Real Estate Investing Basics

2 Simple Strategies That Will Make You Rich

Expertise: Real Estate Wholesaling, Real Estate Marketing, Business Management, Personal Development, Flipping Houses
63 Articles Written
millennial-wealth

There are endless books, podcasts, videos, and TV shows that are dedicated to teaching investors how to make money. Some experts feel as though the stock market is the best way to create wealth, while people like me believe that real estate is the best way to become wealthy.

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In my mind, there is actually not a right or a wrong answer for everyone to abide by. And frankly, I think it is the wrong discussion for the investment community to have! When I look back at my real estate journey, there have been two important aspects to my wealth creation: expertise and tax efficiency.

Become an Expert

At the risk of stating the obvious, you are not going to be successful in life if you do not dedicate yourself to your craft. When I decided to get really serious about real estate, I went ALL IN!

Everything I did day and night was dedicated to becoming the most knowledgeable real estate investor I could be. I read books, spent as much time as I could with successful real estate investors, and most importantly, took action!

As a full-time investor, I understood that while I wanted to add to my rental portfolio, my primary goal was to make larger chunks of money as soon as possible to ensure that I could safely pay all of my bills. With hard work and consistency, I became one of the most successful wholesalers in my market.

Related: The Ultimate Beginner’s Guide to Real Estate Investing

Wholesaling a lot of properties has been great! I haven’t had to work for someone else for a number of years, but I have learned a valuable lesson. Once you get into the top tax brackets, Uncle Sam is a greedy business partner.

I realized that I needed to look at real estate through two different lenses. First, make a great living with wholesaling, and second, making additional investments in the most tax efficient way that I could so that I don’t get killed with taxes.

An investor is not successful because of the type of investment that they make. They are successful because of their knowledge of the type of investment.

My man Warren Buffett is one of the richest men in the world because of his understanding of buying businesses and investing in the stock market. I also know a ton of people that lose money all the time in businesses and the stock market, because they are not dedicated to becoming a student of businesses and stocks. They just simply throw money at their investments and hope for the best.

Think about your retirement account for a moment. Do you actually know what stocks or mutual funds you own? I hope you do, but most people don’t. That is the reason everyone sells when the stock market goes down. They don’t know what they are doing, so they panic!

Related: The Ultimate Guide to Real Estate Taxes & Deductions

closeup of hand using scissors to cut paper that reads taxes

Take Advantage of Tax Benefits

There are a number of ways that we are able to be tax efficient with our real estate investing. If we buy rentals properties with good debt, we enjoy a number of write-offs that allow us to legally shield our income. When we sell those properties, we also have the option of doing a 1031 exchange.

While I do have rental properties, there is a better way. You can use a self-directed IRA/401(k) to invest. The basic concept is that your IRA or 401(k) can fund investments in real estate just like you or your LLC are currently doing.

Your IRA/401(k) can wholesale properties, lend money, purchase rental properties, flip houses, build new construction, etc. Self-directed IRAs have allowed me to purchase land and turn around and sell that land for 10 times what I paid for it—and not pay a dime in taxes!

Think about that: you buy land for $10K and sell it for $100K, and you don’t pay taxes. As with anything, you need to understand the rules, but this has been a real game changer with my investing.

I have been using American IRA for a number of years because they are very cost-effective and are extremely knowledgeable. This is due to the fact they are actual investors themselves.

Remember, whether it is stocks or real estate, your success will be based upon your knowledge of the investments you are making. There isn’t some magic strategy that anyone can use and become rich. Learn your craft, and pay less in taxes (legally) with a self-directed IRA/401(k).

Do you have a SDIRA or 401(k)? Have you ever considered using it to fund a real estate investment?

I’d love to hear from you in a comment below. 

 

Nasar El-arabi has been involved in real estate for 12 years. During those 12 years, Nasar has wholesaled houses, rehabbed properties, built new properties, created a buy and hold portfolio, and flipped land. Nasar identified early in life he wanted to have his own business. Fortunately, because of parents who instilled an entrepreneurial spirit in him, he was able to build a seven-figure business after being terminated from his job in September of 2012. Nasar has gone on to become a successful real estate investor in Charlotte, N.C. Nasar has over 100 videos on YouTube and runs a blog at RealEstateDoru.com.

    Dmitriy Fomichenko Solo 401k Expert from Anaheim Hills, CA
    Replied 6 months ago
    Thanks Nasar for good article! I agree with your points. One clarification I would like to add is that not all income and gains in a retirement account will be sheltered from taxes. IRAs and 401Ks are designed to be invested passively, if you start running a wholesaling or flipping business with your IRA the income from those business activities will be subject to Unrelated Business Income Tax (UBIT) which is pretty steep, currently at 37% and your retirement account will be responsible for it. So when investing with retirement funds the key is to make sure your investments are passive. https://www.biggerpockets.com/member-blogs/2810/26786-what-is-ubti
    Nasar Elarabi Flipper/Rehabber from Charlotte, NC
    Replied 6 months ago
    Thanks for your clarification!
    Sean McKay Specialist from Charlotte, NC
    Replied 6 months ago
    Nas, congrats on all of your success and thanks for the shout out!!!!
    Nasar Elarabi Flipper/Rehabber from Charlotte, NC
    Replied 6 months ago
    Thanks a lot and no problem
    Robert Cornell Sound Communication Installer/Beginner Investor from Fontana, California
    Replied 6 months ago
    Nasar, Great read. This article diffinently makes me interested in learning more about this strategy… Also just seen your interview with Maxwell yesterday. Loved the energy! Could you recommend anyone for some direction on wholesaling out here on the West Coast? Thanks for your time…
    Nasar Elarabi Flipper/Rehabber from Charlotte, NC
    Replied 6 months ago
    Robert, Thanks man and yeah Max is my man. Also wholesaling basics are the same no matter where you are. If you search Wholesaling on Bigger pockets you will see a bunch of information on it.
    James Williams from Simpsonville
    Replied 6 months ago
    Thank my friend, you gave me something to think about.
    Joshua Crumpton
    Replied 6 months ago
    I have an inherited IRA and I just withdrew some to start investing. My financial advisor says I will have to pay income taxes on this withdraw. Does someone know if this was the wrong move? Can I use an inherited IRA to invest with and not pay income tax as soon as I take the money out?
    Dmitriy Fomichenko Solo 401k Expert from Anaheim Hills, CA
    Replied 6 months ago
    Joshua, if you take distribution from an inherited IRA – this would be taxable event and you have to pay taxes. Alternatively you can convert it to Self-Directed Inherited IRA and start real estate investing inside of the IRA. You can learn more at this blog post: https://www.biggerpockets.com/member-blogs/2810/51528-how-to-boost-your-real-estate-returns-with-a-self-directed-ira
    Samuel Duckett
    Replied 6 months ago
    Thanks Nasar, this is huge! I can already tell that this will inspire weeks of digging into what tax benefits are out there that I’m NOT taking advantage of yet. All the best
    Michael Hakes
    Replied 6 months ago
    Great quick read. I am working on the education to start becoming an expert and will definitely look into the self-directed IRA/401K also. Still working so won’t be able to use that 401k money until I choose to leave the company.
    Heath White from Wilmington, North Carolina
    Replied 6 months ago
    If you do all your work inside your IRA, how do you pay for basic living expenses?
    Nasar Elarabi Flipper/Rehabber from Charlotte, NC
    Replied 6 months ago
    Its a retirement Account not to be confused with a bank account. Look at it as your retirement plan outside of holding a traditional job. I would not recommend doing every last deal in your IRA. Maybe do a few deals a year inside your IRA and know you can not touch this money until Retirement AGE.
    Dmitriy Fomichenko Solo 401k Expert from Anaheim Hills, CA
    Replied 6 months ago
    Heath, an IRA is a retirement account and can’t be use for living expenses. It is a vehicle to help you you grow your wealth tax deferred for future use.