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.
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.
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!
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.