All Forum Posts by: Charles LeMaire

To whom it may concern:

I am a very happy and successful Brad-ite (I am a student, he does not pay me!).  I met Brad in 2010 at a week-end event where I became one of his students.  I started with no RE experience, but I could understand how it works from his presentation.  By the way, never did a SF.  To date, I have gotten into 45 MF deals as a passive investor with other students that became Sponsors; students that Brad has mentored.  Of those 14 deals have sold and I have become more wealthy that I ever expected.  The point is that Brad has a recipe that works.  And he has created an environment in which the Deal Sponsors and Passive Investors work to all get wealthy.  

Regards,

Charles LeMaire

A suggestion for your consideration:

At age 56, we attended a mentor presentation that covered MF investing - one could be an Individual Purchaser, a Deal Sponsor or a Passive Investor.  I enjoyed my job and we had some money, so we joined and went into the MF world as Passive Investors.  Rather than toss out numbers, I declare it is lucrative (I have good mentor and a network of trained Deal Sponsors).  If you have the time and the inclination, become the Sponsor; they make more.

To be clear, we are buying 70+ unit B or C class apartment complexes.  We always put professional management on site.  

You will likely find that most of these deals flip in about 3 to 5 years, so not exactly lifetime income; you keep some and do another deal. Look up "forced appreciation".  They often pay cash-on-cash, but occasionally something happens. Most of the returns comes at the end.  By the way, they are NOT liquid.  

You may prefer the hands-on control, so this may not be for you.  I like the "mailbox money".  It was a great comfort during the last work years to have a back-up plan. 

Over the nine years, we have gotten into 46 deals, 14 have gone full-cycle. The sales started at year 4.  Now several sell each year - like a "bond ladder", we have an "apartment ladder".

Regards,

Charles LeMaire

Hey @Joseph Lopez.  I intend to be at Brad's July R2R (Rat-race to Retirement).  At this time, I have a conflict with the August event (AIM Nat Con).  I had intended to be in Phoenix, but something came up; Retirement is so time consuming ... :)  

With my tongue firmly planted in my cheek, what more can I learn from Robert Kiyosaki than "The mistake Rich folks make is not buying actual gold".  

Regards, Charles LeMaire

@Account Closed - I feel that you need to do a lot of homework: books, podcasts, mentor, meet-ups, something.  I am a repeat passive investor; your questions concern me greatly.  

You seem very concerned about your personal cash flow during the deal, which makes me think you are attempting to invest only/mostly your sweat.  I know that worked in a buyer's market 6 or 7 years ago.  Frequently, then one sponsor would put a deal together with limited cash.

But today in a seller's market, I'm not sure you will get that far.  Today, it is my perception that most deals require HARD MONEY to get the deal.  And you will likely have to impress a broker/realtor enough to put your offer through.  And the syndications attorneys are not cheap.  And there are expenses associated with due diligence.  You have to front those before you can raise funds.

Please do your homework.

Regards,

Charles LeMaire

I don't want to rain on your parade, but the "in addition to enjoying it between rentals"  caught my eye.  Be aware the IRS has a rule for you...  *

Rental Property / Personal Use

If you rent a dwelling unit to others that you also use as a residence, limitations may apply to the rental expenses you can deduct. You're considered to use a dwelling unit as a residence if you use it for personal purposes during the tax year for more than the greater of:

1. 14 days, or
2. 10% of the total days you rent it to others at a fair rental price.

Charles LeMaire 

* Not sure how to set the format to normal...

"Accredited" means RICH, "sophisticated" means SMART. Not being either means the SEC protects you from losing.   What @Steve Hall is saying is being RICH does not mean you are SMART.  You can be RICH and not SMART and possibly lose.  It is better to be both.

Charles LeMaire

I have one and it has been great for me.  

All Mentors and all mentees are not created equal, so I don't think it is sufficient to say "Mentor is Good", without explanation.  First, I had a job I enjoyed so I decided to be a MF passive investor, unless that job evaporated - by the way, it was a very nice feeling to have a back-up plan, not feeling the stress of a possible job loss.  Also before jumping into RE, I could control my expenses, but not my income; RE allowed me to modify that aspect as well.

I don't think training (books or classes) alone would have actually gotten me jump-started.  Nor would only being introduced to a pride of sponsors.  It was the combination of these two that fostered the environment that has allowed me to do well.  My mentor, Brad Sumrok, has created Sumrok University (my name, he calls it the eco-system) where a lot of Sponsors and Passives meet and flourish. 

But I do recognize that it is an extra cost; if one has access to deals, sponsors, money, experience, you don't need a mentor.  If not maybe one would be helpful.

Charles

To be clear, I don't work for him!  I do volunteer to help at his events, especially after about $2M in pocket change.

A lot depends on your situation, but let me try.  You put in $50K and in the end collect a total of $100K (distributions and final checks).  You are of course elated!  But then comes the realization that the IRS wants a part of it.   

Devoid of other investments, your entire $50K would be around as the basis (either as capital or as accrued depreciation), so you would pay CapGain on the $50K, perhaps at the $15% rate (unless you are a big earner elsewhere).

But during the time you held this investment, you made $10K long term gains in stock (you sold that Apple you bought in 1990).  At that time you used the depreciation and paid no tax on that $10K.  But when the above property sold and taxes were due, you now had only $40K basis, so you had to pay Cap Gains on the $60K.  

You may not recognize it, but you are again happy as you pushed the taxes on the Apple gain a year or so - delaying taxes is tax planning.  

Commonly, there are actually some real expenses that lower the taxable amount, but in general, budget for the gain and smile when you get a refund.

Say you do this again.  Before the sale, you invest in another.  The depreciation will lower the tax burden of the first and increase the tax burden of the second.  Again smile, as you have delayed paying the tax!

Regards,

Charles

@Brian Burke - Sorry for the confusion about how I phrased my depreciation comment; I knew what I meant...   

So far every deal I have been in passes the depreciation pro rata (Check the OA!), that is, the Lead gets his share and the investors get their share.  My actual point was that the Leads will choose to use Cost Seg as they are the big beneficiaries of it as they are usually RE Pros.  RE Pros can use it on Earned Income to move that E.I to the future and pay lower CapGain taxes then - GREAT!.  

As a passive, depreciation can help you with passive income, pushing the CapGain tax to the future - GOOD.  Everyone is different, so the benefit might be a little or a lot.  But Cost Seg is the "Fire Hose" of depreciation, relative to normal ("garden hose") depreciation.  Passive likely will not do any better using Cost Seg than not.  

Charles

Color me stupid for stepping on this landmine!  I am not a CPA, just a passive investor in a few deals. So consider this the layman view, presented with the intent to move the subject along...

What I see is a fellow who invested $50K to become a partial owner (0.206%) of a MF deal. You mention this is your first, so I assume you are a passive and not a Real Estate professional. This is REAL money, not qualified money (not IRA money). The deal was purchased in 2018. During the first year the deal distributed $1841; not that it lowers your cap account (basis) so will affect your future cap-gain, but will have no immediate effect on taxes. The deal did cost segregation; they pulled all possible depreciation forward to year one, your share of that is $30K. Whether that is useful is dictated by your tax situation. Return to that in a moment.

Normally as an overview assuming you are passive and this is your first deal, you put it the $50, they distribute say 5% per year for the 5 year hold ($2.5K/year * 5 years = $10K), you are still receiving a return of capital (no taxes on your money).  At the end of the hold they sell it and you double the investment (your share of the sale is $100K).  They send (it often takes several checks to close it down) you the $100K.  Your capital account (basis) was $40, so you get to pay cap gain on $160K (really there were some actual expenses that modify this a bit, but think big picture).  If you are a mover and shaker, you get to pay 20% + the 3.8%.  Smaller fish, 15%.  Maybe you can get away with 0% tax.

Back to the Cost Segregation.  Your sponsor is likely a RE Pro.  He did the Cost Seg so that he could get the depreciation and lower the W-2 income (or other earned/business income) in his household.  Tax planning is simply pushing high taxes today to lower taxes tomorrow.  So he trades paying taxes at earned rates today for cap gain rates in the future.  It is smart!  But do realize, he lets the investors pay for the Cost Seg (even smarter!).

What does that all mean to you.  Not really very much.  Yes, you contributed a little to the cost of the Cost Seg, but it is relatively small.  You can use the passive loss against any passive gains you may have and thereby push your taxes into the future.  Or whatever you don't use will simply be used when this deal is sold and it will look like the Cost Seg never happened.

I am fairly sure their are technical inaccuracies in the above - please be kind!  I am a very sensitive guy.

Regards,

Charles LeMaire