Taxes: The Big Differentiator In Net Returns
Few people love thinking about taxes. Except for accountants, the IRS and savvy investors who use it as their edge to generate truly attractive returns.
It’s not what you make; it’s what you keep.
Taxes alone have the ability to make or break an investment. A smart tax strategy can mean all the difference in double-digit returns to your bottom line, as well as the millions that can add on to your net worth and portfolio value as it is compounded over time.
Sadly, most investors spend so much time trying to avoid the subject of taxes altogether that they wind up giving away these double-digit compounding returns to the government each year. Dollars that are typically terrible wasted. Or at best horrifically inefficiently spent or hoarded.
Tax Deferred Exchanges
One of the best tools available to property investors in the 1031 exchange. This is a vehicle which enables investors to trade up properties and move into new asset classes without taking the tax hit on their gains. Instead, they defer those taxes and use those dollars to build their own wealth and incomes.
By investing through a self-directed IRA or 401k, investors can defer taxes or even grow their wealth, tax-free, while achieving access to a better variety of safer and higher returning investments for their retirement savings.
Challenging Property Tax Bills
Aside from income and capital gains taxes, landlords also have to deal with transfer taxes and annual property taxes. These annual bills are notoriously often over-inflated and incorrect. They are rigged to take advantage of those who fail to appeal. Don’t fall in this trap. Challenge tax assessments and keep those bills down and annual income up. Just some of the factors that can qualify you for a lower assessment include storm damage and incorrect square footage and room counts. Multifamily Executive also suggests grieving your assessment based upon your actual occupancy rate. This can be especially valuable if you are still renovating and seasoning performance on an apartment building.
Educating Tenants On Rents & Taxes
There have recently been many protests and calls for rent controls in topped out markets like NYC. However, tenants need to be educated on the relationships between taxes and their rent and quality of life. If taxes go up, those costs have to be passed on to renters. If rent controls prevent increases, then landlords can’t provide the service and quality of living they would like to. That may ultimately just see apartments being managed by the government. A world of government projects in, which are going to be unkempt, and full of renters whose local government will have to tax more in order to keep up revenues. It’s a downward spiral. Keeping taxes low can give renters more of what they want – more modest rents, and better accommodations.
ABOUT THE AUTHOR
Bill Zahller is the Managing Partner of Park Capital Partners, LLC and resides in Asheville, NC. As a Multifamily Real Estate Investor and Syndicator, he founded Park Capital Partners, LLC in 2016 after 14 years involvement in real estate investment. He works with accredited investors and professionals who are interested in real estate investment, diversification, and financial freedom.
Bill has been flying since high school. His father was a Naval Aviator and Captain for TWA. Bill has been flying professionally for over 25 years, 23 of those at his current company. He has accumulated over 12,000 hours and 7 Jet type ratings. He has also held Instructor, IOE Instructor and NRFO pilot positions with a large fractional flight company. He is currently flying the Global 6000 in a long range mission capacity. This keeps it interesting – one week its Beijing or Sydney; the next Rio or Rome.
Bill is also the founder of the Asheville Multifamily Investor Club. Visit www.ParkCapitalPartnersLLC.com for more information.