By Fuquan Bilal
As the nation comes to grips with the next tax plan, new solutions for minimizing the hit are being floated. Like, should property taxes actually be considered a fully deductible contribution to charity?
Several New Jersey towns are in favor of making things easier for residents, by allowing them to make charitable contributions instead of annual property tax payments. Under the new tax rules, only $10,000 in local, state, and property taxes (combined) are deductible on federal income tax returns. Charitable contributions have no limit. According to the New York Times, if local taxing authorities set up charitable trusts, homeowners could make annual contributions of equivalent amounts, allowing them to retain their full deduction on itemized returns.
This makes a lot of sense in other ways too. The truth is that in many ways property taxes are a form of charity. This money is used for public community programs, many of which may not be used by those that pay the taxes. Revenues can be used to help combat homelessness, build affordable housing, and provide education and health care. Plus, most people would rather help a charity than ‘pay taxes’. Who knows, it may even inadvertently create more accountability among those administering the funds.
Other states are looking for solutions in completely switching types of taxes; for example, going from relying on property taxes to payroll taxes. There could even be potential for some to finally follow the lead of other forward thinking countries and ditch annual property taxes altogether.
Individuals, and especially real estate investors can find many other ways to reduce their tax exposure this year too. That can include renovating distressed properties as affordable housing and negotiating multi-year tax breaks, and using the new pass-through provision that eliminates 20% of income for taxes for small businesses, entrepreneurs, and sole proprietorships.
Self-directed IRAs and 401ks, and 1031 exchanges all still offer investors tax deferring or tax free benefits and gains on real estate investments.
Others who don’t want to deal with the property tax debate can choose to invest in mortgage notes or funds, and simply let homeowners and borrowers deal with paying property taxes and maintenance.
Ultimately, smart homeowners and investors still have many tax saving tools at their disposal. It will also be interesting to see how local taxing authorities handle it. It may take some time to work out details, but in the end this could be a very good thing for property owners and investors.
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Many owners of real estate businesses fall into the category of “solopreneurs”. This can be a very isolated place to find yourself. At some point most of these same folks will either add support staff or outsource some of the work. This is tremendously helpful for taking some of that heavy work load off our shoulders. But, it doesn’t address the core issue of “reporting to yourself” every day; of being in charge; of keeping yourself on track to meet your goals. One other piece of the puzzle that is missing, is the interaction you get from having someone to bounce ideas off of. We all need someone that we can do that with, as well as someone to keep us accountable.
Some real estate investors can be pretty savvy when it comes to finding mentors; others find this to be a little harder. You really just have to show up at your local REIA, get to know folks and ask someone. It really is just that simple. Mentors are there to help you with quick questions, give you an opinion based on their expertise and possibly to keep you from making some big mistakes like paying too much for a piece of property. I have a number of folks that I consider my mentors. For instance, I asked one of my mentors who just happens to be my closing attorney, a legal question last week. It took about a minute of his time by email to give me a response to my question. I repay him for his time and expertise by doing all of my closings in his office. We have built a relationship that is mutually beneficial for both of us. Here is the really important thing to remember; this relationship always has to be a two way street. The law of reciprocity says that you must always find a way to give back to your mentor. They are not there to help you build your business from “start up to success”. Those people are called coaches, and they always cost money. You will need coaches down the line, but don’t confuse them with mentors.
Once again, you have to respect the other person’s time. Your accountability partner should be there to help you solve problems, to bounce ideas off of, and most of all to keep you motivated and on track. Think of someone who is there to “hold your feet to the fire”. My accountability partner and I are great friends now, but we also have the ability (and duty) to hold the other person accountable for what they say they are going to do. It’s just that simple. If you are looking for someone to help you hold onto your excuses, that is not what this relationship is about. It is for that reason that I don’t think close friends and relatives are good choices for accountability partners.
here are a lot of different ways to set up a mastermind group. I believe that the best way is to look for folks that are in the same business (real estate), but are not exactly the same as you. They will likely have different investing strategies, different skills and different business models. They may also have another type of complimentary business or a secondary business. At least some of them should be further along or more advanced than you. If you want to create your first product, or go into coaching, then you should have someone in your group that has already done these things.
Every mastermind group should have a leader that facilitates the conversation. We have a format that is a roundtable. We begin with each person having “their time” to give a summary of what they have been doing. Each person would usually have about 15 minutes or possibly longer if they are experiencing some type of problem. Our call generally lasts 1 ½ -2 hours and it is on the second Tuesday of each month in the evening. It is important to make this “appointment” with your mastermind group a priority. You need to show up on time and be prepared.
Sharon Vornholt is the owner of Innovative Property Solutions in Louisville, KY. She has been investing in real estate for over 15 years. Sharon is the creator of the Louisville Gals Real Estate Blog, and the popular podcast “Let’s Talk Real Estate Investing” which you can find on iTunes. She is also a mentor and coach who loves teaching others how to succeed in this business.