All Forum Posts by: Lane Kawaoka

Yes I have seen some people do this with the intent to turn their home into a rental or str. That said its grey area

@Bobby Paquette

It's like having your own bank, where you can make money in two places at once by using a whole life insurance policy that grows and then you take a loan based on that policy's value to invest in real estate or other sweet deals.

Here's how it works in simple terms:

1. You make a deposit into your policy.
2. You take out a loan using the policy's cash value as collateral.
3. You invest that borrowed money 

Now, when you've got real estate deals exiting and giving you some cash, instead of stashing it in a low-yield bank account, you can pay off the loan on your policy and keep funding it. That way, you've got your capital safely stored while waiting for your next big investment.

Policies are backed by AAA insurance companies, so they're considered more secure than regular banks. No need to worry about them pulling a loan out from under you - that is where the term your own bank comes from.

Plus, you get some asset protection with life insurance policies depending on what state you live.

Some insurance policies can have high fees, it's not a scam like some regular whole life policies. The key is doing the minimum or 10% insurance. But the agents normally don't like that.

Remember, it's not an investment method itself, but it's a smart move for those who want their money working harder in real estate and beyond. 

Also IULs are more investment in stock market tools. They don't have as much liquidity as wholelife policies - the Paid up additions are not a large so you can't over fund as much.

@Deepen Patel

I see you guys are in San Francisco and probably accredited investors. I went through the OOS turnkey rental phase myself back from 2012 to 2015 when I wasn't accredited yet. You learn a bit, but honestly, it can get risky, especially when you're buying properties with low rent-to-value ratios or in tougher class C areas.

With prices going up, it's getting trickier to invest in California and deal with those anti-landlord laws. So, most of my portfolio is now in those red states and out-of-state markets.

My suggestion, as we discussed in our podcast, is to connect with other accredited investors. Consider whether rehabbing units on your own is worth the risk, especially if you're making more than $150,000 at a day job. It might be better to be a passive syndication investor and let the experts handle the heavy lifting. That way, you can still enjoy the benefits without as much stress.

@Russell Sherman
Hey Russell, it looks like you've surpassed that $250,000 exception, which means you'll have to pay taxes on the overflow. Now, I know some folks suggest 1031 exchanges or DSTs, but honestly, those processes can be cumbersome and expensive, so not many people in my world will just get losses from their investments and use those front loaded PALs to offset their capital gains.

When I sold off my turnkey rentals and went into syndications, I went this route and benefited from better passive losses due to cost segregations and bonus depreciation. This allowed me to accumulate those losses to offset my capital gains from selling the properties.

The key here is to ensure you generate those passive losses in the same year or in years prior to selling your house. This way, you'll have enough to offset the capital gain. In 2017 I sold off 7 of my turnkey rentals and had 200k of capital gains but I had built up PALs from going into a lot of syndication deals that year prior. Therefore I was able to offset the taxes completely.

If your income is under $350,000, you might consider just paying the tax bill as the taxes won't be too high, especially if you're in Texas where the AGI isn't too high.

Now, let's talk about alternative investments in real estate. It can be quite a loaded question, as there are opportunities to make good returns, say 12% to 20% with cash flow. However, it's crucial to be cautious about who you're dealing with. Many folks out there may not be genuine, so it's best to find opportunities where you can be a purely passive accredited investor.

If you need any further assistance or have more questions, feel free to reach out. Happy investing!

roger!

1031 exchanges not really the answer for transitioning from single-family homes to syndications. Syndications are "businesses" and not a LIKE KIND exchange with real estate investments, making it impractical to use a 1031 exchange to invest in them. While there is an option called a tenant in common (TIC) exchange, it involves legal complexities and expenses that may not be worth it unless you're bringing in a significant amount of equity, usually over a million or two million dollars. As a passive LP investor, it's generally not advisable to pursue this route since think about it... when the syndication deal exits in three to five years you will be in the same situation.

Personally, I sold seven of my rental properties in 2017 and gradually divested the rest over the following years. This approach allowed me to take advantage of passive activity losses and the 8582 form, which is crucial for accredited investors investing in private placements. This makes the 1031 exchange obsolete since it's more advantageous to offset taxes with passive activity losses. This is the approach for investors who have decent salaries and are becoming accredited investors and those who realize that owning multiple rental properties is not scalable, so you move on to private placements and syndications.

I'm happy to help, as there aren't many accredited investors on these forums who are actively involved in syndications. Many individuals here are still caught up in the single-family home rat race, where they buy, rent, and rehab properties. While this can be great for those with lower net worth, typically under a quarter or half a million dollars, it's not a scalable strategy.

@Dave DeMarinis When it comes to your IRA, think of it like a tax-free vehicle. It's great for avoiding taxes, but unfortunately, you won't benefit from the cool depreciation tax advantages flowing through to your personal side. That's why I'm not a big fan of self-directed IRAs for most people. Instead, consider forgoing those tax benefits in IRAs and focus on leveraging passive activity losses and bonus depreciation on your personal side so you can manipulate your adjusted gross income every year to your advantage.

Now, let's talk about syndicated deals and leverage. Even if you're investing in such deals and facing taxes and leverage challenges like UDFI, you can still benefit from losses. If your sponsor has implemented cost segregation and secured bonus depreciation what I suggest is using the losses generated in a given year. Based on my experience, if you invest $100,000, you can expect to receive at least $50,000 to $60,000 in first-year losses alone. That should cover your UDFI and possibly even the entire investment over its lifespan, which is typically under 10 years.

So, to sum it up, don't stress too much about UDFI and taxes. With the right strategies in place, you can generate significant losses in the initial years of your investment that will offset any tax implications. 

@Divya Kohli 

I see you're from the Bay Area, and I'm guessing you're making a decent income out there, like around a hundred grand or more a year. If that's the case, I gotta say, you're probably better off skipping the whole turnkey rental property thing. I mean, that's what I did back when I was a non-accredited investor from 2012 to 2016 buying 11 turnkeys. But once you become accredited, you kinda outgrow that stuff and can move on to more scalable investments. Don't get me wrong, turnkey rentals might look good on paper, but in reality, they're just not scalable. Plus, once you start dealing with tenants and property management after selling those properties, a whole bunch of issues can pop up, and it can be a real hassle.

What: Accredited investors only
When: Thursday July 20th, 2023
Time: 4:00 pm - 8:00 pm
Page - https://simplepassivecashflow.com/foom-seattle-event/