Ep033: How to Become Financially Bulletproof

Chris McAllister: Hi all, Chris McAllister here with the Connect, Practice, Track, and Grow podcast, where it’s my job to make your real estate business better and your life easier. I’m here today with my podcast partner, Laci LeBlanc, and a special guest, my accounting partner, Jill McGregor. And we’re going to continue with part nine of our 12 part series, Protecting the Goose that Lays the Golden Eggs.

And today’s episode is titled how to become financially bulletproof. Good morning, ladies. 

Laci LeBlanc: Good morning. Good morning. 

Chris McAllister: So maybe Jill, to kick us off, you could tell us a little bit about yourself and, uh, how we got together and, uh, I guess the origin story. How’s that? 

Jill McGregor: Yeah. So, um, My name is Jill McGregor. I am located outside of Chicago, Illinois.

Um, but I connected with Chris and his, and ROOST Real Estate, uh, 11? 11 or 12 years ago. I’d have to go back and look at the official date. Um, but he came to the accounting firm, the CPA firm I was working at in Ohio at the time. Um, as his portfolio was growing and his taxes were being slightly more complicated, we needed to, um, we needed to dive in and make sure he was getting all the benefits, tax benefits he could, and through that, we, um, have begun to work together to make sure that Chris gets all of the tax benefits as a real estate professional, as a real estate professional,

real estate investor and We work closely together and um today we’d like to share some of those secrets with you. 

Chris McAllister: Wow Sounds like a fun day. 

Laci LeBlanc: Well, you know me I can’t wait to talk numbers and finance over here Um, so i’ll be i’m here solely to translate for those of us who do not speak your language Jill.

Um So I can’t, I can’t wait to hear the tips and tricks, um, and see how they might, might apply to what I call the rest of us. 

Chris McAllister: Well, just to kind of set up where this, uh, this, this whole podcast is going is it’s really. about why real estate agents and brokers should be investing in real estate. And I have to tell you, it always amazed me how few real estate professionals actually invest in their own business.

Meaning how few of them actually invest in real estate. And I, I don’t get it. And to be honest, it was the opportunity to invest in real estate that really motivated me to become a, uh, a licensed real estate agent back in 2001. And from the moment I got my real estate license, I did everything I could personally to put every dollar I made as an agent into my real estate portfolio.

So I could create enough passive income to cover you know, the daily needs of the family. And, you know, every year we get a little bit closer to that ideal. But, you know, I won’t say that we’re by any means financially bulletproof personally, but I can tell you that over time, you know, we’ve we’ve gotten closer and closer and we get a little bit closer every single every single year, actually every single month.

Cause quite frankly, every time we collect the rent and make another batch of mortgage payments, we’re getting that much closer to, you know, financial security, independence, becoming bulletproof, whatever you, you want to call it. So let’s start with the basics. Real estate is, is the best way I started to say one of the best ways, but real estate is the best way.

out there to build long term wealth. Investing in real estate provides cash flow. As a real estate professional, you know that it appreciates over time. There are some unique tax benefits, and that’s what Jill’s going to help us with today. And unlike something like the stock market, it’s something that you can actively influence.

And I think for anybody, those are good reasons to invest in, in, in real property, but for us realtors, you know, we have some superpowers that regular investors don’t, and you know, when you think about it, if we’re at all involved right in our careers, we have a pretty good sense of where our local market is moving.

And even better than that, you know, we do get access to potentially great deals before the rest of the public and I’m not going to sit here and say that that’s a, that’s a bad thing. I mean, there are many, many ethical ways to invest in real estate at a fair deal for all parties. because you have inside information and inside information, unlike investing in the stock market, um, is, is not a bad thing in our business.

You know, we were skilled negotiators, so we can negotiate in confidence with confidence. And, um, you know, you could argue that we, maybe we’re not as good at negotiating, excuse me, for ourselves. As we are on behalf of our clients, but you know, we’re still better than most right at the end of the day, we don’t take every single dollar off the table and the deal happens to be, you know, that much better for all parties involved.

And I’m not going to say that that’s a bad thing for our overall business. That’s a great thing for our business. And just at the end of the day, we understand, excuse me, the nuances. That make a property profitable in the longterm. I mean, quite frankly, for us, we’re already, you know, halfway up the mountain.

Well, well, you know, quote normals are still at the base. So why wouldn’t we use these, these skills and these capabilities and these opportunities to build our financial future? The congregation can be seated, by the way,

anything to add there, ladies? 

Laci LeBlanc: I think it’s a great point. I think that’s something that, you know, in the busy life we talk about, this is the protecting the goose that lays the golden eggs, right? You’ve got a busy life if you’re a real estate professional. Um, and there are always things that you can be doing to improve that life.

That’s what this podcast is all about. But this, this is just one of those things that falls by the wayside, you know, for, for quote unquote, normal individual. Um, you know, that might be investing in a retirement account or, you know, becoming a real estate investor, but, but this is just one of those things that you can do that will drastically kind of improve your, your financial outlook, um, that just gets Thanks.

Push to the side, push to the side, push to the side. And I think that you’ve done a really good job at kind of explaining in, in previous episodes, even the importance of right, making sure that you’re doing everything you can to, to make your life as good as possible. And this is just a great example of how, you know, as a real estate agent, you have some advantages.

Just like if you’re a financial professional, you know, the ins and outs of a 401k or a Roth IRA, you know, this is one of those things that you really should be looking into for sure. 

Chris McAllister: Well, it’s another stream of income. You know, excuse me, as a real estate professional, you, you help clients buy and sell homes and you, you earn an income from that.

As a real estate investor, you know, you, you buy real estate, you rent it out, and you earn income from that. Now, I don’t pretend to be, uh, financial guru or a Dave Ramsey, but I can also tell you that, you know, personally, I also think it’s important that at a minimum that you do invest in your, you know, your 401k, if only to get the, you know, the, or your IRA in order to get the immediate tax advantages of, of making those contributions every year.

So, you know, as entrepreneurs, as real estate professionals, You know, aside from our personal businesses and anything that we do invest in our IRAs or in the market or other different types of securities, having that, um, stream of rental income is a, is a, is another stream of income. It’s a, it’s another form of.

Uh, you know diversifying your portfolio and that also provides security for the long term But the real magic and real estate comes with time and appreciation And we’ve talked about this a lot in this series But the real magic comes when you’re when you’re taking the long view, you know real estate grows in value over time It appreciates and this is one of the most powerful wealth building forces in the known universe.

You know, the last few years when we’ve worked with clients, you know, sellers, especially they’re amazed at how much their properties have, have gone up in value, you know, even just in the last three or four years. And I can tell you that those of us who own, you know, rental property, are incredibly happy and grateful that our personal holdings have gone up in value like that as well.

And I really want every single real estate professional out there to, to take advantage of that for them, for themselves. You know, if you hold a property long enough, you’re going to see its value multiply and, and, and yet, you know, too often people don’t even start or, you know, they, they get, they get out too early.

They don’t stay in long enough, right? And, and, you know, we often get caught up in the idea of quick returns. You know, some realtors like to flip properties, you know, because they, they want that, you know, they want to turn that cash as, as fast as they possibly can. But in my view, you know, they’re missing the bigger picture, you know, as, as local on the ground real estate professionals, we know how.

neighborhoods evolve and we know which areas are poised for growth and we can predict appreciation if not absolutely flawlessly far far better than than most other people and in my opinion not using this knowledge you know to invest in property as real estate professional it’s a sin it’s a crime it’s like ignoring a guaranteed bonus i’ll even go far to say to say it’s it’s it’s personal financial malpractice So, you know, if you, if you haven’t figured out a way to dive in yet, and we’re going to talk about some practical tips for getting ready to do that, you know, later on in this podcast, I, I really urge you to, you know, we’re at the end of the year here in 2024, I really urge you to make investing in real estate a priority.

You know, for the new year. So realtor superpowers tax benefits that investors can’t ignore. So I want to talk about what, what one of the biggest advantages we have as real estate professionals that other people don’t. are the tax benefits and, and these, these are huge. And, uh, um, maybe Jill, this is, this is where you could kick us off on this discussion.

Jill McGregor: Well, I think the first thing I want to say is back to your point about quick return. So when we’re talking about these tax advantages, we’re not necessarily talking about, we are not talking about Flipping properties. These tax benefits are really for the real estate professional who’s going to hold properties, but we also have to define what a real estate professional is because the IRS has a very distinctive definition of a real estate professional.

So the definition is you must work more than 50 percent of your time in real estate, and that must be more than 750 hours a year. So if you are a real estate professional, you can have a real estate license, but maybe you work in another full time job. I have a friend who is a paralegal during the day, and she also holds a real estate license.

She does not qualify, in the IRS’s view, as a paralegal. Real estate professional for tax benefits because she has a full time job and her real estate job is a small portion of her total time. Um, they’re also very clear that if it is a husband and wife team, each individual must meet the requirements.

Both rules of more than 750 hours and 50 percent of your time. So you can’t have a husband and wife team who owns a real estate property. And one of them works part time and one of them works full time and be able to get the full benefit. If you have, you can’t have, you can’t combine your hours, I guess is what I’m saying.

You can’t say, well, these two spouses together 750 hours in real estate. That doesn’t work. It is per person. Um, and then the last thing is, is that they want. A real estate professional to have material participation in their property and that is even different than passive or active. It’s material participation means they are participating in the property in terms of they have influence in the tenants.

They have influence in setting the rent. They have influence in and management responsibilities for repairs, maintenance, etc. It does not mean you can’t use a management property, but you, the owner, the real estate professional has to have material participation. And that is kind of subjective, but in the event that you were, the IRS would question the level of participation, that’s, that’s what they are looking for, that they are materially participating in their properties.

So, um, I’d just like to get that because so many, Licensed real estate agents don’t necessarily qualify, but anybody who’s doing this full time as a full time career would most likely qualify for these. 

Chris McAllister: Exactly, and if somebody’s doing, you know, flips, and making money on those flips, how is that income taxed?

Jill McGregor: Um, then it is taxed, each individual property is typically taxed as a small business. So it depends how the, it depends how the entity, the flipping entity is set up. If it’s an individual who’s flipping properties, um, it usually comes across as Schedule C income. And now we’re getting really specific. But it becomes more about self employment.

it’s more self employment income in a flip than it would be, um, in this case where it’s rental income. 

Chris McAllister: So when you can, when you have self employment income, you still have to pay matching tax on that income, correct? Yeah. So at the, is it safe to say that Uh, when you do a flip and it’s taxed to self-employment income, is that at a higher or, or lower or the same rate as if it was taxed?

Taxed as individual income? 

Jill McGregor: Uh, it depends on the particular situation. Okay. You, you have to have a total tax, a total tax return to see exactly at what rate it would be. 

Chris McAllister: But it’s absolutely safe to say that you are going to take a much larger tax hit if your business is flipping properties than if your business is to hold properties for the long term.

Jill McGregor: I would say that would be accurate, yes. 

Chris McAllister: Yeah, so that’s one of the one of the superpowers is being in it for the long run in the long game So what happens? So what what sort of deduction do you get if if you qualify as as real estate professional status with the IRS? 

Jill McGregor: Let’s compare You versus me. I am not a I am not a real estate professional if I decide I am going to buy A rental property in town and I am going to rent it out and manage it At the end of the year, let’s just say I have 50, 000 in rent and 55, 000 in expenses, so I have a 5, 000 loss.

Let’s say you have the exact same scenario. You have a rental property, you have 50, 000 in rent, 55, 000 in expense, and a 5, 000 loss.

You are able to take that full 5, 000 loss. On your tax return right off the bat because you are a real estate professional I as a non real estate professional either hat I don’t get all of that loss in this year There’s a very small amount I can take it doesn’t offset some of my other expenses And so at a minimum, all I’m going to get is zero tax because my income and my expenses were not positive, if that makes sense.

So for all intents and purposes, I end up at a wash because I have a loss. And I don’t get to take the loss, but you get to take the whole 5, 000 loss on your tax return. 

Chris McAllister: And I get to take it against all income. 

Jill McGregor: And you get to take it against all income. Yes. So 

Chris McAllister: that’s a, that’s a, that’s a beautiful thing.

Now that’s 

Jill McGregor: a big difference. 

Chris McAllister: And now, of course, just because a, a, uh, person who’s not a real estate professional only gets a wash, that’s, that’s still, it’s still not a bad thing. It’s not a bad 

Jill McGregor: thing, but again, it isn’t reducing my W 2 income. It isn’t reducing my husband’s income so that we pay less tax.

It’s a wash. 

Chris McAllister: And that’s why it’s a superpower. 

Jill McGregor: And that’s why for real estate professionals. It is a superpower. 

Chris McAllister: That’s right. So, what about this whole thing about, uh, this feels above my pay grade, but accelerated depreciation and cost segregation and all this stuff, what, what, what’s that about for us?

Jill McGregor: Well, the, the biggest thing is because any time you own a rental property, you know you are going to have significant expenses once in a while. Every once in a while that furnace is going to go out and you are going to have to do a complete replacement of a furnace or a complete replacement of a roof.

And really, accelerated depreciation, bonus depreciation, 179 depreciation, it all is kind of the same idea. It’s that these big expenses, the IRS would traditionally see as what they call capital expenses, and that you would have to take those. over time. Um, but when you have rental properties, and that is like a business, um, depending on the tax law of the year, you can take those large expenses under bonus section 179 and accelerated depreciation and take more of the expense in the current tax year, which will then lessen your income, which lessens your tax.

Chris McAllister: So if you had a, if you’re a realtor and you had a fantastic year in, uh, helping people buy and sell houses and you’ve got, you know, quite the tax bill coming your way, you can, but you also had to, you know, put a roof on your rental property or, you know, some, some other high ticket, uh, um, capital expenses.

You could, you could, 

Jill McGregor: you 

Chris McAllister: could theoretically use this section 179 and take a much, much bigger deduction this year, which would help you reduce your overall tax liability for the year, assuming you had a great year selling real estate. 

Jill McGregor: Yes. And this is, this is really where a tax professional, a CPA comes in because bonus and section 179 depreciation laws change almost every year.

And the way they change is the limit in how much can you take under section 179. Right now I believe it’s up to two million dollars. Um, bonus depreciation some years it’s during COVID it was a hundred percent. Bonus depreciation was 100 percent. Um, you know, so some, and it’s been as low as 50 percent. So you do have to really work with your tax professional.

The other thing the tax professional is really good at is, again, because you’re in this for the long term, Is it wise to take all of the expense this year? Maybe it is if you have a really significant tax bill from your commissions. But even at that, it might be better for you to take the roof over the next 15 years because you anticipate your income to only grow.

So you really do need to be working with a qualified CPA tax professional to help make those decisions because once you make a decision about Section 179 for that particular expense, You can’t go back and redo it. 

Chris McAllister: It’s irrevocable. You can’t 

Jill McGregor: say, I’m going to take this over time, this year, and then in three years, ooh, I wish, I want to take section 179.

Once you’ve made a choice, you’ve made a choice. So, working with your tax professional. Uh, each year to make those choices is really important, which is Chris and I actually really that’s where we connect on it at a tax level is we do a tax return for Chris and we call and we say, okay, here’s what it looks like without any accelerated without any bonus and without any section 179 and then we look at each property and make choices for that year.

Chris McAllister: Right. 

Jill McGregor: And some years we take it, and some years we don’t, and some properties we take it, and some properties we don’t, to maximize that benefit for you as a real estate professional. 

Chris McAllister: And I appreciate that, by the way. 

Jill McGregor: I’m going to near that part really speaks 

Laci LeBlanc: to me, having somebody that you can call and ask, um, how should I do this?

Jill McGregor: And this is where I was going 

Laci LeBlanc: to say, 

Jill McGregor: this is where Chris and I really, like I said, this is where our relationship grew is. The CPA firm that I’m associated with is small. I only work, I’m the only one in the office who works on Chris’s return. I’m making that phone call to him. He doesn’t have to call me.

Like, we schedule that meeting. Um, and not every CPA firm is going to be able to offer that service. But for real estate professionals, it’s really important to have a tax person in your corner. Um, and one who really knows this. This corner of the market, um, meaning real estate professionals, because it makes the conversations.

a lot easier. Chris and I have a great relationship and honestly, it’s, and again, this is where it gets kind of nerdy as a somebody who does taxes. It’s one of my favorite phone calls to make like, Hey, look what we can do to your tax bill for the year, right? Like it’s fun to be able to call your clients and say, Hey, I’ve got something for you, you know, versus I’m calling to tell you, you owe.

Chris McAllister: Yeah. That’s a cool thing. All right, so I think you touched on this, but what about rental income and self employment tax? 

Jill McGregor: So rental income is exempt from self employment tax, which means it is exempt from Social Security and Medicare tax. That’s really what it’s exempt from. Um, where, you know, again, any, a lot of other income, if you’re running a small business, you’re flipping houses, you’re, the maintenance on a You know, for a property management company or any of those other businesses, those are all subject to self employment tax where rental income is not for the real estate professional.

Chris McAllister: And if you’re building out a portfolio with the, with the goal of, you know, paying down the mortgages over time and, and, You know, getting those mortgages paid off so that they become income, you’re obviously at a tax advantage because you’re, you’re, you know, over, you know, in the future, you’re not going to be paying self employment tax on that.

So that’s a huge advantage if you’re trying to create passive income 

Jill McGregor: streams. Yes. 

Chris McAllister: What about travel, education, business deductions, all that stuff for realtors? 

Jill McGregor: Anything that’s directly related to the property. Um, in this particular case, because we’re talking about property, um, and purchasing rental properties, but yes, travel, education, um, marketing expenses, you know, expenses as well as Those associated with owning the actual property are all, are all deductible, which again, for most passive investors, you, you don’t.

Chris McAllister: Right. So if you want to join bigger pockets or some sort of a coaching program, or you want to go to an investor’s Um, 

Jill McGregor: an investor seminar, seminar 

Chris McAllister: or convention, or, you know, I guess it could be RPM or something like that. Whereas, uh, your client, the dentist who, who is also investing in real estate, wants to go to, you, get to deduct those expenses.

Travel 

Jill McGregor: is the one that I always advise to be most careful about because if you have rental properties in another area that require travel, you do need to make sure that when you are traveling, you can prove it’s 100 percent business. Um, you know, the person, the real estate profession, even as a real estate professional, let’s say you, most of your rental properties are in Ohio, but you have one or two in Florida.

Yes, you need to go check on those rental properties and there will be travel expense, but be careful that you are documenting it and make sure that it, you can prove that it was true business expense. Not that you just drove by the property while you’re on your way to Disney right? Like you need to be able to document.

I went. I checked on the property this, you know, because those are, because. It’s a deduction that not everybody gets. We need to be careful because it can be scrutinized as well. Right. So make sure you’re doing proper documentation, um, and make sure that the travel and really all expenses are legitimate to the business.

I feel like she’s speaking directly to you, Chris, at this point. 

Chris McAllister: I think I’m following the rules. Thank you very much. 

Jill McGregor: You are following rules because you have somebody watching, but it’s really hard, you know, and this is, this is why. Non real estate professionals. Don’t get all those benefits because if you have just one or two rental properties and it’s just a side hustle You you can deduct some things but it’s not going to be it’s going to be much more As a real estate professional than as the regular passive investor 

Chris McAllister: I I do think as real estate professionals that I really wanted to lead with this because I don’t think I think very few of us understand That we do have these advantages and I, I, I truly believe it’s a crime not to not to take advantage of them.

So thank you. It’s 

Jill McGregor: a crime to not take advantage of them. But remember, it is a crime. Also, if you are taking advantage in an inappropriate way. So, and there’s a fine line there and it’s, you know, as somebody who’s https: otter. ai Audits happen. Documentation is. 

Chris McAllister: Well, I, I, I think the hurdle is, you know, for, for everybody, the hurdle, you know, it’s, it’s, it’s a, it’s a big enough hurdle these days, especially as a young person to get enough of a down payment together to buy a personal residence and even more so to, you know, buy an investment property.

And, you know, there’s people out there that have been very successful investors that, you know, bought investment property. You know, like a double and lived in one side for as long as they needed to before they could afford to save up again to go buy the next house for them to move in there and, you know, rent out both sides of the doubles.

But I do think it’s worthwhile to now that you know how, how, how beneficial and how much money you can make investing in real estate over the long term as a real estate professional. All right. I think we should just talk a little bit about, you know, some of the tips, tricks and what it takes to get that first property, you know, under contract into the closing table.

And I think for most of us, the biggest challenge is, is saving for a, for a down payment. So here’s some, you know, you may have heard these before, but I do think they bear repeating now that hopefully you’re motivated to make this happen if you haven’t already. So a couple of tips. First, you should always keep two budgets as an entrepreneur or real estate professional.

You should always have a budget for your personal needs, your house, your utilities, your food, you know, childcare, whatever. And then you need a budget for your business and your professional budget. And you want to keep those, you want to keep those, uh, um, you want to keep those two things separate, right?

You know, if you’ve, you’re getting commission checks, you’re, you’re having, you know, you’re a great career going, great year, whatever, those commission checks really need to go into a business account. You need to forecast what you think your future income is going to be as best you can, even though we’re 100 percent commission.

You want to get all of those expenses for your business, you know, documented, and you want to figure out how much money is going to be left in the business after you pay all of your, all of your bills. And then you want to decide Okay, how much do I need to take out to cover my personal expenses, right?

So, you know, it’s a give and take there. You can always make your, you can always forecast or plan your expenses personally or professionally. You can make them bigger. Or you can go back and make them smaller and there’s a balance there, right? So if you’ve got business income, you have business expenses and you want to leave, you know, as much money in the business as you possibly can, then you want to take the minimum amount you possibly can to cover your personal expenses.

And hopefully that extra cash that you’re leaving in your business funds, not just, you know, keeping your realtor business going, but it also builds up over. You know, months to a year, and that’s a nice place to try to let that down payment pot grow. So the tip there is you’ve got to keep them separate.

You can’t just pile all your commission checks into your personal checking account and hope for the best. You need to have a personal budget and a business budget. And the other piece of this too is pay yourself first. You know, you could even go far to say in your business budget that before you take money out for your expenses, that you probably want to decide.

Okay. I’m going to at least hold out, you know, 10 percent of every commission dollar I make. I’m going to put it someplace else, you know, keep that monopoly money under the board. Then I’m going to let that grow into a down payment for my first investment property. So you’ve probably heard that before, but pay yourself first.

If you feel like you’ve got too much debt, Or, you know, you’re, you’re not in a position to qualify for a mortgage to go buy an investment property, then I want you to treat your entire debt situation just as, as, as proactively and as, as aggressively as you would if you were working to buy your, your first house, right?

As an owner occupant. So if you’ve got high interest credit card debt, you know, try to, you know, consolidate it, figure out how to pay it off. You know, snowball it, whatever it takes, but your goal is to manage and consolidate debt so you can free up extra cash to add to your down payment fund. And again, this is not the fun part, but you know, cut expenses wherever you can.

You’ve got to review both your personal and business expenses, and you’ve got to decide what’s essential and what’s not. And it doesn’t always take huge cuts, you know, small savings over time. really, really add up. And I think sometimes, you know, we as real estate professionals, we have a good year or string two or three good years together.

And then we start to experience lifestyle creep, right? Making all this money. I better keep up with that, uh, with that other agent down the block, who just built that new house or bought that new car or, or what have you. And, and, you know, my wish for you is to, you know, hold on to. As much of that hard earned money as you possibly can so you can, you know, save it up, get that down payment together and invest it.

And, you know, don’t worry too much about what the guy down the street’s doing because, you know, chances are, um, he’s not investing in real estate either. 

Laci LeBlanc: Finally, I feel like this is a place where I have some ability to speak with some sort of, um, you know, position of authority because this is just how I, I like to live my life, um, and it didn’t take us long to, once we decided we wanted to buy a house, it really just took us a little bit of time and some, some really good intentional, you know, planning and spending, um, and we decided to, to live in, I think we’ve talked about this before, but to live in a house that was well below our means so that we could live the life that we want to live with travel and, um, you know, with taking our kids to experience things.

And, and I think that’s maybe for me, the best tip that you’ve shared is this, you know, cutting expenses where you can paying yourself first, keeping things separate. Like those are all the steps that I took to save for a down payment for my first house. Um, so whether you’re buying a house to live in, or you’re buying a house to invest in, I think people do see it as kind of an insurmountable.

task at a certain point, um, whether you’re just super busy and you can’t find the time to really plan it, um, or you’re looking at the size of a down payment you would need. And I think that the, the kind of living within your means, even if you’re purchasing an investment property, it doesn’t have to be, you know, apartment complex.

Right. The first investment property that you own, the other side of a duplex that you’re living in. Right. So I think that kind of keeping things, um, in perspective, um, and, and figuring out where you are and where you want to be and realizing that it it’s little steps and not one big leap all the time is a really important tip that you’ve shared.

Chris McAllister: Well, you know, living within your means is not nearly as sexy as a new convertible, you know, it’s, it’s just never is. 

Laci LeBlanc: Yeah. I mean, every time you get a tax refund, having to put it in your savings account, instead of like spending it on something that you really want, like that’s, but you know, that’s maturity, but it’s also, you know, kind of aligning yourself with your goals, which we talk a lot about on this podcast.

So, 

Jill McGregor: and as the tax professional, I have to remind people, a tax refund. Means you gave the government your money for the year, interest free. The goal is that the tax at the end of the year is zero. That you paid in just enough. You shouldn’t be getting any back and you shouldn’t, Oh, that’s actually the goal.

Not the tax refund. Yeah, it’s hard because we’re all been conditioned over decades to look at the tax refund as, Oh, I’ll replenish my savings account, or I will do something extra with this when really that’s money you should have had all year. 

Laci LeBlanc: Um, So another part of maturing that I should have mentioned is that you need a professional to help you with these things so that you’re not giving the government a tax free loan and that you said that you are able to take those things because week over week right being able to put it into a fund for your down payment or, you know, a fund for your kids college or a fund for your retirement or whatever your goal is, you’re going to get so much more kind of compounded interest over time if you’re able to do it that way.

So call, I guess, call Jill is maybe the, you know, People don’t 

Jill McGregor: believe me when I say your 5, 000 refund at the end of the year feels fantastic. It’s almost a hundred dollars a week. You would have had in your pocket if the IRS didn’t have it. 

Chris McAllister: Now, if you have the discipline to take that 5, 000 and put it in your down payment fund, then God bless you.

It was a nice way to save 5, 000 and relatively painless. But our point is don’t spend it, put it in real estate. 

Jill McGregor: Yeah. Put it right. Put it. Right? So, um, just in the same vein, there are some really great resources out there for real estate professionals. Um, one of them is called profit first for the real estate agent.

Um, I don’t know if Chris may have heard me preach about profit first before I use it with my non real estate clients. Um, but it’s a, methodology for paying yourself first, saving for taxes and saving for whatever next step your business wants to take. But there’s also one specifically for real estate agents that the idea is that you pay yourself first out of your commissions, you decide how much you’re setting aside for taxes, and then giving really practical ways to make sure the tax money gets set aside, that the down payment savings you’re making for get set aside.

So if you’re an audible or reader, you can check those out on Amazon. Again, you can just look up Profit First and you can look up the original Profit First or Profit First for Real Estate Professionals. It’s just a great, it’s an easy book, easy read. 

Chris McAllister: Thank you. We’ll make sure we get that in the show notes as well.

Jill McGregor: I keep my copy with me almost at all times. 

Chris McAllister: Oh good, I’m going to have to buy that now. 

Jill McGregor: The real estate professional one is, is really, um, again, geared to the idea of fluctuating income, fluctuating commission checks, and where the original profit first is geared more for the service oriented or, um, manufacturing business.

Chris McAllister: All right, cool. All right, let’s talk about, let’s talk about leverage a little bit, and I want to talk about responsible leverage, because borrowing money Is where, you know, many of us get into trouble at some point in our careers. So responsible leverage, this is where real estate, you know, the real magic can really, you know, accelerate for lack of a better term, but leverage means basically, you know, using other people’s money.

And this is usually through a mortgage and you use that mortgage to control a larger asset. So if you put 20 percent down on a property, the cool thing is you control a hundred percent of the property. And you reap all of the benefits of appreciation and cash flow, of course, after paying the bank. So this is one situation where you’ve got to pay the bank first, right?

But nevertheless, whatever happens to that property over the next 5, 10, years, You know that it goes up in value that money is all of yours, right? The bank doesn’t get that and you know, I can tell you as I get older I’m amazed at how fast 10 15 20 even 30 years roll by, uh, in retrospect. And at my age, you know, those mortgages don’t seem as, as, uh, forever as they used to.

And it is cool that, you know, I’ve been paying off, you know, some 30 year mortgages for well over 20 years now. And it is really neat to see, you know, how the value of that property relative to what my payoff is on the mortgage, how that, How that gap has just increased so, so much and, you know, Wells Fargo doesn’t get any of that.

So I feel really good about that. So again, it’s about the long view because over time as your property appreciates and you pay down the mortgage, you’re building equity. And once you’ve built up that equity right on your first property, you can tap into it. You know, you could get through a home equity loan or, you know, a HELOC, a cash out refinance, whatever to buy your, your next property.

So, you know, some people, you know, are less risk averse than others. And if they’ve got equity in their personal residence, they are able to sort of tap that equity. And, you know, start to put together some of their down payment money. Other people don’t want to touch their home at all. And I absolutely respect that.

But the cool thing is once you get that first investment property under your belt and you’ve used it to build up another stash of cash for the, for the next down payment, let’s just say it’s a heck of a lot easier to get the down payment together for the second, third, fourth properties than it was for your first investment property.

So start with one property, use its increased value to buy another, and so on. Every property brings in rental income, which helps you, you know, helps you recover your mortgage payments and starts contributing towards your next down payment. You’re building a portfolio that with every property gets stronger and more resilient.

And if you really sit down and do the math and, and, you know, say you’re 20 year project, you don’t need 30 40 50 investment properties to make this happen. You know, you just need a handful of paid off properties and you know, it’s it’s it’s it’s a beautiful thing. And with all the, you know, extra tax benefits, we get that, you know, Jill’s just told us about it’s It’s, it’s that much more beautiful.

So the snowball effect can give you, you know, multiple income streams and a level of financial stability that, that other people dream about. And, you know, you’re bulletproof.

So bottom line. Real estate is a tangible, stable investment that we as agents and brokers, we have the tools to master. We have the opportunity. We have the capability and other people don’t have it. We should take advantage of it. When you take a long term view and you use leverage responsibly, you take advantage of your tax benefits.

You know, you treat your expertise in the, in the profession as a, as a powerful advantage. You’re not just building wealth. You’re building a a resilient and self sustaining financial future. And I know it’s not sexy that it doesn’t happen overnight, but I can tell you if you start now and stick to it, you’re going to wake up in not too many years and you’re just going to be patting yourself on the back and be glad that you did it.

So when you invest in property, you’re not just relying on your commission income or your continued ability to go out and help people buy and sell homes because let’s face it, that can be unpredictable, right? It wasn’t. Three years ago that you know, we had more business that we can handle and now coming out of 2024.

It’s just not that way. And there’s really no clear, uh, path that we are, you know, clear view that when that’s going to change. But when you’re diversifying your income and you’re securing. You know, a path and a plan for long term wealth that just could make all the difference in the world. And that advantage as a real estate professional is yours for the taking.

Anything else you need to add? Can we talk about it 

Laci LeBlanc: like every other week on Landlord Profitability Playbook? Yeah. I think we wouldn’t miss if we didn’t mention the other podcast, right? Exactly. 

Chris McAllister: So if you’re thinking about becoming an investor or you’re already an investor, I do urge you to listen to our sister podcast, the landlord profitability playbook, where we talk about, um, you know, all things real estate for, for all investors, not just a real estate professionals as investors.

And I think we’ve got some, some really good nuggets in there that, uh, That you can take advantage of. And the other thing I, you know, Jill mentioned, um, you know, hiring professionals or one of you said hiring professionals and seeing it as a mark of maturity. You know, just like I would counsel, you know, somebody say, say you have a doctor or a dentist that wants to buy investment properties.

We would always urge them to, you know, get professional management because we don’t want anything to distract from how they Got that pile of money together in the first place, right? To buy that first investment property. So, and I, I would give that, uh, same advice to any professional, including real estate professionals.

So, you know, I, you should invest in professional management. For your rental properties. And I do think it’s the mark of a true professional because the last thing you want to do is to have this rental business take up so much of your time that it starts to impact your ability to earn commissions. And we actually have quite a few, uh, realtors, real estate professionals that are Clients of our property management services at ROOST real estate company as well.

So anyway, something to think about anything else. All right. Well, thank you all for tuning into how to become financially bulletproof. Remember the skills you already had as an agent could be your key to a prosperous future through real estate investing. Stay tuned for more insights in our protecting the goose that lays the golden egg series.

And don’t forget to share this podcast with your colleagues who might need that extra push to start investing. Until next time, keep growing, keep investing and keep protecting the golden goose. And that’s you.