Starting out...asset structuring?

Question

I just started out investing in real estate. Until now, my assets have been simple: paycheck comes in, bills go out, throw some into savings.

Now, I have a primary that I'm using as a rental, have done a cash loan (not as a partner), and have become a partner on three 4plexes. I have a feeling this next tax year is going to be a bit more complex!

Any thoughts/recommendations as to how I might structure my assets to get the most benefit and help keep everything straight? I've read briefly about trusts, estate planning, etc., but am hoping I can get some feedback on what may/may not have worked for you.

Thanks!

Jeremiah B. · Answer

Greg Fend

I should preface this by saying I'm not a expert, and have never done deals as complex as you are now in.  But, you seem to be genuinely looking for opinions, so I wanted to add mine.

A CPA is good to have, but until you are running a business with lots of ins-and-outs or a huge bankroll, a CPA is largely a reactive tax person... and not even a strategic tax person.  They will do your taxes, answer questions for you, and maybe give you some general advice.  I don't know that a HR Block will do it, but the next step up might work just fine.

Skip the financial planner.  Get personal finance for dummies (no joke) and you are set.  Most CFP's rely on traditional tools like stocks and bonds, and are both uneasy, and unqualified to provide meaningful real estate advice.  And all will impose some type of bias to their advice.  If you can find a CFP who works with landlords - that might change things - but you are still facing some sort of bias.

An estate planning lawyer is a must, but you probably don't need an ongoing relationship with him/her.  Set up your will or trust, advanced directive, power of attorney, etc. and call it good.  I think everyone worth anything should do this - real estate or otherwise.

A real estate lawyer is the one person you mentioned who I think you need to have a good ongoing strategic relationship with.  If you're doing out-of-state work, RE loans, partnering on deals, etc - you must must must have a real estate lawyer!

Dave Toelkes · Answer

Greg,

I think you missed the point I was trying to make.  It does not matter what worked or did not work for anyone else.  Their situations are not yours.  What worked for someone else may be the worst thing you can do.  Only the advice you get from licensed professionals who know your specific needs and circumstances will be meaningful to you.

Jeff S. · Answer

This forum is primarily RE and most people here will predominately specialize in RE somewhat to the exclusion of other assets. You will learn RE here.

To learn about other asset classes you must go where that language is spoken. Read Kipplinger and Money magazines and watch Squak Box.

You can become independent like lots of grandmas have by being frugal and putting your money in CD's and not own stocks or RE. Likewise you might be able to do this with a diversified portfolio of securities and no RE.

RE as an asset class, the way it is done by most here, is more than an investment and is closer to a business. It can be done part-time or full-time.

Your options are many and you should play with all of them so you can become educated. Open a brokerage account and buy some stock. Likewise keep learning about RE and see if you want to invest the effort that is required to be more involved. RE is not passive as the name "passive income implies." You may already have noticed that. Good luck.

Greg Fend · Answer

Thanks, Jeremiah B.

Greg Fend · Answer

Dave,

I think we may both be saying the same thing in different ways.  I'm not necessarily looking for an equation for success, but merely asking for thoughts on what different vehicles are out there so that I could then go and ask informed questions of the right professionals.

Right now, the extent of my knowledge is my banking account, a Roth IRA, a few securities, and my Thrift Savings Plan.  Money comes in and money goes out without any real structure.

I'm scouring through the myriad information on SDIRAs, trusts, SD401ks, and the like to educate myself more on all the options...just trying to see what all is out there!

Thanks for your feedback!

Greg Fend · Answer

Thanks, Dave T.  I know that there's not one approved solution, but just curious to find out at least what my options are and what has/hasn't worked for people that are much smarter than I!

Dave Toelkes · Answer

There is no one size fits all answer to your question.  The asset structure that is best for you (if you really need one) is determined by your own situation.  Your financial planner, your tax advisor, your attorney and your own CPA can all get in the same room together at the same time and each may have a different perspective on the best answer to your question but in the end, you will have a recommendation that works best for your specific circumstances.

Greg Fend · Answer

Steven Hamilton II, thanks for your input!  I know it can get confusing with all of the different ways to structure your finances and estate.  Listening to the BP Pocast, Show 5 helped me organize my thoughts a little bit.

More reading!

Steven Hamilton II · Answer

Hi Greg Fend,

Welcome to the forum.

Yes your tax situation is definitely going to get more complex. You might want to consider doing some research on FLiPs if you have children or plan to.

You want a separate attorney and accountant.  The CFP probably wouldn't be nearly as important unless you need someone handling your brokerage needs (Most push stocks/mutual funds anyway).

You want opposing opinions.  You want to run them against each other and get them to work for you. Whereas a firm that does has someone for all of those things will push what makes them money.

If you have tax questions feel free to ask, Tax and Accounting are my specialty.

-Steven

Greg Fend · Answer

Been a little quiet on this one!

But while it's been quiet, I continue to dive into the wealth of information on all of the forums, blogs and articles.  Thanks to everyone who has helped me start to learn more and more about the world of real estate investing.  Although, it does make me ask more questions!

I think that the core strategy for setting up my financial house involves establishing relationships with three key people: (1) an estate/tax attorney, (2) a financial planner, and (3) a CPA.

My intuition is that I should probably talk to those three in that order (lawyer, CFP, CPA).  Does anyone have any thoughts as to what has/hasn't worked for you?  What about businesses that take a holistic approach and service all three needs?  I've heard about one...Optimal Financial Group...but the recent post about them didn't sound very promising.

All of this can get pretty overwhelming pretty quick, and I didn't let it slow me down on my first buy, but I know that I really need to get my systems in place ASAP.

What say you, BP??
Thanks,
Greg

Starting out...asset structuring?

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