All Forum Posts by: Lane Kawaoka

This is a crucial consideration for managing legal liability and optimizing asset protection but that said consider what you have to lose, if you are under 1M in net worth you are not really a big target. That said I am not a lawyer haha, if you need referral let me know these are just my thoughts as an investor...

Reflecting on my experience purchasing rental properties in 2015, where I had a diverse portfolio across Birmingham, Atlanta, and Indianapolis totaling 11 properties, I opted for a middle-ground approach in terms of protection. I established a parent LLC that held two subsidiary LLCs—one for the properties in Georgia and Indianapolis and another for those in Alabama. This structure provided a balanced level of protection without being overly cumbersome - that said 3 LLCs was a pain.

If you're inclined towards maximizing legal liability protection, you might consider creating individual LLCs for each property. However, this can be seen as overkill by most and you will likely fudge the handling of each paperwork/banks/entity essentially bricking your entities - that said it will help in settlement if sued. A more streamlined approach, which still offers a significant degree of protection, would involve grouping properties by state under separate LLCs, as I did.

As you delve deeper into real estate investment, you may also want to explore syndications and private placements. Moving away from direct property ownership to becoming a limited partner (LP) in larger syndication deals can drastically reduce your liability and improve scalability. This transition allowed me to shift focus from managing numerous high-liability rentals to more strategic, high-value investments with limited liability.

To respond to your inquiries, Helen:

1. 1) The interest rates for bars are expected to vary slightly, yet they will be substantially more stable compared to the current fluctuations in the capital markets which is why people would do it. Remember to back it out as a business expense too which should make the real rate a point or two lower depending on your tax bracket.
2. 2) For securing loans, I incorporate the value stated on balance sheets within my personal financial statements. We buy apartments will commercial debt.
3. 3) Depending on the lender, this valuation can be utilized as proof of funds; however, not all lenders accept it so its a bit hit and miss. I never had to do it but I would assume you could just cash the money in a bank if they asked pre-closing.
4. 4) If you're considering reaching out for more information, feel free to let me know.

Lastly, regarding the policy with Mass Mutual (or NW Mutual too), it may not be advisable to use them for your intended purpose. Their setup does not ideally support frequent transactions in and out of your account, especially if you're looking to employ the infinite banking strategy.

Sign up form

It's been a while since we last gathered, I believe the last occasion was back in 2022. We're thrilled to announce a new Investor Mixer event, providing a unique opportunity to connect with myself, fellow investors, including many new faces in our group. This gathering might also offer the chance to reunite with old acquaintances, be it a former colleague or a high school friend, adding a touch of nostalgia to our meetup in Hawaii where everyone knows you.

Event Details:

1. Date: April 19 (Friday)
2. Time: Evening after 6PM (Specifics to be confirmed)
3. Venue: Honolulu, To be announced shortly
4. Cost: $79 per attendee, to increase on April10th

Agenda Highlights:

1. Networking with fellow investors and industry peers
2. Breakout sessions and mini-workshops focused on topics such as accredited investor banking and exclusive off-market opportunities

For individual taxpayers selling their principal residence, the IRS does provide an exemption up to $250,000 of the capital gains for single filers and up to $500,000 for married couples filing jointly. This exemption is applicable if you've lived in the home for at least two of the five years immediately preceding the sale.

For investment properties, a Section 1031 exchange, often called a "like-kind" exchange, allows the deferral of capital gains taxes if the proceeds from the sale are reinvested in a similar property. This process is quite specific and must be adhered to with strict guidelines, including timelines and the nature of the property being purchased.

Another method is the lazy 1031 exchange which is banking passive losses on your 8582 FORM from depreciation on other parts of your grouped portfolio such as several other real estate syndications.

Be careful to get good insurance costs. We saw our insurance 3X a few years ago which is why we sold our apartments in this area.

When selling your primary residence, you're eligible for a significant tax advantage: individuals can exclude up to $250,000 of capital gains from their income, and married couples filing jointly can exclude up to $500,000. This exemption can substantially reduce or even eliminate your capital gains tax obligation, depending on the profit you realize from the sale. It's a key strategy for homeowners to consider when planning their sale and assessing their potential tax implications. For rentals its a different story.

Probably need a new cpa. Sounds like they are having a wrong interpretation of active/passive. Sign of a non in the trenches CPA.

Selling a house in a trust, whether revocable or irrevocable, does involve potential capital gains tax considerations, just like any other real estate transaction. The key detail here is how the trust is structured and the specific circumstances surrounding the sale.

In many cases, the type of trust (revocable vs. irrevocable) can influence the tax implications. With an irrevocable trust, for instance, the property is considered outside of the personal estate of the grantor, which can lead to different tax treatments compared to a revocable trust where the grantor maintains control over the assets.

When it comes to capital gains tax, it's not just about whether the property is in a trust but also about how long the property was held, the basis at the time of transfer into the trust, and the selling price. The trust's tax status and provisions can significantly impact the calculation of capital gains tax.

Moreover, there are various exemptions and strategies that can potentially reduce or eliminate capital gains tax, such as the primary residence exclusion for individual sellers, which isn't automatically applicable to trusts but may still benefit the beneficiaries under certain conditions.

For those inheriting property, the scenario shifts. Typically, inherited property benefits from a "step-up" in basis to the market value at the time of the original owner's death. This can significantly reduce the capital gains tax if the property is sold shortly after being inherited, as the "gain" may be minimal.

This step-up in basis is a crucial aspect of estate planning and can prevent substantial tax burdens for heirs. However, if the property has appreciated significantly over time, and depending on the estate's overall value, other tax considerations, like estate taxes, may come into play, especially in high-value estates.

I used to buy turnkey rentals in Birmingham, Atlanta, Indianapolis, when I first started. Great way to by first few rentals especially if in high price CA.

From the real estate you are going to be getting Passive Activity Losses (PALs) which is depreciation to offset passive income, potentially reducing your overall tax liability. This strategy, if combo with REPS (real estate profession status) basically checkbox on your taxes is key to canceling out full-time W2 employment.

If this is new to you... PALs fundamentally work by allowing investors to deduct depreciation from their properties, which can significantly reduce the taxable income generated by these investments. Depreciation is a tax deduction that reflects the costs of wear and tear, deterioration, or obsolescence of the property. For example, my first property in Seattle was a $350,000 property, separating the land value ($150,000) from the improvement value ($200,000) enables an annual depreciation deduction around $6,000 over 27.5 years. This deduction can offset the income generated by the property, potentially reducing it to a tax-neutral position.

For those with full-time jobs, the challenge lies in the IRS designation of "real estate professional," which has specific hour requirements that must be met to take full advantage of these deductions against ordinary income. If you can't qualify as a real estate professional, your ability to use PALs to offset non-passive income (like your W2 earnings) might be limited. However, the real estate investments still offer the potential for tax-deferred growth and, under certain conditions, the ability to carry forward unused passive losses to offset future passive income.

The concept of depreciation and bonus depreciation is particularly advantageous in the early years of an investment, allowing for significant upfront deductions. Bonus depreciation can accelerate deductions, increasing the amount of passive losses available to offset passive income from real estate or other sources. It's important to consult with a tax professional who can advise on how these strategies align with your overall financial situation, especially considering your full-time employment and income structure.

Moreover, as your portfolio grows, and particularly if one spouse can transition away from W2 employment, the landscape of your income and tax liabilities shifts. The progression towards more passive income sources, balanced against the backdrop of your evolving investment strategy, can lead to a more favorable tax position. This journey, is the transition from primarily active (ordinary) income to a portfolio characterized by passive income streams, benefitting from tax-efficient strategies like PALs.