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How to Make More Cash with Real Estate

Think Buy and Hold real estate is your ticket to early retirement?

For the odd person with luck and good timing on their side, it can be. For most people, unless you’re talking early retirement in 15 – 20 years, it’s not.

Buy and hold rental property is a critical component to every real estate portfolio. I think it is THE greatest wealth creator over time, but if you want to live off your real estate without waiting to pay off the mortgages or working your butt off to buy 100 houses, then you’ll need to find a way to bring in some cash today.

Besides holding down a job to pay your bills which is a great strategy if you like what you’re doing (it will be MUCH easier to get financing for your deals if you have a job!) most real estate investors create their cash today using one of the following five strategies:

  1. Wholesaling or assignments
  2. Flipping
  3. Becoming a realtor
  4. Creating a property management business
  5. Adding a strategy like rent to own that will increase your cash flow on a monthly basis. (this is what we did when I quit my job four years ago).

So what are each of these strategies?

Wholesaling to Make More Cash with Real Estate

Wholesaling is basically where you do all the leg work to find under market deals and get them under contract. Then you assign them to someone else for a fee.

Traditional wholesale models are where an investor just wants to be assigned a profit producing property. You put in the effort to market, filter and negotiate the great deals and build a network of investors that will buy the deals off of you, and then when you have a good deal you assign it to an investor.

This model is a great way to add thousands of dollars to your pocket ever deal you do. Of course, the challenge with wholesaling is you always have to work your funnel of deals and build your investor network so you have supply and demand for the product. It is a lot of work – but it does help fill your bank account once you get your systems in place.

Flipping to Make More Cash with Real Estate

Most people think they know what it takes to flip a house thanks to all the tv shows on the subject.

Ian Szabo, a guy who knows what it takes to make $50,000 – $150,000 on a flip (he does 2 or 3 like that a year), author of From Renos to Riches, and creator of FlipSchool.ca says he flips houses in two ways:

  1. Buys a derelict house in a great area, fixes it up, and sells it for a juicy profit.
  2. Buys a house that needs work, adds a legal suite, refinances to pull out all his money and some profit, and then rents it out to make cash flow.

Flipping is a high-risk strategy, however, and even Ian doesn’t recommend anyone approach it without a back up strategy in place.

With the right strategy, the right house and the right plan, most flippers starting out can make about $30,000 on a flip, according to Szabo. And that’s about right! One of our VIP Coaching Clients just finished her first flip & made pretty close to that too.

With that kind of profit potential, you’d only need to do one or two a year to really fill in your ‘cash today’ needs.

Becoming a Realtor to Make More Cash with Real Estate

We don’t have an official survey or anything but I’d venture to say this is one of the most common ways real estate investors make their cash today. When you’re an active buyer of real estate, it doesn’t take too many deals where you see your agent make $10,000 in commission for doing minimal work, to begin to see the value in working as a realtor on your own deals. When you also consider that you can help a few of your investor friends and make a bit of commission on their deals too, it can be very appealing for you to become a realtor to satisfy your needs for cash today. Plus you’ll get access to all the MLS data for your area.

That said, it IS a distraction. No matter how little you do as a realtor it takes time and money to have your license. We’ve considered it but ruled it out because we think that it will distract us from our primary business which is buying real estate. There are some other challenges with being a realtor and an investor such as ensuring you follow disclosure and other licensed realtor rules. Further, there can be considerable ongoing brokerage and marketing costs to stay licensed as a realtor.

For many investors though it’s been the ticket to freedom. If you can stay focused on your investment business and build a successful side business as a realtor, this seems like a very popular way many real estate investors make cash today.

Creating a Property Management Business to Make More Cash with Real Estate

At one point, with property all over Canada, we were working with 6 different property management firms. When we quit our jobs and began to spend more time evaluating our cash flow, we began to spot a lot of cash leaks.

To plug some of the holes, we began bringing our property management efforts in house. With the money we saved on property management expenses each month we could afford to hire someone to help us. By doing most of our own property management, we find that we make more money every month and spend less to do it.

Many other investors come to this conclusion as well. And if they do their own property management well, their investor friends take notice and ask for help managing their properties.

But it takes a lot of work and it’s not exactly fast cash. You also should take note that some provinces require a Property Management license to manage properties that are not your own.

Rent to Own to Make More Cash with Real Estate

Rent to own is when a tenant rents your property with the option to purchase it. You set their purchase price at the beginning, they pay a fee for the option to purchase it in the future, and a portion of their rent is a credit which builds up over time towards their purchase.

It generates more cash flow because the tenants are paying a higher than market rent for their property in exchange for credits that build up towards their purchase and they are responsible for basic maintenance. You also don’t typically need property management because of the quality of tenants that move in and because they are responsible for taking care of repairs up to a certain dollar amount ($300 in our case but many other investors have their tenants handle up to $500 or even $1,000).

When I quit my job, we evaluated all of the options for cash today. Wholesaling requires constant marketing and funnel management. If you’re not constantly finding sellers and buyers you aren’t making money. Flipping is stressful and higher risk. It also requires you consistently be working on a flip or you won’t be filling your cash needs.

We felt being a realtor would reduce the focus from our own deals and since we were planning to do a deal every month or so, we knew we’d need a lot of focus for that. And property management is not something we really enjoy, so we didn’t want to create a business around it.

That left us with rent to own as the best solution for us.

By changing a few of our existing rentals to rent to own, and adding just a handful of rent to own properties to our portfolio we were able to boost our cash position with the option fees and the increased cash flow to a point where we felt comfortable financially from our real estate holdings. We also like the fact that rent to own helps good people get into home ownership. Our rent to own tenants give us big warm hugs, invite us for dinner, make us handmade thank you cards and invest in fixing up the homes.

We do have to continue to add properties in order to keep the cash flowing because rent to own deals do turn over every 12 – 24 months after purchasing them. That has largely been the reason we so aggressively added property to our portfolio in the last three years adding 10 – 12 new properties a year. But we like rent to own because if we want to take a month off from working on our deals, we still make money. We can’t say that about any of the other strategies.

And for us, our real estate business has been created so we can live the life we want. For us we wanted to maximize our freedom and minimize the amount of ongoing work that has to be done in order to generate the income we need.

Regardless of how you do it, if you want to become a full time real estate investor, you’ll need to find a cash today strategy that works for you so you don’t have to wait 10 years before you can call it quits.
Image Credit: © Sorin Alb | Dreamstime.com

Make Your Vacation a Tax Write Off

by Bill Walston

Make Your Vacation a Tax Write OffSummer’s here and everyone’s mind is on vacation! How does that fit into your “tax deductible” lifestyle?

Here’s the scoop: the IRS says that you can deduct expenses for taking a business trip. There is no reason the trip shouldn’t coincide with your next vacation. With proper planning, you can get your business to pay for your trip and make your vacation a tax write off!

For starters, the primary purpose and intent of the trip must be business. If there is no business purpose for your trip none of your expenses will be deductible. Now, as real estate investors, unless the destination is completely random, chances are you’ll find a way to do business there. Secondly, your expenses will need to be allocated between business days and vacation days. Our goal is to document as many business days as possible at our chosen destination.

Establishing a Business Day
A business day is defined as any of the following:

  1. any day you are traveling to or from a business destination
  2. a day when you have a pre-scheduled appointment (regardless of the length of time spent at that appointment), or
  3. a day when you spend at least four hours on business.

What You Can Deduct
Generally, you can deduct all of your travel expenses if your trip was entirely business related.

When you make your vacation a tax write off, travel expenses include both transportation expenses and “on the road” expenses.

Many people combine these under one set of rules. However, they are treated differently; each category has its own separate rule base. What are the differences? Transportation expenses are those costs that you incur in getting to and from your destination. So the cost of your airfare or car costs would come under that category. If the business days of your trip exceed the non-business days the assumption is that your trip is primarily for business and all of your transportation costs are deductible. If non-business days exceed business days then none of the transportation costs are deductible, even though you may be able to deduct “on the road” expenses.

Tax Write off VacationThe “on the road expenses” include all costs necessary to sustain life while on your trip. These expenses include lodging, meals, laundry, dry cleaning, and similar expenses. These expenses must be allocated between business and vacation days, if any.


How Much You Can Deduct
There are two ways of deducting your business travel, the per diem method or the actual expense method.

Per Diem Method: The IRS allows for a set deduction per day when you travel. Every year, the IRS publishes a table (IRS Publication 1542) which specifies a per diem value depending on your destination. There is an amount specified for both lodging and meals and incidentals. Even if you spend less than your per diem rate, you can still take the entire per diem deduction. What I love about this method is that it doesn’t require receipts. You only need to document where you were! Imagine the possibilities.

One caveat: Sole proprietorships are not allowed to use the per diem method for their lodging deductions. However, all other expense are fair game as far as per diems go.

Actual Expense Method:  This is pretty straightforward. Simply keep all of your receipts and add up the total amount of deductions based on what you have spent. The important thing is to make sure you keep the receipts for everything you spend your money on.

Deduct Expenses for Your Spouse or Significant Other
If you want to take trips with your spouse or significant other and deduct the travel expenses for both of you, you must have a justifiable business reason for bringing along that person. This usually occurs under three scenarios:

  1. The individual is part owner of your business.
  2. The individual is an employee of your business.
  3. The individual is a business associate with whom it is reasonable to expect that you will actively conduct business.

This means that you can take individuals with you and deduct 100% of their business travel as long as they are directly associated with your business in any one of the preceding three circumstances.

Make Weekends Deductible
Tax Write Off Your VacationHow would you like to treat Saturday and Sunday as business days without ever working on the weekend? You can – if you know what you are doing. As long as Friday and Monday are business days then Saturday and Sunday are business days as well – even if you party like a rock star on the weekend! This is a very popular strategy; however, its success rests on your ability to substantiate your claim that there was business activity on both Friday and Monday.

Records to Keep
Remember the old saying about real estate. . . Location, location, location. Well with the good old Uncle Sam the rule is. . . Documentation, documentation, documentation. Make sure that you set up a trip folder. Keep copies of e-mails setting up appointments with realtors. Take photos of properties you view. Take notes at meetings you attend. Keep copies of MLS print outs. Make sure your business appointments are recorded in your calendar. This all will establish the business intent and purpose of your travel. And remember, without business intent there is no deduction.

So, there you have it. When you are a small business owner (and as a real estate investor that includes you) the tax law turns in your favor. What were once personal non-deductible expenses have now become tax-deductible business expenses. With proper planning, you can literally make your life tax deductible.
Bill Walston is a full time real estate investor, mentor and tax strategist who supports his clients in growing, promoting and building their real estate businesses. To learn how to begin living your own tax deductible lifestyle, contact Bill by email. You can also follow Bill’s great advice on Twitter at
http://twitter.com/resherpa

 

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