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Optimizing Tax Benefits for First-Time Real Estate Investors
Nicholas Burrus
December 13, 2023
Presented by Astra Properties LLC
"Optimizing Tax Benefits for First-Time Real Estate Investors"
By Nicholas Burrus · 12/13/23
Thanks for tuning in todays read! Read time is roughly 10 mins.
Welcome back! ☀️
People think real estate investment is one of the best long-term investments,
and they're right.
But despite the cashflow and appreciation, what else is there?
Great question-
Tax benefits
Full disclosure, we are NOT tax or financial advisors and this article is to educate on steps we follow in our business.
How to get tax benefits as a real estate investor?
Do your diligence to boost your chances of taking advantage of whatever tax benefits you can get from investing in real estate.
Here are some key things to remember-
Stop chasing after financial and tax gains from your assets
Many investors fail because they buy real estate properties specifically for tax and financial gains.
Don't make the same mistake
If you're new to the game, it's crucial to understand the responsibilities of owning a property.
Real estate investing is not something you set and forget. Acquiring a property is just a tiny part of the business.
Because, its a business
You have to stay present to manage your business, maintain your assets, and get the proper training and qualifications to manage your investments.
So before pouring in time, money, and effort into buying and maintaining a property for profit, focus on gaining the foundational skills to manage your business and avoid doing it solely for tax benefits.
Don't invest without developing a business plan ✍️
You can't "fake it till you make it".
So, never dive headfirst into real estate investing without a solid plan. Before buying a property, ask yourself:
How can I add value to the property?
How do I keep the property competitive?
How do I give back to the community?
How can I enrich the areas where my assets are located?
Do your due diligence, know all the basics and critical factors of the business, and use facts to build a strategy.
Don't forget to look for creative solutions to improve a property and add value, as well as give back to the community where your assets are located to enrich the area.
Why?
If the community thrives, the value of your property increases, and that’s a good look on your portfolio!
Hire an accountant
Property value increases and decreases over time. To make the most out of your investments, get an accountant to help reduce the taxes you pay.
A CPA can help you understand how much the property's value will go down each year and present a cost segregation analysis to speed up this process instead of the usual 25-year depreciation schedule.
For example, you could claim more tax benefits sooner by spreading out the decrease in value of some items over just five years instead of the usual 25.
Consider a 1031 exchange
You can protect yourself from real estate depreciation and heavy capital gains by setting up for a 1031 exchange in the future.
A 1031 exchange is a swap of a depreciable property for another. If you meet the requirements of a 1031 exchange, you'll get minimal to no tax during the exchange and benefit from compounding interest.
Depending on the state, some tax benefits from investing in opportunity zones include:
Deferred Capital Gains Taxes: If you make money from selling something (like stocks or property), you can delay paying taxes on that profit if you invest the money in an Opportunity Zone within 180 days.
Reduce Taxes Over Time: If you keep your money in the Opportunity Zone for at least five years, you get a 10% reduction on the taxes you would have paid on that profit. If you keep it for at least seven years, you get a 15% reduction.
No Taxes on New Profits: No taxes on capital gains generated in an opportunity zone investment. If you leave your money in the Opportunity Zone for at least ten years, any new profits you make from that investment are tax-free.
Flexibility in Investments: You can use profits from different sources (like selling stocks or property) for these investments, giving you some flexibility.
Hire the right advisors
Surrounding yourself with the right people is essential.
Networking and events assist you with meeting people from all backgrounds, and for us, we met our rockstar CPA.
Finding someone to help you navigate federal, local, and tax laws will help you stay on the right side of the law, and also help you stay in the money 💰️
Never stop learning
💫 What Else is Poppin? 💫
Technology is your friend - Use it to become a better investor
Commercial real estate may be one of the oldest asset classes, but that doesn't mean it's been falling behind in technological advancements.
Technology has transformed the industry for the better and apps have made day-to-day business better for many investors.
Don't be left behind; here are ways to use tech to improve your business:
Use analysis apps for real estate underwriting and investment analysis
These days, financial firms and independent investors are no longer recording return metrics pen to paper.
Apps like Clik.ai, DealCheck, and RedIQ, to name a few, do all the heavy lifting, like pulling financial data and conducting market analytics automatically.
AI is also leading the way in developing smarter underwriting apps, reducing what used to take hours of work to mere minutes.
Get a CRM to store real estate data
A customer relationship management system or CRM can store massive amounts of data, including confidential information, for record keeping and monitoring. Apart from improving day-to-day business, CRMs can be used to:
Record sales and revenues
Track team or client communications
Organize property information
Record customer information
Store transaction histories
Record investor preferences
Manage customer relationships
Store lease, contracts, and ownership documents
Monitor pipelines
Create reports
The database is cloud-based, so you can access it via your mobile device or computer anywhere in the world as long as you have internet.
Here are some of the best CRMs we recommend:
Use analytics tools to gather real estate insights in real time
Data is king in the business, and technology has made it so easy for independent investors and brokerage firms to access data using various analytics tools to track performance data, property scores, emerging markets, thriving markets, and climate scores.
AI can also crunch numbers and generate data within minutes, and this tool, along with other analytics tools, can improve internal data tracking.
These insights can be used to develop a more effective investing plan and grow your business.
Social media is the best place to market a business -
Everyone and their sister are on one or several social media sites at any given time and it helps that social media apps can be accessed easily on any devices.
It took a while before the real estate industry got on social media, but people are making up for lost time.
Use social media to grow your online presence, share valuable information, and market your business. Sites like Facebook, Instagram, TikTok, and LinkedIn, are great places to attract potential customers and gain meaningful connections online.
Provide free value and people will follow.
Fast facts about social media 📱
As of 2023, 4.8 billion of people are on social media, accounting to 61.4% of the global population
The average time spent using social media each day is 2 hours and 24 minutes
26.8% of internet users aged 16 to 64 use social media for brand and product research
The top 5 most widely used social media platforms globally are (in order):
Facebook
YouTube
WhatsApp
Instagram
WeChat
77% of businesses use social media to boost brand awareness
Facebook is the most popular social media site in the world, with 3 billion active users
In terms of time spent, TikTok is the top social media platform with an average monthly time spent of 31 hours and 32 minute
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