How To Use Real Estate Investments To Create A Tax Advantage

Today I am more of a flipping houses for profit type investor

, but I started out acquiring bank repo houses and using them as rental properties. A lot of folks start the business with wholesale deal or some jump right in with apartments. I was investing in small multi-unit properties.

I had a couple four units and a lot of duplexes. This started a passive stream of income. I found this created a tax advantage that you may well want to plug in.

I found that I could claim up to ten dependents on my income. Remember Im working this j-o-b. A lot of you are still working your j-o-b. Because I had these rental properties and this passive income, rather than claiming a couple of dependents on my W-2 at work I could claim 10. Why on earth would I do that? Because it lowers your taxes and puts more money in your take home pays. The company had a 401k and what I could do now was start pumping money into it before taxes. Is this making sense now? I went into the personnel office and change my dependents from two to 10. They probably thought I was nuts.

They probably talked about me. I can envision all the girls in there talking and saying, What the heck did he just do? Ten? Does he really have 10 kids?

But dont worry you can do that. You can legally change your number of dependents to whatever you want. You dont have to put your actual dependents. So, despite the possible concern of others, I went in and put 10 down.

When I put 10 down I got more take home but what I also did was I utilize the 401k where my company was matching dollar for dollar. The company would match your contribution up to six percent. I could go up to 17 percent. So I took it to 17 percent while the company was matching six percent. I was ballooning my 401k.

Try this and in few years and your 401k starts to grow pretty well. Also, remember, I was able to do that because of the real estate business and my passive income. When I quit my job I rolled the old 401k over into a self directed IRA.

With the self directed IRA that I created from the ballooned 401k at my j-o-b I could invest. What I invested in was real estate; I buy houses in my IRA. Of course, there are other investments to make as well. For example, one of my private lenders got me into oil wells so I invested in some of them.

I was having trouble with one of the slides in my luncheon presentation. It was the exit strategy. It is powerful stuff when talking to potential private lenders. In fact, one of the things that Im doing right now is use people with IRAs as private lenders. Well you know those folks with IRAs; some of them might just want to buy the real estate out right. So you can have a luncheon with those folks to sell them your properties. In fact just this week I bought a property with my IRA The neat thing about that is if theyre giving me so much a month on rent or on mortgage because I actually sold it... if they fail to pay I dont have to worry about a monthly payment to a private lender do I? It just goes in and builds your IRA. Your IRA can own property.

by: Alan Cowgill

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