maybe no employees at all. But you've got a commercial location and you're renting space. Stop it. Go out and buy a commercial space and rent to yourself. And maybe that little commercial building you go buy can also rent to some other commercial tenants. So you're not out there dealing with single family homes and plunging toilets or whatever parties. It's a commercial location, very different type of tenant, but you're your best tenant. And just this week I went out on site again. I'm building a 3,000 square foot steel building, going to move my studio to it, as well as storing a lot of business equipment and tools and supplies. And I'm paying rent in five locations right now for storage units in the studio. And I'm going to move it all to a little steel building. By the time the building is finished, I'll have equity in it, a mortgage that I can pay off within 15 years and I'll have cash flow. And I'm getting a tax write off in my business to rent from myself with no taxable income on the other side. See, that's not that hard. That's number one, when clients say, should I buy rental property? I'm like, are you paying rent somewhere? Number two, some of you may have a child, a family member, I'll come back to mom and dad. But some of you might be helping someone in college. Why not buy a rental property that they can live in and manage for you and you're not paying rent to someone else. Your family who you're helping is paying rent back to you. Very, very powerful. Buying a college rental for your college age kids, young or old. Number three, I'm having a hard time here. Number three, an Airbnb. If there's a place you go visit on a regular basis and there's an Airbnb opportunity, why not get into the Airbnb rental market? Short term rental market, which is still considered long term and passive in the eyes of the irs. In fact, let's get our little whiteboard going here. All of you know, we've got our masterful trifecta type structure. We got a revocable living trust for privacy and a probate avoidance. No probate here. We got our will, yada yada yada. We split our lives in half. Over here we may have a commercial building and in this little commercial building, we are renting it to our S Corp or llc. So on our operational side, we quit paying rent to someone else and we now start paying rent to a building we own. So this is our asset side. You guys know the drill. So commercial building owned by an llc. Boom. Ba da bang. Next, you might buy a college duplex, fourplex, multiple rooms and college housing. And one of your kids or grandchildren might be living there and learning how to be a property manager. And you're saving the cost of rent paying someone else. Third, an Airbnb. You might have a LLC for an Airbnb in a state where you visit for vacation and you rent it out most of the time throughout the year, but when it's not rented, it's okay. You're getting a better value per day or week. And that rental income offsets the cost of a home that when you go visit, you're working on it and it's 100% rental, 100% tax write off to go visit your own Airbnb location. And number four, storage units. If you're renting a storage unit, why not buy some sort of operation? Boy, I'm having a hard time with my writing here today. Forgive me. Folks, let's use our eraser here and clean that up. Okay, so you have a storage unit, and if you're paying for storage units, buy a storage unit. You're gonna again be your best tenant right out of the gate. What's another good one, Darren, that I like? Like commercial building, college housing. Oh, parents, mom and dad want to get rid of their house so they can ultimately qualify for Medicaid. And so you buy the home for mom and dad, they don't pay any taxes on a sale of home exemption. And mom and dad become your tenant in a house they don't own any longer. So now they can qualify for state assistance under Medicaid. And I have a lot of clients that will buy a home and for mom and dad to let them rent. Any other ideas you like, just go

on asset side on this one.

Yeah, just asset side. Why would I buy a rental?

I mean, because you're getting some awesome tax write ups. So I mean, there's kind of the four main benefits, right?

Okay.

You'll get the appreciation in the property. So there's a return there. Typically if you're doing it right, you're going to have the cash flow coming in, there's a return from that, you're going to get the mortgage pay down, there's another return, but then there's the huge tax benefits of being able to get the depreciation and all the expenses on it.

Okay.

And depending on what kind of status you qualify for, that can offset your other income.

Love it. And I wish all of you by next week we're going to have Darren sit up here with the camera so you can see him. Good looking guy. Thanks, Darren, for those comments. I'm going to jump on the first comment. Darren said these are the different types of rentals and of course I didn't say apartment building, multi unit. You could do single family homes, low income housing, all sorts of ideas. So when someone says buy rental real estate, be open number two in our trifecta. I have so many clients that are building wealth and they're like, where do I deploy my money now? I know right now we're at about a 10 to 12 year high on real estate values across the country. So it's a little harder to find a really screaming deal because it's kind of a seller's market. But there's always a deal out there and there's opportunity, so we need to keep our eyes open. Also, this could be a good time to stockpile your money from the profits from your llc, profits from your S corp, profits from your day job. Let's put that money over here in a new in a bank account. Could just be a plain old bank account. It could be an LLC in which you do plan to buy rentals. We just don't know where we're going to buy yet. And so you're going to stockpile profits from your business and move them over to this side so you're ready to pounce when the real estate market adjusts, which it will, we know it will. Now, there was a question on Instagram and Darren brought it up in his first thing. This was from investing. Young said, what makes a rental a business? What makes a rental a business? Well, an LLC doesn't make a rental a business. Having a property, you become a land baron, you become a landlord, you become a building owner. And when you collect rent, that's revenue. By definition, a rental property is a business. So when you have this, this little LLC that owns one or two rentals in what state? I don't know. Well, we can talk about that. But these rentals, you're going to collect rent in this LLC and we're going to write off cell phones, home, office, auto, travel to go check on it. Dining equipment, tools, supplies, attorney, accountant, kids, mom, dad, print material, cell phone cases, headphones, study material, chargers, cameras. I got to take pictures of the, of the rental property, see all these expenses. And Darren said the big D. And I don't mean Dallas depreciation. The property is going to appreciate in value, but you get to write off depreciation so the property loses money on paper and then that loss comes down and goes into a bucket that you can carry forward for many years to come. Or you might be able to write this off against your day job or your S corp or your llc. See, rental properties build wealth, but rarely do you pay taxes on those properties until you sell them and then you have capital gain. You might have a 1031 exchange. You might use an opportunity zone. You might just pass it on to the family through stepped up basis or all sorts of strategies. The LLC is so powerful to hold this real estate to give you protection. But the LLC is not the business, the rentals, the business. And then we want to take all these write offs to generate that loss on paper. All right, now a couple last thoughts and then I'll just field questions the rest of the time. Rental property to me and Darren mentioned these four benefits. And any of you that have followed me or seen some of my videos before know where I'm going. This is a chapter in my book tax and legal playbook is we want to get four benefits from rental real estate. And when you analyze rental real estate, you want to put it in a spreadsheet and try to figure out what's my roi. So your ultimate goal is roi, which is return on investment. And when I, I want to back up and say this too. When I go speak at a dental conference, a realtor conference, mortician conference, lawyers. I spoke to a group of Chick Fil A owners, restaurant owners. Where are you going to put your profits? I want to deploy them in stocks. That's cool. Maybe in cryptocurrency, maybe in some precious metals, other businesses. But real estate, wealthy people buy real estate. They have losses from the real estate depreciation and they don't pay taxes. Joe Biden, on his tax return last year, when I analyzed it, when he was in the race, he had a rental property. He had an S corp. Joe Biden had an S corp in an llc. Donald Trump, who was a real estate professional before he ran for president, he had hundreds of doors of real estate, thousands of doors of real estate. He paid zero tax. And it made people mad. I was like, hey, has anybody been listening to me? That's what I've been teaching for 20 years, being a real estate professional. So many of my Clients were like, bam. And they could have hated Donald Trump. That didn't matter. Don't worry about Trump or Biden. Worry about what they were doing. They were both buying rental properties. It's just Trump owned so much of it, he qualified as a real estate professional and the losses from his real estate would wipe out his income from the Apprentice. This is part of Mark Kohler's master plan. This is what I want my clients doing. This is what I want you doing. So when you go to analyze whatever type of real estate you might buy, all those examples we used, you want to look at the roi. What's your return on investment now your investments, not what you bought it for. The beauty of real estate is you can use leverage and banks will loan you money on real estate. So if I put ten thousand dollars and buy a hundred thousand dollar property, my investment's ten thousand. Now some of you are like, oh my gosh, Mark, you got to put down 20 or 30% and then you got to close in the name of the llc. And this is just a realistic bull crap. You can close in your name with a Fannie Mae Freddie Mac loan and then deed it to your LLC. In 20 years, I've had one client have problems with the due on sale clause because the bank was going to call the loan due. Frankly, I was, I was convinced that he walked in the bank and asked permission. You don't walk into the bank. They already sold your mortgage. Once you close on a property in your own name, with the lowest down payment you can get away with, you deed it over to your LLC and you turn it into a rental property. You still own it. You didn't transfer ownership to someone else. You're still on the hook for the loan. Now you're not going to lie and say it's your primary residence, but you don't have to go get a commercial loan every time. This is what you're going to go to real estate conferences and learn about real estate. There's so many cool ideas. Now, real quick, before we take questions, if you want to type up a few questions. Darren's over here. I can hear him typing like a little gerbil over here, typing away answers to people's questions. If you see someone, Darren Charrington, answer your question. That's my lawyer here right beside me. I tried to recruit three other lawyers in the office to come over today, but they were swamped. Let's just do the quick math. Here's the four benefits, appreciation, mortgage reduction. And some of you, you may be like oh, this is boring. I don't need to listen. Please listen to this for a moment. Please, I beg of you. Mortgage reduction, tax benefits, tax benees and cash flow. Now I usually go through this much longer. I've got some YouTube videos on real estate. And let me say this too. As you go to analyze your real estate, if you want, I got a couple spreadsheets, a basic and advanced and a little email with some videos and some charts that I like. If you want to email me, I'll send you my spreadsheet that I use. And I'm not a real estate pro. I own rental property, eight to 10 properties. And I'm trying to build my little portfolio just like many of you. But if you'd like to see what I've kind of built from seeing clients do their thing over the years, let me just say this is free. If you want it, just email Mark Kohler.com and in the subject line put Real Estate Spreadsheet re spreadsheet and my assistant Whitney, she'll send off to you a real estate spreadsheet and a little list of some good articles and videos to start watching. I. I've got some referrals I can send you to for some real estate education that I really like as well. If you want to say Mark, send me a place where you'd recommend to learn more about real estate and I'll send you some places. Okay, return on investment, that's what we're looking for. So if I buy a house for 100 grand, I put down 10%, which is $10,000. I have a mortgage for 90. Okay, well my investment's 10,000. Now if I get a 5% appreciation rate, I buy a property for 100 grand, next year might be worth 105 next year, 110. If I buy a property now and I hold it 10 years, could it be worth 150 next year? In 10 years, sure. You know you're not going to sell this. This is not a fix and flip. You're not going to sell it in two or three years. You might hold it five to seven. So if you get 5% appreciation on 100 grand, that means you made $5,000 tax free. You're not gonna pay tax on that. The property's going up in value. It's hidden in the appreciation of the property. Now we are gonna sell it someday and you'll have selling costs. I get it, but just hang with me. Five grand on a $10,000 investment, that's a 50% ROI. Let's put that in red. 50% ROI. I made 5,000 on a $10,000 investment. 55 grand divided by 10. All right, now next, mortgage reduction. I'm not paying the mortgage. The tenants paying the mortgage, right. Even if my own business is paying the mortgage to me, my business isn't paying rent to someone else, it's paying rent to me. So I want to cover what's called P I T I principal interest taxes, that's property taxes and insurance. Now if my rent can cover piti, I didn't put any more money in and the tenant paid the mortgage. So look what's going on. The property is going up in value and the mortgage is going down. I'm building more equity and let's just say it's 150 bucks a month of mortgage reduction. We know there's going to be a lot of interest, but let's say I can drop the mortgage by 2000 a year. It's realistic in this. Okay, so 2000, I invested 10, I made 2. That my friends, is a 20% return. 2000 divided by investment of 10. My ROI would be 20% in the mortgage reduction column. Now, tax benefits. Darren said this for a moment. If I can create losses that I can use on the other parts of my tax return. And this is how my realtors and my contractors, this is how Donald Trump did it. They took rental losses and used them against other income. So I didn't pay any tax. Now if I'm in a state tax of 10% and fed of 20, that's 30. Let's say I'm state tax of 5 and federal 25. Let's just say I've got a tax effective marginal rate of 30%. So if I can save six grand, I'd say the average losses are around 8,000 on the single family home rental. But my, my losses are 6,000 times 30. I'm saving two grand. Now you may say, well Mark, hold it. How are you having so many losses? Because when you have a rental, you get to write off depreciation, the value of the property. Even though you put down 10 grand, you get to write off the entire building. Now in a situation like this, the building might be, ooh, gotta get fix that. The building might be 80 grand and the land might be 20 for a total of a hundred grand. So we get to depreciate the building for 80 over time, that's a write off. Even though it's not cash out of my pocket. So if I can get 6,000 in losses. So over here, my rental generates a $6,000 loss. So I pay less tax. That means I save $2,000. 2,000 divided by 10. I've got a 20% ROI. All right, now the last one, and I'm trying to move through this quickly. I've got other videos on this longer, but cash flow, let's say I just. Cash flow, 100 bucks a month, 90 bucks a month. I cash flow, a thousand a year. Do I pay tax on the cash flow? No, because it's a business and you get write offs for that business. So I've got $1,000 a year in cash flow that I don't Pay tax on. $1,000 of cash flow I didn't have before. So if they take $1,000 divided by $10,000, I've got a 10% ROI. 10% ROI in this column. Now, many of you have seen me do it before. I want you to memorize this. This is why I use the same numbers every time. 20%. 10%, that's 30 to 20, that's 50 plus another 50. I made 100% return on a little rental property in the first year. If you go, mark, that's too aggressive. There's no way you can do it. Fine, cut it in half. 50%. Oh, you're getting 50% on your stock. Okay. In your ETF, in your mutual fund. Now, I know some of you have risked a little bit more and bought some cryptocurrency and you're killing it. I get it. But that's not where we want to put all of our investments. So in summary, and I'll just start filled in questions, is we want to take. Let's go back to the black here, okay? We're going to take our trifecta. And this is what my successful clients do. This is what I'm trying to do. We're using our day job daygob. I'm using my side hustle, which might be a little llc or if I'm really graduating my business to the S Corp level, watch my videos on S Corps. This is my op side. I'm going to use my profit from all of these operations where I'm killing myself and I'm going to deploy this money up into LLCs to buy rentals. The rentals will generate losses while the properties grow in value. I'll create carry forward losses that I can write off in the future or write off currently against other income. This is how the rich get richer. Buy rental property that your kids are going to rent, your mom and dad's going to rent Airbnb is that you're going to use your commercial business. Might use it and think of single family homes. Okay, now the last thing in my advertisement for today's broadcast, I talk about tax free real estate. And yes, you can have your IRA or your 401k or your HSA buy real estate. And I do this myself. LLC buy rentals. Now listen, there was a comment here. I want to get this off Instagram. It was a really good one. Someone said, isn't it? This is Dr. John. Dr. John, you're here every week. I love you, man. He says, isn't it bad to put a house rental in a tax advantage structure? Don't I lose the depreciation benefit? Yeah, but what do you gain? The fact you can sell this tax free. See it over here, you get depreciation. I'm going to do this in red. Everybody pay attention. I buy rentals in both places. You've got two buckets. A rental with pre tax money and a rental with after tax money.

Boom.

So now I'll never pay tax on this again. Or I'll pay tax when I sell. Some call this after tax and pre tax, whatever. But the point is, I've got a rental property here that I won't pay tax when I sell it, but the depreciation's lost to the into the IRA because the depreciation doesn't flow down to me. But over here I get depreciation, but when I sell it, I got to pay tax. You can't have the best of both worlds unless you're patient. Because here, ultimately a Roth IRA is going to give you tax free income in the future while your rental grows now tax free. So if I can build this over time, you're going to be a thousand times better off. Now if you want to last comment then. Q and A. Peter Thiel. In the news today, a $6 billion Roth. Six billion dollar Roth IRA. Is it five? Only five billion. Oh, sorry, sorry. Five billion. Six billion, whatever. Yeah, let's get it right. Okay. Will you fact check me? Fact check me?

Cory, I think it was five in the text group, but I don't know.

Fact check. Okay, I think it's five as well. Five billion Roth and he did this self directing.

Six hours ago it was five billion.

Six hours ago was five billion. From right now it's probably 5.2. Yeah, it's growing anyway. Yeah, you guys can set up your own Roth. Okay. All right, let's do some questions. I already took a couple questions off Instagram. Darren, did you get a question you thought was good. You want to comment on or do you want.

I actually like this one at the top. So this one they mentioned, can I open an LLC and deed the house to the llc? Do I have to change the insurance and everything to the LLC name?

Yes. Remember, you don't own the property anymore. Now, sometimes you can go in and list the LLC as additionally insured. Sometimes you can get a little cheaper policy that way. But if we go back to our trifecta, and this is what I'm doing in my life, too, I've got two or three llc, the own rental properties. And once I buy it in my name. I'm sorry, I'm so visual here. Once I buy it in my name, I deed it up to the llc and then I get a new insurance policy to cover it. So you want to let your insurance company know what's going on? A lot of times I have clients take my diagrams that my attorneys build, or we build for you in a consult, and they take it to their banker, their insurance agent. They're like, oh, my gosh, this is awesome. And they just know how to solve it. We want to be a part of your team. Your accountant, lawyer should be building you a diagram like this. When you have a consult with one of my attorneys, I'm begging them to do this diagram with you. Now, if you just are getting a rifle shot question and you don't want to do some global planning, fine. But we're here for you. And you take it to your insurance agent and get your insurance nailed in. One other one that I liked here that was in the mix. Ashlyn, where did all these go? I'd lost them all. They were here in my app, right? Oh, here they are. Okay, so the other one was, someone said, Oh, my gosh, what was it? I've lost it.

You're going to want to make sure you get the right kind of policy, too. You're not going to just want a regular homeowner's policy. You want to make sure you get the landlord policy. Some people even look into the umbrella policies and whatnot as well.

That was my question that I wanted. I can't remember the umbrella question. Who was that anyway? Someone said, can I. Thanks, Ashton. They said, what's the difference between an LLC and just getting umbrella insurance? Okay, so let's do our diagram. So you've got a rental property over on this side, and you say, oh, I'll just get it insurance and I'll let my trust own it. You least want to do that, or I set up an LLC owned by my trust, and then my LLC owns the property and I just get regular insurance. But do you stop there? No, I do both. I have umbrella and regular insurance because you're ultimately going to get both. Here they're saying, well, no llc. I'll just get a really kick ass umbrella policy and I'll get regular, too. I don't need an llc. Now, the people that are complaining about this are in California because, like, Mark, this LLC cost me $800. I'm sorry. I lived in California for eight years. I moved out of California. I know the pain. I love In N Out Burger and that Sea Breeze. I get it. Great people, great food, airports, great doctors. But there's a cost that comes with it. It's called the franchise tax, and it's 800 bucks for an LLC. So you got to pay the piper. Now, I've done podcasts. Umbrella policies pay out less than 1% of the time because it's after the regular insurance and they're looking for ways to get out of it. And umbrella only pays after. After your regular insurance policy limits have been tapped out. So it's so rare that it's even going to pay. And sometimes, let's say there's an asbestos or latent meth lab or mold or 10 other things the insurance policy doesn't cover, you're screwed. But with the llc, you're getting a layer of protection, you're getting a layer of insurance and a second layer of insurance. Bam, bam, bam. And it's so affordable, just do it. If you don't want to get an llc, don't get an llc. But do not think umbrella insurance is your savior. It's not. Okay. All right, next question. Victor Jones, on YouTube, your mega Roth video said that you can only do that in a Roth 401, not a Roth IRA. But. But many other videos say you can do it in your Roth ira. Which one is true? Victor? I love it. They're both true. I'm going to show you right now it's a combination of both. Okay, let's say, Victor, everybody listen. This is so freaking cool. Let's say you're making good money and you're like, I want to put as much money as I can into a Roth IRA. Okay, how much can you put into your Roth IRA this year if you're under age 50? Anybody? Darren knows? 19 5. All right, so I'm going to put 195 into my 401k. Now, can you do that with a Roth Yes, I can put that in my Roth 401K. Okay, how much can you put in your regular IRA? Your regular Roth. Not a traditional IRA, but a Roth IRA. This year you can put 6,000. All right, so we're already at 24,500. Because you're going to do your Roth IRA and then you're going to do your 401K contribution. Okay, now I'm getting to mega. Don't worry, Victor. Okay, can you put any more into the Roth? No, the mega. There's no such thing as a mega Roth IRA. There's a mega Roth strategy that involves both your 401k and IRA. Victor. That's what I'm trying to say. And he says, you say you can only do that in a Roth 401K, not a Roth IRA. Well, I want to use both, so. Okay, so hang with me. So next, you got your company match. Now, you can have your own 401k with your small business. And a day job 401k, you could have both. But let's say between your day job 401k or your personal 401k, whatever it is, the company does a $10,000 match. Okay? So here's $10,000. And this is traditional, okay? Because when a company doesn't match, even on yourself. Now, I know this is deep. Everybody hang with me. I've got videos on this. I've got an article on my blog on this with little diagrams. You want. I just got chills. I love this. I know I'm a cheese ball, but hang with me, okay? So you're going to do your traditional ira. Whoa, whoa. Sorry. It's traditional money because when the company puts in traditional, you're going to pay tax when it comes out. Now, hang tight. Okay, so the company does. Let's do the math. The company does 10,000 in match. We'll call that green. And together with your contribution and the traditional, which is the match, you have 29,500. Now, let's back up for a minute. In a 401k, you have to think of a 401k as an overall plan with your name on it. You can have a bucket for Roth and you can have a bucket for traditional. When you put money in, you get to choose how much you want to put in. There, you could put 19,001 and 500. In the other, you could put 5001 and 14,5. In the other, you can split up your 19,5 however you want. When the company does the match, it goes straight into the traditional. Okay, so you're going to have two buckets under your name in any 401k. One's Roth, one's traditional. Okay, so we're back over here. You put in your 19.5, the company put in 10, you're at 29,500. Oh, but on the side you did 6,000 in your backdoor Roth. At any age and any income level, you can do your backdoor Roth. So you're getting your 6 and then you're getting your 29, 5. Now how much can you put into a 401k this year in total? The maximum you can put in in the entire 401k is $58,000. So what you do is you take your 19, 5, add it to whatever the company matches and do the math. So let's go to our little handy dandy iPhone here. Okay? And I'm going to take 58,000 minus 29,500. It's 28. 5. 28, 5 right there. So this bucket, and this is a very important term that you need to use, this is called everybody an after tax employee contribution. And what it does, it kind of goes into a little holding tank here and you put your that money there and then it goes boom. You do a second form and you convert it to Roth. So now you've got 28. Five in Roth. And we'll make that yellow because it's going to be Roth. And if you combine the yellow and yellow, I've got 19, 5 plus 28. 5 in Roth. Or do I have more? Yes, this is where the mega Roth comes in. The minute you convert this to Roth, so you do your 28, 5 is an after tax contribution. You don't get a write off for it, you convert it to a Roth. And then the next day you convert your company match to Roth as well. And so this morphs into yellow. Oh my gosh. And remember, you're doing your backdoor Roth. Now in this one you call it a non deductible IRA contribution and then you convert to Roth. See these, this part takes two steps and this part is a conversion. And then this part is two steps. But once you complete. And they're not that hard. These are one page forms, people. Now look at what happened. I can take my six. We're going to add all this up, Victor. I hope some of you like this stuff. I'm into it. And one casual. I'm going to talk about your home office here because we got to talk about some easy stuff too. But don't Go anywhere. People don't go anywhere. But this is big. This is big. So I'm going to take my 58,000, bunk, bunk, bunk, which is all Roth, and add my 6,000, my backdoor Roth. I'm at $64,000. I can put $64,000 into a Roth IRA this year if you've got the money to do it. Now what's cool, if you're married, you could do that for you and your spouse. Now I've got $128,000 in Roth money to start investing. How do you think Peter Thiel got 5 billion? He takes that money and he used it in a startup company called PayPal. You may use it in a startup company as well, too. But see, this is your mega backdoor strategy, Victor. You can call this part a Mega BackDoor 401K. You can call this a backdoor Roth, but the mega Roth or the mega backdoor Roth strategy. The mega is when you take the whole thing. And that's where I may be a little different than someone else. You combine the whole thing and that's when you get your 64. I wish I could hear Victor give me a high five. But that was fun. I got excited. Sorry.

Question here on YouTube. So he's asking about his employer plan with his 403B or similarly with the 401K. So he's asking, do you have to leave your employer in order to roll this over into a self directed Iraq?

Okay, so let's use our same chart here. And this is Michael. Okay? Now you tell me if you think I'm right or wrong. I'm going to use Darren here as our litmus chest here for Mark Kohler doctrine. Okay, Let me say this. There are as many colors of 401k as there are in the colors of a rainbow. Some 401ks will let you roll out. It's called an in service rollover. After you've been there a while, they'll let you roll out your contributions anytime you want to. An ira, convert it to Roth, you're in the money, right? Okay, so option one, call your HR department, call your 401k administrator and go, hey, can I do an in service rollover? I really want my freaking 401k. The money I put in. Not the match, not the match, not the green part. I just want this yellow part. I want it. And you call it an in service distribution rollover. In service transfer. All right? And you're going to try to get your money out. Sometimes you can take the match out. If you vested different companies vest immediately. Some mean you have to stay there five years or 10 years or they don't vest until you leave. Okay. Or you retire, buyer, whatever. So you want to find out what your 401k allows for. But if they allow it, you can roll that out to an ira. Third option, once you've paid the this is an after tax employee contribution and converted it to roth. Typically most 401ks are going to let you roll that out because it's, they didn't get a write off, it's not a company match, you've already paid the tax on it, so you should be able to take that out too. But I will give you the be the bearer of bad news the majority of the time. You can't take the bulk of your money out of your 401k at work and roll it to an IRA until you quit or fired retire sort of thing. But again, there may be options. And if you call up the HR department, they go, oh no, you can't do that. Hey, this is your money. People call the next day and get a different person. Is it possible I do this, say it differently, right? Don't take no for an answer. You keep knocking on that door and go, why can't I take an in service rollover? The people at Microsoft and at&t get to why can't I? Usually it's greedy Wall street brokerages controlling that 401k that don't want your money out from under their little purview. That's really what's going on. So you go to your employer and demand that money. How can I get that money? I've been a good employee. You keep the match until the day I die. I don't care, whatever, but I want my money that I deferred. Talk to him, be respectful, be smart, talk to different people. Go up the chain of the ladder. All right, One casual says, why can't I use a space within my apartment rental as a home office? You can, you can the home office deduction. You can use it if you own a house or you rent an apartment, studio apartment. What you have to do is you've got to take the square footage of your apartment. So here's the front door and here's the kitchen and you know, and here's the dining room and here's a bedroom over here and here's a bath and maybe you've got a little entryway here, I don't know. But you say, oh, this is my home office right here. And you carve it out and you take the square footage and divide it by the overall square footage and that tells you your percentage of use. And if the percentage of use in this example might be 15%, you know, what's that use? And if it's 15%, then you take 15% times the rent. You pay utilities and crap like that. That becomes your home office deduction. There you go. Now there's a simplified method where you can take up to $5 times 300 square feet for a total of $1,500. You can do the standard method. There's. I've written a lot on this and there's some good YouTube videos by me. Just put Kohler Home office and see what you come up with. Okay, where do we want to go next? Anything on Facebook looks like YouTube big time. Oh, man. Samuel and Teddy asked some big questions. Should I give it a try? What do you think, Samuel? Okay, Samuel, go back one. I just want to give a little shout out here. Teddy, I love your question, but oh my gosh, this is a big one. I would really recommend you get a consult for just a half hour with one of my attorneys, even if it's out a couple weeks. He launched an E Commerce. He's generating two to 300 grand. He wants to do this and contribute to a roth and a 401k. Those are awesome questions, Teddy, but more for a consult on your situation and we can help you. This is right up our alley. Samuel says if I own an Airbnb as my personal home, am I able to write off all the same things? Okay, do I need to rent out more than 14 days a year to be able to take deductions? Well, I hope if you have an Airbnb in your home, I hope you're renting it out more than 14 days a year. Freaking A, Sam. Depreciation and personal home. Airbnb. Assuming it's one or the other personal or home sale of home exemption or write offs today. Any advice on how to decide which? Okay, everybody, I'm going to take a little liberty with Samuel's question here. So don't be offended, Samuel. I feel is. And don't be offended, Samuel. I'm just throwing this out. I feel he's being a little tax aggressive. Now I'm not saying that's bad, but he says his home's his primary home. But it's also Airbnb. That's not common because how do you live in a place 100% and it's Airbnb. Now you may Say, well, Mark, I just Airbnb one room or Airbnb half the apartment or half the house. Okay, cool. For example, I went to Hawaii once and there was a home on the beach and the homeowner lived downstairs and the upstairs was all Airbnb. And so what you would do in that situation is you'd say 50% of the house is business and 50% of it is sale of home or primary residence, which you take the sale on the home exemption. Primary primary residence. So, Sam, that's what I'm hoping is going on, that you're saying, I've got this home and It's. And it's 25, 75 or 50. 50. And so anybody out there that's doing an Airbnb, I want to know how much is business and how much is personal. Now, what I like, and I'll tell you this is what's typical, is AN Airbnb is 100% Airbnb. And when you visit, it's to fix and repair, to paint, to check on things. So it's still 100% business. You just visit it once in a while to really to work on it and make it more profitable. That's what most of my clients do with the Airbnb. They get their visits as a tax deductible travel trip to go work on the Airbnb. When Samuel says, I live in my Airbnb, then I need to find out how much is Airbnb and how much is primary residence. And once I can figure that out, then I can start to really carve out the write offs.

So,

Samuel, you mix this 14 day rule. You get to use it 14 days or less and it's still 100% rental. It's not that you rent it 14 days or more. If you rent it for 14 days or less, it's tax free. If you use it for less than 14 days, it's 100% rental. But when you say it's your primary residence, that blows the whole 14 day rule out of the water, because it's your primary residence. Unless you're only Airbnb 14 days out of the year, which is a little odd. So anyway, Sam, I don't know if that helps at all. Everybody out there, just when you have your primary residence that's part rental, we got to carve it up. It's like a bed and breakfast or a duplex. Half of it's yours, half of it's a rental. Take the sale of home exemption down here. The rest is a rental property. 10:31 all right. Okay, next question. Darren?

Yeah, we got one from Tintin. So he says, first of all, hello, Mark, thanks for all your tips to help to live the American dream. He mentions, I have a townhouse that is paid off. I want to rent it. What is the best way to protect my property?

Okay, so Tintin, he, he or she has a home. And your primary residence would typically be in your revocable living trust. So your trust owns your home. And I don't know if Tin Tin, they have a day job, they have a side hustle, they've got an S corp. I don't know, all that's a big question mark. We're not worried about that. They want to turn their primary home into a rental. Okay, cool. Well, the best way to protect it is, is transfer it to an llc. You're no longer going to own it. Your trust is going to own the LLC. Guys, that's asset protection 101 is the cheapest, most efficient way to do it. Even in California, it is the cheapest and best way to run it. Mortgage payments go to the llc bank account. The EIN is set up in the name of the llc. The insurance is set up under the llc. You have an operating agreement, you do minutes, you have bylaws, the lease agreements in the name of the llc. The bank account pays all the utility bills out of the bank account. You don't own it anymore. We can set up privacy strategies to protect your personal residence that you're going to go out and buy once you convert this to a rental. Now, Matt Sorenson, my partner on my podcast, every week he's done this three times. He's kind of made it a goal of his. Every time he moves, he always keeps his house as a rental. He's got three rentals right now that used to be his own primary home. And that's a great strategy. He knows the home and he's like, I'm gonna sell it when the time's right, but I'm gonna put a long term renter in there. He hasn't Airbnb'd any of them, but just a long term tenant. So you just move it to an llc. Tintin. Okay, Vic says how much do you determine how to depreciate each year? Well, a rental, remember, you find the building value. So let's say the total purchase price was 100 grand. Typically you go 80, 20. Other times it can change, but we're going to go 80 grand with the building, 20 grand with the land. The building. If it's a residential home, is 27 and a half years. So you take 80 grand divided by 27 and a half, and that's your depreciation every year. The first year is this half year convention thing and Makers Acres. And you accountants out there, we geek out on this. But the point is, 27 and a half years divided by the building value that you determine looking at the HUD statement and appraisals and all that. But this is the goal now. If it's commercial, it's 39 years. 39 years. Okay, I'm going to go back to Instagram here, so let. Oh, Ashlyn's going to. I'm going to repeat this for everybody. Okay, what's the question? Can I have multiple home offices? Okay, and what was the first name again? Dosier? Wolf. Okay, Wolf. I'll just say Mr. Mrs. Wolf. Okay, said I've got my primary residence over here, and I've got a home office. And this LLC for my rental gets to write off this home office. Oh, but I have a. I have a garage over here. You know, here's my driveway and my cute little driveway. And here's my garage. And over here I store supplies and equipment and. And it's all office for my S Corp. Oh, cool. Oh, in my basement over here, I have another space that my wife uses for her business, and she does a hair salon with a door that comes down into the basement. We write that off over here. Maybe in an llc, you can have multiple home offices on one property. Boom, boom, boom. So let's carve it up. Very common with an outside building, casita, garage, storing supplies, equipment, stuff like that. Okay, now I've got to get over to my. I'm just going to grab this. I'm just going to take the first question that comes. I probably should be more choosy. Rich says, what if I bought a property, fsbo for sale by owner, and I only have a memorandum in my name? Can I still make an LLC for the property, or would I have had to have that memorandum in the LLC name? Rich, if you were my client, I would never recommend you buy a home with a memorandum. What's some other terms people use for this? Kind of like the purchase for sale contract? Yeah, purchase for sale contract, where Rich really doesn't have title to the property. You don't have title. You've got this weird memorandum. Do you own the property? Do you not? Is this person claiming depreciation? Are they claiming rent from you? Have you put it on your books? Have they claimed a sale? I know they're trying to do a memorandum. So if you don't pay, they can just rip the property back and avoid a foreclosure. That's not the way to do it. And you could make a big stink in court if they try to do it. You have what's called an equitable interest. And you can fight this kind of land contract and say, hey, I own this property. You got to go through normal foreclosure procedures. And Rich, you might say, well, not in this state. You know, in Arizona, we can do for the contract and. Or in Texas, I can do this and, you know, Mississippi, I can do that. I'm just. The older I get, the more I just want to follow normal protocol. I just kind of get sick of some of these slick Willy strategies to take action on properties. I'm not saying they don't work, but you got to know what you're getting into. And your accountant better be up to speed, your lawyer better be up to speed, and you've got to think through all the consequences. Let's say you don't make payments. Can they really rip the property back from you? Let's say you make all the payments and this person dies along the way. When do you get your property? Do you have a deed in the drawer that you can record who's holding the title, who's not, who's insured on the property. Their name's on title, not your name. I mean, there's weird stuff here, Rich. I don't know. I would probably stay away from it. Okay, I'm going to do Marissa. Even if it is a multifamily, you can close it under your name and get a mortgage like an individual. Or if it is a multifamily, even if it is under your name, it qualifies as commercial. To Fannie Mae, Marissa, I will say this. If you get 10 bankers in a room and ask them the strategy to take title to a multifamily and the best loan to get, you're going to get 10 different answers. Am I right? And all 10 are going to pull your credit and jack it up. When it comes to lending, my experienced real estate investors find a lender they can trust and a lender that's not going to jack up their credit, pull in their credit every which way until Sunday. And they understand commercial loans and they understand residential loans. And as you get involved in real estate education communities or real estate clubs, and I've got clients that are dentists and doctors and lawyers and accountants. I go to real estate club meetings to learn how to do real estate. And you're right, like rich. If you get a for sale by owner deal and they carry the paper with a normal mortgage and a trust deed note, you know, that's cool. But you got to be careful. There's good ways to be creative with financing and then there's ways to go a little too far. So just get a second or third opinion. Here's here. I'm going to say this right now. Okay, everybody. If there's one thing today that I think is one of the most important things I'm going to say, I'm going to propose this. Be careful taking legal or tax advice from this friend of yours that's really successful. And they. So yeah, this is what Mark Kohler is going to say. But you really don't need an llc. You can get an umbrella policy or, you know, you can go over here and you can get a trustee contract, a note contract or buy on property value, this, that and another. And it'll be recorded, but it's not recorded. It's in the drawer. But then when you pay, you get it recorded because your credit sucks, Right? That crap drives me crazy. But you say, well, Mark, it works because this person said it did. Really? Why don't you get it in writing from them that if it gets jacked up in court, they pay the bill. They're going, what about that person that says it's a great tax write off? Are you, Are they signing your tax return? If the IRS comes knocking, are they paying the bill? Bing, they're gone. We're trying to be a creative law firm and a creative accounting firm, but we're licensed. We carry malpractice insurance, and if we're wrong, we pay the freaking bill. Be careful taking advice from someone on a blog or this person at a club that's obviously smart and successful. You go ask them if they'll stand behind it. They'll say, well, go talk to your accountant or lawyer, but this is the way to do it. Well, then why don't you go to effing law school? You know, gee, sorry, I got a little out of control. Okay? I'm in one of those moods today. Okay, give me a good question, Corey. Come on, scroll into something. Okay. Okay, we're going to do this, Corey. Darren gets one question, I get to choose one question, and Ashlyn gets to choose one question. How about that? Okay, Darren, I kind of like this one.

So she asks, is there a way to use a 1031 exchange from a house? I plan to Sell to buy a piece of property and to build a house on it.

Oh, my gosh. Love it. Christine, you want to give a shout out, you do it. What do you want to say? All diagrammed. This is Pictionary. Okay. All right. Start talking.

Well, I think the way that she's asking it, it almost sounds like she's trying to build a personal residence for herself. That's my concern.

Okay. No residents involved in this question. So let's just do that. This is all this is K or with the C. Okay, so this is Christine. She owns this home, and she wants to do 1031 exchange. So walk us through it.

Need to find a qualified intermediary. This is going to be a person who's going to walk you through the process, and there's going to be a lot of timing and different dates and things that you're gonna have to meet. But essentially, she's gonna sell that property over to the qualified intermediary.

So here's a buyer that's gonna buy the property, and the buyer's gonna put the money in. Does she get the money?

No.

No. Sits in the qi. All right, then what?

Buy a property or multiple properties of equal or greater value.

So here's the replacement property of equal or greater value, and that's where the money goes. And then the title flows back through the qi to steam.

And there you go.

Now, if she buys land and gets a loan and builds a building, can she do that?

As long as it's equal or greater value.

As long as it's equal or greater than value. This is called a construction 1031. The trick with the construction 1031 is you've got 108 is to finish building this thing. They're tricky because you've got to take the replacement property and the money and have this building finished by the time the deadline hits. Now, that's my current understanding. There might be a 1031 expert out there that says, mark. Well, there's a sub rule to a sub rule. There's a way around this. If anybody. If Christine and anybody that's trying to do a construction 1031, go talk to a couple QIs. We do 1031 exchange consulting here, but on your basic vanilla 1031s, when they start to get a little technical, we'll get qis involved and other accountants that are experts in them. Okay, ladies first. Ashlyn, your question. This question comes from Ashley Anna at Cordero, and she asks. My family owns real estate. A sense we were five. My accountant recommended us to Open an Inc. Open a what? Okay, so. So she said, everybody, I'm going to repeat this. This is from Anna. And Anna says, I. She has some family property. I'm not getting it. And she wants to do what? Incorporation. Okay. All right. So Anna went to their accountant, and there's five partners in this deal. 1, 2, 3, 4, 5. And they went to their accountant, and the accountant said to set up a corporation. Holy crap. No. Heaven, no. No. Not an S Corp. Not a C Corp. Never, ever, ever, ever, ever, ever. Do you want to put rentals on your operation side? Don't do it, Anna. Now, I have a feeling he may have meant an llc. Because if an accountant says a corporation, you got to fire them. But normally we would do an LLC owned by the five family members, and the LLC would take title. I'm loving that. And if the rentals are in Arizona, then we set up an Arizona llc. If the rentals are in Tennessee, then we set up a Tennessee llc. That's how that works. Okay, last question, Corey. Where am I going? Okay. Arizelle Azell, 226. How can I generally prepare for a consultation to enable you to help me the most? But I did not choose this question. People, this is Corey being self serving as simple as financial statements and goals. Okay, I'm going to say this to everybody. No matter what lawyer or accountant you go to at whatever firm don't feel like they have to be local. They can be on a phone across the country with a zoom call, camera, whatever. But you want to go in with a diagram, make it easy for Darren and I in our first 10 minutes, sketch out your trifecta. Say, I don't have a trust, I have no structure, and I have rentals. Boom, Boom. Okay, cool. Just give us what you got. Just rough it out. You don't have to make it look pretty in PowerPoint, but give us a visual of what you have. That's number one. Try to just. So you don't have to. Like, you could just see here with Ashlyn, I'm like, what they say? What'd they say? I'm trying to interpret their question. So if you can lay it out in a picture. A picture says a thousand words. That's number one. Number two, have a spreadsheet. Have a spreadsheet that lays out all of your assets and all of your debts. Asset, asset, asset, asset. Debt, debt, no debt, debt. And then equity. Equity, equity, no equity. Crappy equity. And then that way we can see what we're dealing with, you know, and then number Three, I want to know all entities that you do have set up and that are in good standing. Just give me a little list. Oh, I got ABC Corporation and ABC llc, and, and then number four, Darren and I, we love tax returns. Oh, turn me on hot bother. You know, just, just. If you want to get me in bed and just read me your tax return. Oh man, it's magic. So give me your tax return. I want your last year's personal and business tax return. And then I want your family breakdown. Married, single, kids. How old is everybody? What do you have in your bank accounts? Now that's kind of part of your asset spreadsheet. You know, I have this ira, this ira, this bank account, this rental, this home, this blah blah, blah blah. Any debts involved and then what's the equity? And if you can show up with this breakdown for any consultant, they should be able to fine tune your diagram. Make a checklist of things we recommend you get done. Take your time and do it. Anybody that wants to charge you 5 or 10 or 15 or $20,000 for some trust set up in an offshore location or they want to give you unlimited LLCs or unlimited crap, get a second opinion. Just pay for what you need. A la carte as you grow and expand will be there for you. Anyway, hey everybody, thanks for being here this week. I'll see you next Thursday at 4 o' clock Mountain. Save up your questions, I'll have a kick butt topic for you. Hope to wow you. Thank Instagram, thank YouTube, thank you Facebook and Entrepreneur magazine for letting us broadcast on their networks. Love Entrepreneur magazine, the number one magazine in the world for small business owners. So we'll see you around. See you next week. Thanks everyone.