06.18.14 Book Review: Rich Dad's Real Estate Advantages

My latest real estate read is Rich Dad's Real Estate Advantages by Sharon Lechter & Garrett Sutton

I wanted to read more about taxes, since our rentals are raising our tax liability instead of providing a tax shield. I was wondering if we were doing a tax calculation wrong, but looks like the market is just different today.

The book uses an example of a $450K investment in property, and our total investment is similar, so I put the numbers side by side. We have higher income, higher expenses, and lower debt service, bringing more than double the cash flow in the textbook example. The interest portion of our debt service isn't significantly different, but our depreciation write off is only about half of the textbook example. Which begs the question - are we talking all the depreciation we can in the early years of our investments? We could be more aggressive by splitting out the purchase price into component parts at purchase, but it seems like a big hassle. Another driver seems to be the higher cash flow; investing for cash flow rather than appreciation raises the initial tax liability.

This book does an excellent job of explaining 1031 exchanges and several tax planning strategies. Not sure I'm raring to use any of them, but at least I understand them a lot better now. I also learned a lot about the different legal entity choices and asset protection strategies. It almost convinces me to use LLC's. Maybe in the future.

Other interesting tidbits:

Pay attention to the people you spend the most time with - are they investors (rich dad) or employees (poor dad)? Spend more time with those you wish to be like.

The most valuable piece of real estate is the six inches between our ears; keep educating ourselves. But, school system drums in perfection and not making mistakes, when living through mistakes is a very effective way to learn.