Part Two of Five: “D” = Depreciation
Before Lou started discussing depreciation, he turned on the cameras for an impromptu peek into one of his Platinum Mastermind groups. This is just one of the meetings where people who are using Lou’s real estate investing system come to share what they are doing, solve challenges and stay up to date on what is working now. This group requires an application to join, if you are an active investor and would like information on the Platinum group, please call 800-578-8580.
“D” = Depreciation Couple this with a formidable tax strategy that allows us as investors to pretend, for tax purposes, that the value of our property is going down while we really know that in most areas it is going up. We are receiving tax benefits (Depreciation) while receiving income. The income exceeds our expenses, yet we get to write off more than our income. This results in tax losses. Uncle Sam tells us that we lose money even though we made money. I think they call that “Voodoo Economics.” Of course, the government’s real reason for these tax incentives is to entice us to invest in rental real estate. They learned they aren’t very good landlords and decided giving the public an incentive to deal with tenants would help get them out of the land-lording business. So, this means you can own it, “lose money” while making money, use the “losses” to offset other income, and potentially zero out your taxes! Imagine that.
Timestamps:
0:01 – Introduction – “ Let me take you to one of my Platinum Mastermind groups and give some real live examples of what’s going on in the real world!”
0:42 – Lou shows the people who are part of the Mastermind. They are bringing the idea of the Path to Home Ownership program to different parts of the country.
2:00 – The members share their takeaways from Lou’s event
15:30 – Lou Brown shares with everyone their Code of Ethics
18:30 – The Path to Home Ownership movement
19:29 – https://www.WealthBuilderWorkshop.Online – on July 31st – register for $1 – How to find a buyer before you buy a property.
21:40 – Real estate is the I.D.E.A.L. investment – deep dive in Depreciation
25:42 – Next week Lou will talk about EQUITY Questions for Lou:
26:18 – Is there a limit on the number of years that you can claim depreciation?
26:39 – How do I know the amount of depreciation that can be taken each year?
28:03 – Does depreciation have any downsides?
29:16 – Lou’s parting comments: If you have any doubts that the real estate business is a great thing for you, do more research.
29:30 – Lou’s Book – “Buy, Hold, Sell” – get a $5 discount by going to https://streetsmartwiz.com/BHSbook/
If you are JUST getting started in real estate investing, you NEED to attend my ONE-DAY virtual training. I teach it LIVE over ZOOM, and it’s only $1 (yes, one dollar) for SIX HOURS of solid how-to training! https://www.wealthbuilderworkshop.online
If you’re ready for a more in-depth experience, then you owe it to yourself to investigate my THREE- DAY Millionaire Jumpstart Event. I host it four times a year in various locations, and you can attend LIVE and in person. I’m your coach all three days. Find out more at https://millionairejumpstart.com/
Listen to our Podcast:
Why Real Estate Is I.D.E.A.L. – “D” = Depreciation – Part 2
Lou Brown
00:00:00
Hi, it’s Lou, and we are here at my Mastermind with people from all over the country who are building amazing Certified Affordable Housing Provider businesses. I thought I’d interrupt our real estate investing talk and give you some real life examples of what’s going on out here in the real world.
I’m here with a great group of folks from all over the country. So these folks are building businesses and have built businesses in their hometowns and in other parts of the country as well, where they are bringing the idea of the Path To Home Ownership, the plan of the Path To Home Ownership, to their local market, helping support people to end up with home ownership. And we are hearing live examples of real success. Folks that are doing this have done this.
Some of these folks have been with me for years in our mastermind event. This is a 3-day event where I am taking folks from soup to nuts through the conversation of their businesses. Some people are just getting started with us here and others have been with me for many years. So I am going to give you an opportunity to hear the number one takeaway from each one of these folks that we’re actually going to pass the microphone around and let them tell you who they are and where they’re from and their number one takeaway so far from there when we’re about halfway through the event at this point. So we haven’t heard all the takeaways yet, but it’s a pretty exciting thing.
Darren – Jacksonville, FL
00:03:12
I’m Darren from Jacksonville, Florida. I think my biggest takeaway is just the fact that we get to listen to the stories and kind of gain their experience and hear their issues and their challenges throughout the event. And it kind of reflects on me to obviously not have to do those things and gain their experience.
Lou Brown
00:03:31
So, Darren, how long have you been with us here in the mastermind?
Darren – Jacksonville, FL
00:03:36
I think it’s been about a year and a half now.
Lou Brown
00:03:38
A year and a half. And you started with me how long ago?
Darren – Jacksonville, FL
00:03:41
About two years ago.
Lou Brown
00:03:43
And how many properties do you have now?
Darren – Jacksonville, FL
00:03:45
26.
Lou Brown
00:03:46
26 properties. All right. And let’s just scan across over here to the screen. And what we’re seeing is a report from there. And it says since the last meeting we had together, it says Offers Made – 3. And Number of Properties Bought – 3, which is a pretty great thing. That’s called a high conversion rate for sure. And Added Equity, I think all of you would be interested in this. This is $192,000 in Added Equity. Cash from new buyers and renters coming in – 15,873. And Added Cash Flow – $2,873 a month since the last event. Can everybody give him a big hand?
What do you attribute your success to, Darren?
Darren – Jacksonville, FL
00:04:40
To the Street Smart System.
Lou Brown
00:04:42
To the Street Smart System, it’s a beautiful thing! You know, we always have conversations with all of our licensees here at the event, and we want everyone to always have great takeaways. So let’s go to Tracy right quick.
Tracy Mills
00:05:00
I’m Tracy Mills. I’m from Charleston, South Carolina. So I think my biggest takeaway is we always try to do things our own way. So if you follow the system, you’ll be safe. Stay within the lines and everything will work out perfect.
Lou Brown
00:05:12
Everything will work out perfectly. Awesome!
Partef Sean
00:05:20
Hello. My name is Partef Sean from Germantown, Maryland and the biggest takeaway for me is the purpose and the vision for our program. Here’s what I learned. I heard from Lou, and I quote, “Remember, housing is a necessity. Everyone needs a home and homeownership is better than renting and we help those who can’t buy their home through conventional means. So we are here to help those who need help.”
Lou Brown
00:06:14
Yay! Awesome!
We’re gonna take our message to the market by actually being on camera in our local markets, in their respective capacity to interview us and learn more about our Certified Affordable Housing Provider program and the Path To Home Ownership that we offer to the folks locally. So that’s a great thing. All right.
Lisa Connor
00:06:44
I’m Lisa Connor from San Antonio, Texas. And what I’ve learned is the importance of networking in your community, whether that’s with probate attorneys or auctioneers or attorneys that really weren’t your friends that you want to make your friends
Lou Brown
00:07:05
Awesome, awesome.
James Brockhouse
00:07:06
Hi, I’m James Brockhouse. You can call me JB. From Marietta, Georgia. And I’ve been with you for about 10 years and it’s changed my whole life. I’ve got a business, got my family in it, but I’d like to just have our takeaway here is that in the tax appeals every year, when counties come out and reassess your property, you have an opportunity to go argue with them about the value of the property that this can save you an awful lot of money right up front.
Jeremy Brockhouse
00:07:37
Hello, everybody. My name’s Jeremy Brockhouse from Marietta, Georgia. And one of my takeaways was to really develop relationships with real estate agents so you know you can help get their expired listings.
Lou Brown
00:07:56
Excellent, excellent.
Shelley – Indiana
00:07:57
Hello. My name is Shelley from Indiana and my big takeaway is having consequences by not taking action and then also sharing those consequences with your team so that everybody is accountable for what they should be doing. And they know what it looks like if they shorten that.
Lou Brown
00:08:20
Accountability. There you go.
Rob Snipes
00:08:26
I’m Rob Snipes from Columbus, Ohio. And I’ve learned that no matter what the economy is, if you take action, there are deals out there. And I just responded to an email last night and I have two houses that said, “Let’s do it.”
Lou Brown
00:08:46
Let’s do it!
Female – Southern Illinois
00:08:46
From the Southern part of Illinois. This is our 31st mastermind. We’ve been involved with The Street Smart System in a little over 10 years, and it has been a game-changer for us. The beautiful thing about this kind of mastermind meeting is not only are we improving our businesses, but helping others to improve their business and to spread the word of how great this business is and how many people that we can help across the country.
Lou Brown
00:09:11
Awesome.
Paul Vogel
00:09:16
I’m Paul from Baltimore. I think I originally came here with my wife in the spring of 2018. So I joined Mastermind in 2019. So we had a couple of years, and this is really our first experience with real estate and quickly grew our business through coaching and through brainstorming. And I think from today I learned, from this past couple of days, just all the experience in the room and from past lives and from the real estate business and how we can leverage that for what we’re trying to do.
Lou Brown
00:09:51
Excellent. Leveraging other people’s knowledge is a beautiful thing.
Michelle Vogel
00:09:59
Hi, Michelle Vogel from Maryland with Paul. My biggest takeaway, I think, is just continuing to listen to people’s problems more and letting them answer for themselves, especially with work-for-equity and just finding out maybe the resources of those clients might be greater than we think. And then you’d be willing to do a little bit more work without the local contractors and such.
Lou Brown
00:10:21
So don’t limit the opportunities that you may be thinking people can do or will do, but actually keep an open mind to the fact that they would be willing to do more work and have more money to put down, simply because you’re asking your questions. Brilliant.
Brad – Central TN
00:10:40
Hi, my name is Brad and we’re from the Central Tennessee area. And one of the great things about the Street Smart Lou Brown system is we get a chance with the platinum mastermind to gather peers 3 times a year, to look at everybody’s business, diagnose everybody’s business, listen to their problems, their victories. And there’s absolutely no way in the world that you could ever walk away from a 3-day event like this without being inspired to do better every day. I absolutely love it.
Lou Brown
00:11:18
That’s great.
Christine – Central TN
00:11:22
Hi, I’m Christine from the Central Tennessee area. And I love coming here. We just came back, we took a sabbatical for about a year as we had some family issues. So the beautiful thing is you can come back into a family and we call this a family and we stepped right back in. Everyone treats you just the same as when you left. So at the end, as my husband said, you’re learning more and you’re gaining from the knowledge in this room that you couldn’t gain on your own on the outside of here, it’s just not possible.
Lou Brown
00:12:04
Well, thank you. Yeah.
John McConnell
00:12:06
Hi, my name’s John McConnell from Washington, Pennsylvania, and I guess the biggest takeaway from all of this is for me, quit being so stubborn. I guess it’s funny, but anyhow, letting people work for equity would be the best thing instead of trying to do everything.
Lou Brown
00:12:39
Excellent, excellent. Allow the work-for-equity program to work its magic.
Tina – Nashville, TN
00:12:42
Hello. Tina from Nashville, Tennessee. One of the many standouts, I guess in my mind, is what Lou said on day one that we need to stand out and not hide out, something I tend to want to do sometimes. We stand out in our communities and be proud of what we do as we work hard to do good.
Lou Brown
00:13:04
Excellent. Stand out for our community. Very, very important.
Bill Flynn
00:13:10
Bill Flynn, of Nashville, Tennessee. This business changes, economic situations change, homeowners’, renters’ situations change. And it’s good to have a group that you could meet with and discuss what’s going to be different in the future. What’s happened in the past, learn from the past, plan for the future and have a lot of good ideas, good-minded people to share these ideas and come up with a good strategy to deal with the changes as they come.
Lou Brown
00:13:41
Excellent. Excellent.
Tim Marquess
00:13:46
Hi, my name is Tim Marquis and I’m from Sacramento, California. And throughout these last few days, it’s just really getting present to the community-based business that we have. And when the thing that I’ve really got is that if I don’t do it in my local community, then who in the community is going to help those people? Who am I not helping in that community by that inaction? So I’ve been really present to that from these last few days.
Lou Brown
00:14:23
I really, really love that one, Tim. So you’re saying that if I don’t do it, who is going to do it? And if nobody does it, those people are not getting served in any way, shape, or form. So you’re causing other folks to have change in their lives because of who you’re being.
Absolutely, that’s perfect. Thank you, thank you, thank you.
Kevin Marquess
00:14:43
And the brother here, Kevin in Sacramento, and what I really was sort of taking away from this meeting is things that we discussed sort of early on in the meeting. And it’s really a lot of discussion around commitment. We always have to be committed to what we’re doing. So it’s really taking that step, regardless if life gets in the way. So it’s making sure we’re committing every day to doing good and serving the community because if we’re not going to do it, who’s going to do it?
Lou Brown
00:15:25
Who’s gonna do it? That is good stuff, man. Thank you. Well, you know, here at this event, one of the things that everyone does is we all commit. We recommit to our businesses. We recommit to who we are, what we do, how we operate. Each person who’s here takes time to share about their own business.
What’s happened over the last 4 months and making plans for what’s going to happen over the next 4 months. And there’s one of the things we always do at every event. And that is to recommit to our code of ethics. Now, this is a very important thing because we care about who we are in the community. And that’s one of the important takeaways. One of the important things that we believe in, we are building our businesses. So I just wanted to share with you all the code of ethics that we are all committed to. And that is as Certified Affordable Housing Providers, our intent is to help sellers get a quick and efficient sale, help buyers and renters get affordable housing, help lenders use their funds and get good returns while helping provide more affordable housing for others. You see, lenders are also a big part of our business. Other people that have their own personal funds, their IRA, their 401-K. Many of the folks in this room actually work with people in their local communities to put their funds to work, deploy their funds, and help others to get affordable housing. It’s a big deal. It’s what a lot of our folks do. We help the community with affordable housing needs. And of course there’s a crisis in affordable housing in this country. And one of the ways that we are helping is to cause folks to have an opportunity to get home ownership. You see about 80% of the public population out there cannot qualify for a traditional loan at low interest rates. And so we’re able to come in and provide a bridge for those folks. We call it the Path To Home Ownership. We provide a bridge for them to end up with home ownership. Be lawful. Our intention is to always be lawful. Be professional. Be courteous. Act with integrity in all matters. Be an excellent team player. Do the right thing. Protect our amazing win-win brand. So that’s valuable for you to take away from our conversation today is to know that you can operate with a code of ethics. And our intention is to do exactly that. And we would invite you really to join the movement. So we do have a movement and this is another thing that we do at these events to recommit to our movement. I support the Path To Home Ownership movement, helping people achieve home ownership, one house at a time. So, out there in the world, whether you are looking to sell a house, whether you’re looking to buy a house, whether you’re looking to put your money to work using safe, secure real estate, we are here to help. And we’ve got folks all over the country that are building businesses in their local markets to help people with the game of home ownership. And we love them and work with folks over a period of time, help them build up their credit, help them build up their down payment until they can eventually accomplish that goal. Now, I have an event coming up and I wanted to share with everyone that by the 31st, we are going to have an all-day event.
Now I’ve been doing a series and it’s called, “Real Estate is the Ideal Investment.” Last week I talked about “I” for Income and this week, it’s “D” for “Depreciation,” which is one of the great benefits that you get when you get into real estate because the government gives you depreciation write-offs.
In other words, the government says that the property is going down in value, even if it may be going up in value. Imagine that, and there’s actually several ways that you can depreciate your property. So one is called, “the straight line method,” and that means if you had a hundred thousand dollars purchase on a property, you would take out a certain amount for land. And then you take the balance and you do what’s called a straight line method of accounting, where you would write-off that balance on the property for 27 and a half years. Well, the great thing about the Street Smart system, one of the things I teach, is that the tax code also gives you the opportunity to do something else called “componentized depreciation.” So a home is made up of components, just like a vehicle is made up of component parts.
So in that vehicle, you’ve got the engine and you’ve got the tires and you’ve got the steering wheel and you’ve got the windshield and you’ve got all these other different parts. Well, those component parts in a home would be the plumbing, the heating and air conditioning, the electrical, the roofing, the carpentry, the carpet, the flooring. All of those different parts and components of a home are depreciable over a much shorter period of time than 27 and a half years. So the tax code allows you to take a piece of real estate and actually componentize it and write it off over the lifespan of those component parts. So for example, carpet can be written off over 5 years. Just 5 years. So instead of writing your carpet off over 27 and a half years, which is what a lot of CPAs actually tell their clients to do, they take off the amount for land, they take the balance maybe 80, $90,000 and spread that over 27 and a half years.
Well, imagine that there’s many different component parts that can actually be written off over 7 and 15 years, and the balance can be written off over 27 and a half years. So what that means is that you can accelerate your depreciation. That means that you can have a concentration of depreciation early on in the acquisition of the product. Concentrate that depreciation. What happens is that you have an amazing opportunity to have a whole lot of write-offs. And when you have a whole lot of write-offs, you can use those write-offs to offset your ordinary income. So if you have a job, if you have income from other sources to be what’s called “ordinary income,” you can take those losses that are from depreciation, and you can offset your ordinary income. And for some people that means you can literally zero out your taxes. And for some people that can actually mean that you have excess depreciation, that means money leftover, losses leftover, that next year and the year after up to 15 years from now, you can take that excess depreciation and offset ordinary income in future years. So that’s one of the reasons that we feel real estate is the ideal investment. So next week, I’m going to cover the next part of the ideal investment. We’re going to talk about equity, equity buildup in your properties.
Scott Paton
00:26:17
So here’s a question for you: Is there a limit on the number of years that you can claim depreciation?
Lou Brown
00:26:25
So yes, 27 and a half years for a residential property or up to 39 years on a commercial property.
Scott Paton
00:26:35
Cool. And how do I know the amount of depreciation that can be taken each year?
Lou Brown
00:26:42
Well, that’s what I just described. I literally laid out that there’s 2 different methods that can be used. One is the straight line method and the other is the accelerated depreciation using componentized depreciation.
Scott Paton
00:27:00
Could you say that one way is the CPA lazy way? And the other one is the investors’ most profitable way?
Lou Brown
00:27:08
We call it the Street Smart way.
So the Street Smart way is not to do the CPA lazy way. Now here’s an interesting side of that, Scott, is that people that have been doing it the lazy way, the IRS actually allows you to go back to the beginning of time and actually allows you to go backwards and redo the accounting on that. And that means that you can now bring it as a componentized depreciation. So there’s some opportunity in the recalculation and the accounting on the properties that you’ve already taken to be able to do that.
Scott Paton
00:27:53
So it’s not too late if you’ve been doing it the lazy way. And the last question is, does depreciation have any downsides?
Lou Brown
00:28:07
No. A depreciation is a gift. And one of the reasons that it’s a gift in the tax code is because the government realized a long time ago that they are bad landlords, that they just don’t do that well. So they need to bribe folks like us to actually get into the business and give us something called depreciation write-offs to encourage us to be in the business. So that’s exactly what we do. We’ve got the opportunity to do that simply because we’ve got these additional incentives to be in the business called “real estate,” baby.
Scott Paton
00:28:47
So thank you very much, Lou. I know you’re right in the middle of your mastermind and I really appreciate you taking time out of it to share with all the folks watching and hope you have an absolutely amazing second half to the mastermind and we’re going to sign off now. Any last words?
Lou Brown
00:29:18
Well, I would say if you have any doubt that real estate is a great thing for you to do short-term and long-term, then you need to do more research. I do have a book called, “Buy, Hold, Sell.” I strongly encourage you to get that. And I’ll even give you a $5 bribe to get that book by going to StreetSmartInvestor.com/BuyHoldSell. And you’ll get an extra discount and that will take you soup to nuts through our business of how we have discovered that real estate is the ideal investment.
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