Episode 7: Understanding Your Financial Starting Point

Welcome to Building Passive Income, the podcast for professionals, entrepreneurs and investors who want to build wealth, diversify beyond Wall street, and create true financial freedom through passive commercial real estate investing. I'm Wayne Courageous III, founding and managing principal of Crei Partners, a leading commercial real estate company, I created CreiColin, an AI powered resource to serve as your investor education guide. Built on the insights and experience we've developed at Crei Partners, CreiCollen is here to educate you through passive invest tax strategy topics to help your journey in passive investing. Just a quick disclaimer. This podcast and CRA Colin is for educational purposes only and is not legal tax or investment advice. Always consult with your attorney, CPA and financial advisor before making any investment decisions. I've spent nearly two decades helping investors understand the power of commercial real estate, from multifamily to storage to retail. Each episode is under 15 minutes, simple to follow and and packed with insights to help you grow your income and protect your capital without becoming a landlord. If you're ready to learn quickly and invest smarter, you're in the right place. Welcome to Building Passive Income. Let's build wealth together. Here's creicollen.

You can't build wealth if you don't know where you're starting from. It's that simple. I'm Crei Collin and this is Building Passive Income, where we cut through the noise and give you the strategies you need to build real wealth through passive real estate investing. Today, we're talking about something most people skip understanding your financial starting point. Because here's the truth. You can't set realistic investment goals if you don't know your current financial position. Think about it. If I asked you right now, how how much liquid capital do you have available to invest? Could you give me an exact number in the next 30 seconds? If the answer is no, we've got work to do. So let's break it down. What do you need to know about your finances before you write your first check into a syndication? What questions do you need to answer? And how do you map out a clear financial snapshot so you can invest with confidence, not guesswork? Let's dive in. Before you invest a single dollar, you you need to answer three critical questions. These aren't optional. They're foundational. And if you skip them, you're setting yourself up for stress, overextension, or missed opportunities. Question number one how much liquid capital do I have available to invest? Notice I said liquid capital. Not your retirement accounts, not your home equity, not money you might need in the next 12 months? I'm talking about cash or assets you can access without penalties or life disruptions. This is money sitting in checking accounts, savings accounts, brokerage accounts or money market funds. It's capital you can deploy into a syndication and not worry about needing it back for at least five to seven years. Why does this matter? Because syndications are illiquid. Once you invest, that money is locked up until the property sells or refinances. If you invest money you might need in two years for a down payment, a business expense or an emergency, you're going to be in a tough spot. Question number two. What's my annual income and how stable is it? If you're a W2 employee pulling in 300,000 a year with consistent bonuses, that's different from someone running a business with fluctuating income. Your income stability determines how aggressively you can deploy capital. If your income is stable and predictable, you can afford to invest more aggressively because you know your cash flow can support your lifestyle without needing to pull from investments. If your income fluctuates, maybe you're a commission salesperson or you run a seasonal business. You need to be more conservative and keep a larger cash reserve. Question number three. What are my current liabilities and obligations? Mortgage, student loans, credit card debt, Kids, college funds, aging parents who might need financial support. These all impact how much you can realistically invest without overextending yourself. I'm not saying you need to be debt free to invest in real estate. That's not realistic and frankly, it's not necessary. But you do need to understand your obligations so you can invest responsibly. Alright, now that you know the three questions, let's talk about how to map out your finances in a clear, actionable way. I call this the financial snapshot exercise. It's simple, but it's powerful. And by the end of this exercise, you'll have a clear picture of exactly how much you can invest and and when. Grab a pen, open a spreadsheet, whatever works for you, and let's map out your finances in four categories. Category one Liquid assets. This includes your checking accounts, savings accounts, brokerage accounts, and any other cash or near cash you can access within 30 days. Write down the total. Be honest, don't inflate the number because you think you might get a bonus next quarter. Use what you have today. For example, let's say you have 50,000 in savings, 75,000 in a brokerage account and 25,000 in checking. That's 150,000 in liquid assets. Retirement accounts, your 401k IRA, Roth IRA, SEP IRA. List them out. You can invest these through self directed accounts, but the strategy is different. So keep them separate for now. We'll talk about self directed retirement investing in a future episode. But. But for today, just write down the balances. Let's say you have 200,000 in a 401K and 50,000 in a Roth IRA. That's 250,000 in retirement accounts. Liabilities, Mortgage balance, car loans, student loans, credit card debt. Write it all down. Don't sugarcoat it. You need the real number. This isn't about shame or judgment, it's about clarity. For example, maybe you have a $400,000 mortgage, a $20,000 car loan and 10,000 in student loans. That's 430,000 in liabilities. Monthly cash flow. What's your take? Home income after taxes and what are your monthly expenses? Mortgage, insurance, groceries, childcare, everything. The difference is your monthly surplus. And that tells you how much you can consistently set aside for investing. Lets say you bring home 15,000amonth after taxes and your expenses are 10,000amonth. That's a $5,000 monthly surplus over 12 months. That's 60,000 you could theoretically set aside for investing on top of your existing liquid assets. Once you've got these four categories mapped out, you can start to see your investable capital. But here's the critical part. Not all of your liquid assets are investable. You need to protect yourself first. So let's talk about the rules of thumb. I recommend rule number one. Keep six to 12 months of expenses in an emergency fund. Non negotiable. You don't invest this money. This is your safety net. If you lose your job, if your business has a bad quarter, if life throws you a curveball, you need cash on hand to cover your lifestyle without panic. Using our example, if your monthly expenses are 10,000, you need 60,000 to 120,000 in an emergency fund. Let's call it 80,000 to be conservative. That means if you have 150,000 in liquid assets, you're setting aside 80,000 for emergencies, leaving you with 70,000 available to invest. Don't invest money you'll need in the next 12 to 18 months. Syndications are typically five to seven year holds. If you think you might need that cash for a down payment, a business expense or a major life event, don't invest it. Let's say you're planning to buy a vacation property in 18 months and you'll need 50,000 for the down payment. That 50,000 is off the table for syndication investing. Even if it's sitting in your savings account today. Rule number three start with 10 to 20% of your liquid assets in your first year. You're learning. You're building relationships with sponsors. You're getting comfortable with the process. Don't go all in on day one. Using our example, if you have 70,000 available to invest after setting aside your emergency fund and near term needs, you'd start with 7,000 to 14,000 in your first investment. That might be one deal at 50,000 or two deals at 25,000 each. The point is, you're not betting the farm. You're pacing yourself. Now let's talk about your tax situation, because this is where most people miss the bigger picture. Passive real estate investing isn't just about cash flow. It's about tax efficiency. So before you invest, you need to understand your current tax liability and how real estate fits into your overall tax strategy. Here's what you need to know. What's your effective tax rate? If you're a high income W2 earner making 3000-004000-00500,000 or more, you might be paying 35 to 40% or more in federal taxes alone. Add state taxes and you could be paying close to 50%. Real estate syndications can offset that income with depreciation, but only if you structure it correctly. And here's the thing. Most people don't realize this until after they've already invested. They get their first K1 see a massive passive loss and then find out their CPA doesn't know how to use it. That's leaving money on the table. Do you have passive income from other sources? If you're already receiving K1s from other investments, maybe you invested in a private equity fund or you own rental properties. That changes your strategy. Passive losses from real estate can offset passive gains from other deals. That's powerful, but you need to track it. Are you eligible for real estate professional status? This is a big one. If you or your spouse can qualify as a real estate professional under IRS rules, you can use passive losses to offset your active W2 income. This is huge, but it requires careful planning and documentation. To qualify, you or your spouse need to spend more than 750 hours per year in real estate activities and more than half your working time needs to be in real estate. It's not easy to qualify, but if you can, the tax benefits are massive. Here's my advice. Before you invest in your first syndication, sit down with a CPA who specializes in real estate, not your general cpa. Someone who understands syndications cost segregation and passive loss carryforwards. Show them your financial snapshot. Ask them how real estate fits into your tax strategy. This conversation alone can save you tens of thousands of dollars in taxes over the next five years. And if your current CPA doesn't specialize in real estate, find one who does. We covered how to find the right CPA in episode six, so go back and listen to that if you need a refresher. Alright, let's recap. Before you invest in passive real estate, you need one. Map out your liquid assets, retirement accounts, liabilities and monthly cash flow using the Financial Snapshot Exercise 2. Set aside 6 to 12 months of expenses as an emergency fund. This is non negotiable. 3. Only invest money you won't need for at least 12 to 18 months. Syndications are illiquid, so plan accordingly. 4. Start with 10 to 20% of your liquid assets in year one. Don't rush. Pace yourself. 5. Meet with a real estate CPA to understand how syndications fit into your tax strategy. This is critical. Here's your action step this week. Complete your financial snapshot. Write it down. Be honest. Don't don't inflate your numbers. Don't ignore your liabilities. Once you know where you are, you can start building a realistic plan to get where you want to go. And as always, consult with your CPA attorney and financial advisor before making any investment or tax decisions. This is education, not advice. If you're ready to start building your passive income strategy, let's talk. Check the show notes for a link to schedule. A call with us@creipartners.com will help you create a roadmap that fits your financial starting point. Next time on Building Passive Income, we're talking about the investment timeline, when to deploy capital, how to pace your investments, and why timing matters more than you think. Until then, remember, financial freedom isn't a dream, it's a decision. And it starts with knowing exactly where you stand today. I'm Crei Collin. Let's build wealth together.

Thanks for tuning in to Building Passive Income. Today's episode helped shift your mindset or gave you a new tool to grow your wealth. Do us a favor and like subscribe and share this podcast with someone you care about. Want to go deeper? Join our free Passive Investor coaching program@ passiveinvestorcoaching.com it's the perfect next step to start building wealth through commercial real estate the right way. Remember, financial freedom isn't a dream, it's a decision. And it starts with building passive income we'll see you in the next episode, Sam.