A very true statement with regards to Real Estate Investing is that you win at the beginning of a deal. What this means is that a good investment is a good investment from the get-go. That being said, how do you make a good deal great? How do you take an existing asset that is stabilized and pull more money from the same building at little cost? How do you structure a transaction not just for the win, but for the grand slam? Sometimes it’s the little tweaks that can make for a significant and drastic change in the way an asset performs and subsequently the amount of money you put in your pocket.
Below are three methodologies that an investor can use to make an asset exceptional:
1. Use Interest Only loans properly to maximize your leveraging and cash flow. The use of an Interest Only loan is a powerhouse financial tool that many investors do not use properly. From a traditional standpoint, Interest Only products do not make sense. If you only pay the interest expense on a mortgage, then how do you ever pay down a property? On the surface, this seems like a logical question however it does not take into account the reality of money.
Money today is worth more than it will be worth next year and every year after that due to inflation. Likewise, the money you have access to is way more valuable than money that is illiquid or not accessible. Anytime you make a principal payment on a mortgage, in reality it strengthens a lenders position and weakens your position and here’s why: In the event of a foreclosure proceeding, if your property has equity in it, you have no way to gain access or use that money because the bank won’t give you a loan because you are in trouble financially, the time when you need the money the most. If, on the other hand, an investor had been keeping all of the money they saved from the interest-only loan and repositioned that into alternative, safe and liquid investments such as cash value life insurance, the investor would not be in nearly as bad a situation and would likely have been able to keep their property out of foreclosure in the first place. As an investment strategy, effectively doing this can pay off the same property in 10 years compared to a normal 30 year mortgage and if the investor kept doing this over the course of 30 years, on just a single family home, an investor would have at least $1 Million cash plus the value of the home which they could pay off in full. In a desperate financial situation, who would you prefer have all your money, you or a bank that won’t allow you to touch any of it?
2. Utilize offshore insurance to become your own insurance company. This process of establishing your own personal insurance company out of the country to cover just your assets and investments is a gold mine for the mid to large investor with at least $20 Million in Real Estate assets. When an investor does this, all of a sudden the insurance premiums that a normal investor would have to pay on their property end up going into their own pocket, retain the same amount of coverage or more from loss, tax-deferred earnings and investing on the premiums you paid yourself and you decide which if any claims you actually pay and which you contest. What happens over time is truly spectacular. It is not uncommon after several years for investor’s offshore insurance company to be worth more than the value of the assets they were originally set up to protect. A perfect case in point, Sears Holdings Corp. Sears (the retail giant) originally set up All-State Insurance as their Off-Shore Insurance division to provide insurance coverage to their clients. Eventually, All-State grew so large that they had to be spun off into a separate company. To use real-world numbers, Sears currently has a market valuation of $913 Million on the day of this writing. Allstate Corp currently has a market valuation of $32.76 Billion.
3. Accelerated Depreciation. The vast majority of Commercial Real Estate investors are completely missing a huge tax loophole that allows them to reclassify the depreciation schedule on their assets. The standard depreciation schedule on a Commercial Building is 39 years. Accelerated Depreciation can be done to change this depreciation base to a combination of 5 years, 15 years and 39 years over the entirety of the building which can lead to tremendous tax savings over the life of the building. By accelerating the depreciation of a building, a property owner is able to reduce their taxable income from the building while increasing their net cash flow without making any physical changes to a building. As an example, a 44,000 square foot grocery store with a total building cost of $1,497,307 was able to realize an accelerated tax savings of $575,828.35. $401,174 was in the first 5 years with the remaining $174,654 in savings realized over 15 years.
RE Wealth Advisors is not status quo! We’re magic makers and innovators! Our processes and methodologies are designed to do one and one thing well, make you more money than you are currently making on your investment capital! Again, again and again. Our strategies and methods are on the cutting edge of wealth advisory, fully compliant with all laws and tax requirements and are typically overlooked or unknown of by the rest of the market despite minimal costs to implement. Call us at 954.998.4415 to learn more about how RE Wealth Advisors can make you more money, today!