Real Estate Deal Analysis & Advice

9 Real Estate Investing Tips for a Better 2018

Expertise: Business Management, Mortgages & Creative Financing, Landlording & Rental Properties, Real Estate Investing Basics, Personal Finance, Real Estate Deal Analysis & Advice, Commercial Real Estate, Personal Development, Real Estate News & Commentary
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Last week, I was fortunate enough to be on a panel at my local real estate club meeting, where I was asked to share a few tips with real estate investors on how to be more successful in the coming year. It was fun, and the tips could really be anything somehow related to real estate, whether it was how to save time and money, avoid aggravation, or even increase yields.

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The beauty of it was there were four panelists sharing ideas, so I walked away with 32 new tips on everything from designing and staging rehabs, to working with contractors.

The least I could do is share mine.

9 Real Estate Investing Tips for a Better 2018

1. Use tax strategies.

Let’s face it—every dollar saved on taxes is another dollar freed up to invest with. This is one of the main pillars of building true wealth.

There are many ways to save on taxes, whether it’s depreciation, all the write-offs the real estate business can offer us (mortgage interest deductions, taxes, maintenance, etc.), or even becoming an agent to take advantage of unlimited passive losses. My personal favorite is probably investing through qualified plans like self-directed IRA accounts, HSAs, ESAs, etc.

This year in particular, it would be wise to meet for a planning session with your accountant about all the new tax law changes to avoid any surprises. That said, the biggest advantages didn’t really go away, as they stem from things like providing housing, creating jobs, or helping charities.

No one said you have to choose just one either. For example, my buddy’s non-profit owns an apartment building that leases units to disabled veterans. Perhaps you can incorporate a similar strategy into your business model.

Related: How to Let Your Mission, Vision, and Goals Drive Your Business

2. Be focused and disciplined.

Sure, focus and discipline can be applied to things like sticking to a budget and having your financial house in order, but what I’m referring to is a little more philosophical. As Jim Rohn puts it, “We need to work harder on ourselves than we do at our jobs.” Many of us could use more work on our soft skills—things like time management, sales, negotiations, public speaking, or even just reading more.

3. Set goals.

Earl Nightingale, an author and successful insurance broker, best known for The Strangest Secret, put it best when he asked the question, “Where do you see yourself based on the actuarial statistics for 100 men at age 65?” At the time (1950s), the statistics were that one was very wealthy, four were very well-off, five were still working, 54 men were dependent on others, and 36 were deceased. What he noticed was not so much that 36 of the men were deceased, but that there was a common trait in the top 5%—they all set goals!

4. Plan purposefully.

We should all try to be more strategic in our investing this year. For example, you should know your exits before you invest. Maybe you could plan to purchase your first owner-occupied place with the intention of keeping it as a future rental. As my buddy Jeff Brown always says, “You should have one goal in life, to have as much passive income, as soon as you can, by retirement at the latest, and have as much of it tax-free as possible.”

5. Utilize leverage.

You can leverage many things, like relationships, time, etc. What one thing could you really leverage this year to take your business or your  investing to another level? Maybe it’s utilizing your equity better by incorporating more arbitrage? Maybe it’s accumulating more assets with good debt or eliminating all your bad debt?

6. Source OPM (other people’s money).

I've always said that your money list is more valuable than your buyer's list or contractor's list. Some of the best ways to raise capital involve teaching it, whether that's teaching about how to invest or the parameters of your investments themselves. One of the best ways for me to raise capital is to actually teach raising capital. There are probably too many ways to mention, but another favorite strategy of mine is working with charities, or having a charity component to your business.

7. Pay down debt.

If you're not in accumulation mode and you're thinking of how to accelerate the pay down of your properties, try to do it in a fashion that considers all the risks, including the use of asset protection and/or estate planning. One of my game plans as I approach retirement is pay off a rental home, move it to a family trust, then when the values and interest rates rise, sell it with owner financing to a real estate investor's LLC, and place the loan into servicing for collections. Now, I'm cash flowing without the headaches of ownership.

So, whether you do a biweekly mortgage, send in next month’s principal with this month’s payment, or if you’re using a more advantageous strategy like utilizing sweep accounts, there are plenty of ways to shrink your debt service and increase your cash flow.

Related: 7 Questions to Help Make Your Financial or Real Estate Investing Goals Reality

8. Build in asset protection and liquidity.

Obviously, the use of debt can be an inexpensive form of asset protection, especially property that’s held in your own name. This is why I like using HELOCs on properties with substantial equity because not only does it act as asset protection but gives me liquidity too. Equity loans were off the table for a while but seem to be coming back and in a rising market, with good employment, it may be a good year, with still fairly low rates, to put some of those in place.

Another area we can look at in 2018 is how we can take business or investment risk off the table. Maybe that means pulling excess capital out of our businesses and putting some into more diversified, safer investment vehicles such as other qualified plans, insurance contracts, etc.

9. Have your assets pay your liabilities.

This is probably my favorite. Whether it’s income from my rentals paying for my vacation home or buying a note to have the payment pay the payment on my wife’s car that costs twice as much as what I paid for the note, I just love this strategy.

Well, no one says this is the complete list of things you could do to make 2018 your best year ever, but I would sure love to hear some of your tips!

Share below.

Since 2007, Dave Van Horn has served as president and CEO of PPR Note Co., a $150MM+ company managing funds that buy, sell, and hold residential mortgages nat...
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    Cindy Larsen Rental Property Investor from Lakewood, WA
    Replied about 2 years ago
    Dave, Great tips. My favorite is Plan Purposefully. I’d love to see the list of 32 tips, you walked away from that meeting with… A great tip I have, that unfortunately only works for a few lucky people is: Net Unrealized Appreciation (NUA) Disclaimer: I am NOT a financial advisor nor am I a tax professional. I just read a lot NUA works like this: 1. You must have a 401k that has an Employee Stock Purchase Plan that has been purchasing your employeers stocks for you, inside of your 401k 2. You must NEVER have made a withdrawal from that 401k (borrowing from the 401k is fine) 3. You must entirely close out the 401k, and distribute the employer stock AS STOCK to yourself as a distribution that will be taxed, the year you close out the 401k. Pretax funds and after tax funds that were in the 401k along with those stocks can be rolled over to another 401k or a regular IRA, and after tax funds can be rolled over to a Roth IRA 4.If you are younger than 59.5 years you will pay a 10% penalty on the distribution. Wait. 5. You can’t close out the 401k if you still work for that company. OK, so if you are lucky enough to have employeer stock in a 401k, why would you want to close out that entire 401k? Because, you get taxed only on the basis value of the stock. So, if you used to,workmfor lockheed, and your 401k has been buying LMT for 30 years and the average purchase price was $50/share, and the current value of LMT is $350/share, you only get taxed on $50/share when that stock is distributed AS STOCK. The stock then is assigned as it’s new basis, the value of the stock when it was distributed. Then, you can, sell,the stock, and pay capital gains, or losses only on the difference between that new basis, and the sale price. For example, if you had 1000 shares of employer stock with a basis of $50/share and a current market price of $350/share, you could use Net Unrealized Appreciation to distribute that stock to yourself. You would owe tax on $50×1000 = $50,000 distribution from your 401k. if your marginal tax rate is 25%, this means you would owe $12,500 tax. the basis of the stock is now the market value, say $350/ share on the day the stock distribution completes. Then, suppose you sell your 1000 shares for $351/share the next day. Your capital gain is $1000 ($1/share), taxed at 20% = $200 (or maybe 15%, since you actually bought the shares long ago. i’m not sure, so lets say 20%, worst case) Selling the shares brings you $351,000 of cash you can invest in real estate. Your total tax on distributing that stock from your 401k and selling it is $12,700. This is an effective tax rate of 3.6% on this 401k distribution. Clearly, the IRS wants you to take advantage of NUA. Note that you pay no tax on the finds in your 401k that were NOT employer stock, because they were rolled over when you closed the 401k, not distributed. be very careful to make sure they are rolled over, not distributed. Hopefully there are a few people on BP who can advantage of this, now, or in the future. If you are younger, it might be a good thing to work for an employer with an Employe Stock Purchase plan in their 401k, for a while. I wonder how this NUA loophole got into the tax code? It seems very specific to a select group of people, many of whom will likely never know they could have taken advantage of it. Once your first Required Minimum Distribution happens at age 70.5, your chance to use NUA is gone forever. And you will have to pay whatever your current marginal tax rate is on those ever increasing RMDs, every year from then on. RMDs are a punnishment for investing in your 401k: the IRS makes you take distributions, and then taxes not only your original funds, but also all of their growth over the years. In contrast, NUA feels like a present from the IRS.
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied about 2 years ago
    Good point Cindy! Hope those who find it applicable can take advantage!
    Josh Jenkins Rental Property Investor from College Station, TX
    Replied about 2 years ago
    Great article Dave! These are great points that I think are not commonly covered. I also thought the 7 Questions (in related article) were the exact motivation for 2018.
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied about 2 years ago
    Thanks Josh!
    Ashley Wilson Rental Property Investor from Radnor, PA
    Replied about 2 years ago
    Great article Dave! I was sick for the meeting, so I am really happy you posted your tips!! Thank you as always for sharing your insight!
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied about 2 years ago
    Thanks Ashley!
    Pierre A. from Jamaica, NY
    Replied about 2 years ago
    Thanks for sharing these tips! Being that the trust fund is irrevocable and you placed the home there and no longer yours, are you allowed to have certain stipulations making yourself the beneficiary of the sale through owner financing even though you didn’t pay income taxes on it?
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied about 2 years ago
    Hi Pierre, Thanks for reading! And just to be clear, the family trust in this case wasn’t irrevocable. Best, Dave
    Jay Johnson Specialist from Nashville, TN
    Replied about 2 years ago
    Great tips. Please explain more about Item 6 especially “One of the best ways for me to raise capital is to actually teach raising capital.”
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied about 2 years ago
    Thanks Jay. Well, to keep it short and sweet: When people see you teaching raising capital it expresses that you have knowledge in that area, and in turn they want to invest money with you and your investment (because you most likely know what you’re doing or else you wouldn’t be teaching). The other component is, you reach a lot of people through teaching and giving then you would through trying to sell an investment. It goes back to the old saying, “people like to buy but they hate to be sold.” Best, Dave
    Ezichi Oha Wholesaler from North Hollywood, California
    Replied about 2 years ago
    Good Tips. Other people’s money is what i love
    Bradley Noel
    Replied about 2 years ago
    Can you illustrate item 9 with the car?
    Edward B. Investor from Midlothian, Virginia
    Replied about 2 years ago
    Bradley, Essentially if you had $40k to buy a car you would get a loan on the car rather than paying cash. Car loans can be had for 3-4% or less. Then use your cash to buy a performing/reperforming note instead. These notes can be had for 12% return give or take. Then you use the monthly payment from the note to make your car payment and pocket the roughly 8% difference. Thus you own the car on paper (because you have the assets to cover what you owe on it) but you don’t own it outright. It is an effective strategy to turbocharge your investing and put all your money to work rather than have it tied up in a depreciating asset such as a car. It is a little more complicated than that, but you get the gist.
    Pierre A. from Jamaica, NY
    Replied about 2 years ago
    Excellent strategy!
    Replied about 2 years ago
    Yes, I want to know more about that as well!
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied about 2 years ago
    Edward did a pretty good job describing the gist of it! I’ll also be covering it more in-depth (among other strategies) in my new book for BiggerPockets publishing that comes out in April! Best, Dave
    Alexandria Martinez
    Replied about 2 years ago
    When you said that a good tip for better real estate investing was to have assets pay the liabilities I though about my fiance. He has been looking into various pieces of insights and advice for this type of investment. I am sure that he would appreciate this tip as well as this article.
    Joy Butler
    Replied almost 2 years ago
    I’ve just inherited some money from my parents and I want to invest in real estate. I want to engage in buying and selling of real properties. And no, I don’t have any liabilities so number 9 is not applicable to me at the moment. Though I will be considering it in the near future.
    Ryan Barnett from Germantown, Tennessee
    Replied almost 2 years ago
    Appreciate it Dave…Always love your posts and enjoyed meeting you at NoteExpo. Just received your book in the mail and yes, the. Matte cover design is AWESOME! I appreciate you giving back your knowledge as a veteran so us younger (I’m 40-god time is flying) to get my affairs, earnings in order for my family as I age. Strategies are changing as always been into Notes since a year ago at PaperSource so just have not found great product yet with asset managers. Although passively it is great setting $ with a good fund as yours. I know some tout it as a passive industry but we know it is a business if you are planning in doing the Notes yourself even with servicers. Anyway – THANK YOU DAVE.
    Henry Stoughton
    Replied over 1 year ago
    Some new investors make the mistake of limiting their search to areas close to their home. But often better rental areas may be located a little further away. New investors may think they need to live near their properties in case tenants call about repairs or other problems. But in reality, if the home is put into good repair before your tenants move in, those calls from tenants should be few and far between. Henry