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36 | think realty magazine :: may 2020
The Quest for Financial Growth
by Nathan Long, President
I nvestment opportunities in Houston are practically unlimited, and whether you’re the new kid on the block or you’ve been around the block a time or two , this city has something for everyone. However, the real secret to success is not chasing the hottest deal; it is coupling the best tax strategy with your specific investment. I did not become a CPA or study to become a tax attorney to maximize my investment returns, and you don’t have to either. Instead, I spent my time learning about how I could do the same real estate investments I have always done, but grow my profits completely tax-free. In the process, I stumbled across life changing knowledge on how I could pay for my family’s everyday expenses for health and education also completely tax-free. This knowledge is accessible to anyone who wants it, and I’m happy to share some of it with you. I started my career in the automotive industry and spent more than 17 years in that field, working with Automotive Investment Group (AIG). Like many Americans, I spent my time in corporate America investing my hard-earned money in stocks or mutual funds, leaving my financial success in the hands of other folks who may or may not have understood my financial and personal goals. Over time, I became motivated to take my future into my own hands and
I began to pursue real estate investing. It’s been 25+ years later and I have never looked back. Houston’s unique and thriving economy, in addition to its historically strong local communities, present an unparalleled opportunity for collective and personal financial growth. Our city is not only poised for future growth (since 2010, the Texas population has grown by more than 3.5 million. [according to Forbes]), it is presently a hub for business, opportunity, and diversity. 26 Fortune 500 companies call Houston home, in addition to the largest medical center in the United States and major employers like ExxonMobil and HP (according to RWN). While these businesses continue to stimulate economic growth, our most important assets are the people who live here. By combining different tax-advantaged accounts with the real estate
investing skills and strategies you already possess, you can create unlimited opportunities not only for yourself, but for your local community and for your city. As the President of Quest Trust Company, I have the exciting opportunity to share my knowledge and help investors learn how they can make a good deal even better with the right education. Self- Directed IRAs allow Americans to choose their own investments; namely, private assets like real estate, private companies,
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promissory notes, and many other alternatives to traditional publicly traded investments. Choosing your investments is a strategic way to use your knowledge to your advantage, meanwhile growing your profits tax-free. The IRA owns the investments, the same way that your IRA would own stocks, and profits return to the account, without Uncle Sam’s fingers in the cookie jar. Imagine the impact of realizing the full benefit of your investments, by paying no taxes on the profits. In fact, imagine the potential of varied, self-directed investments, and how that could increase your wealth. I’ve seen countless situations where investors have chosen not to do an investment that may have created enormous growth inside of a self-directed account. Let’s say you have the opportunity to purchase a property, subject to the existing financing. Often in these cases, there is little to no equity in the deal and little to no cash flow after the maintenance and repair costs are considered. Many investors would walk away from this type of deal; however, this is an incredible opportunity for a Self-Directed Roth IRA. How so? One possibility is to hold that property for a long period and allow it to go up in value and for the loan to be repaid. In the end, your Roth IRA would own a property, free and clear, meaning that future cash flow and appreciation are accumulating tax-free inside of the account. By the time you enter retirement, you will see the benefit of tax-free distributions from this Roth IRA. However, Self-Directed accounts are not exclusively about long- term goals. In fact, you can start growing tax-free profits inside of
accounts specifically designed for health or educational expenses and immediately take distributions. H. Quincy Long, my brother and the Founder of Quest Trust Company, did an investment with his Self-Directed Roth IRA and his daughter’s Coverdell Education Savings Account, where each account owned a percentage of a property. Quincy bought the property at a great price and it had a decent cash flow. The renter paid their payments each month directly into Quincy’s Roth IRA and my niece’s Coverdell ESA. This investment enabled Quincy to pay for his daughter’s education tax- free by taking distributions to pay for her tuition, books, a laptop and other essentials. Quincy’s daughter graduated college and the same renters are still residing in the property. Now the ESA can pass on to Quincy’s granddaughter and her educational expenses can be paid tax- free – talk about generational wealth! Another potential strategy is to consider a Health Savings Account. With health care costs on the rise, many Americans fear the possibility of unexpected and unmanageable medical costs. A Health Savings Account allows for tax-free distributions for health expenses. HSAs allow for a diverse range of health expenses to be paid for tax-free, including necessary medications, surgeries, and braces for your kids, Real estate investors can leverage their skills to do investments within these accounts and start building a nest egg for themselves and their families. For this reason, HSAs are one of my favorite accounts. One of my all-time favorite investments involved partnering my HSA with my Traditional IRA. First, funds from my previous employer 401(k) were rolled over into my
Self-Directed Traditional IRA. Combining my new Self- Directed Traditional IRA with an existing Self-Directed Health Savings Account, I invested both accounts into an equity participation loan. By partnering my small HSA alongside my Traditional IRA, I created additional funds which would later be used for important health expenses. At the outset of this particular investment, I had only around $6,000
in my HSA. However, at
the completion of the loan six years later,
my HSA was well over $40,000. My profits returned to my Traditional IRA and HSA, and I paid absolutely no taxes on these earnings. I like to think of HSAs as the best of both worlds, because I also received a tax deduction on the contribution that I had made into my account, reducing my personal taxes too. This is the part where the story earns the title of my favorite investment – I was then able to take a tax-free distribution to buy an airplane engine. You may be
thinking that an airplane engine is not a qualified medical expense, and you’re correct. However, you can take a distribution for a qualified medical expense that happened in a prior year, provided the HSA was established prior to the medical expense was incurred. HSAs have so many unique features and allow for a broad range of expenses to be paid for like optical, dental, holistic medicine and much more that you can read about in IRS Publication 502.
In conclusion, there are many ways to increase returns you may not have previously considered, but education remains the key. At Quest Trust Company we have highly educated staff and countless educational opportunities; live, online and in-person. We never charge for the education we provide at Quest, because we believe that an educated client is our best client. Your success is also ours, and it contributes to success of our extended community. The best
part? You don’t have to be a client to access the benefits of our free education. I encourage you to visit our website, but more importantly, setup a one-on-one consultation with one of our IRA Specialists to answer your questions. It’s completely free. •
Learn more about Quest Trust Company at questtrustcompany.com.
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Real Protection for Your Properties
by Lee Rogers, realprotect
A s the real estate insurance program of Norton Insurance, realprotect is not only comprised of insurance professionals, but is also a real estate firm that has over 200 licensed agents and property managers. realprotect is the expert in insuring real estate investors and understanding the real estate business and what you look for and need in a comprehensive insurance program. You have built a business out of owning and investing in real estate, and realprotect wants to help you protect it. realprotect starts this process by gaining an understanding of your properties, business structure, and operations. Then, realprotect will de- sign an insurance program that helps you meet your coverage and pricing objectives. realprotect promises to work diligently to find the best cover- age at the best price for you – based on your actual needs. realprotect takes risk manage- ment and loss control seriously for every single client. realprotect has
risk management resources to offer you the tools you need to under- stand the risks that you face and has partnered with industry-leading companies to provide you risk con- trol products at discounted rates. At the helm of realprotect is Lee Rogers, President. As an insurance professional that has worked and consulted with different Sin- gle-Family Aggregators, Rogers brings unique value and perspec- tive for investors, fund managers and operations professionals. He and the Aggregation Risk Man- agement Team at realprotect have helped design and implement insurance and risk management strategy that is above and beyond what is being set as an industry standard for insurance structure in Aggregation Portfolios, while keeping costs contained and risk properly manage and transferred. Based in Atlanta, Rogers has unique insight and knowledge of many insurance markets, with direct access to many of the world’s lead-
ing insurance carriers. Rogers has helped develop analytical tools and insurance philosophies that are in line with the true risk exposures that Single-Family Aggregators are fac- ing. He understands that the Aggre- gation Market is unique, and that the insurance industry must be able to adapt to this emerging asset class. Rogers uses his vast experience and innovativeness to focus on building business relationships with prospective clients, marketing products and advising investors on coverage options for their real estate assets – while making sure that his entire team at realprotect provides the same quality experi- ence for each client. Lee Rogers and his team at realprotect work with industry leaders such as lenders, market- places, and property managers and wholesalers to provide them with the protection and service that their hard work deserves. To learn more about realprotect, please visit www.realprotect.com. •
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Purchasing a Turnkey Property? Evaluate the Property Management’s Effectiveness First
by Jeff Pepperney, Real Property Management
B uying turnkey properties can add to your rental property investment portfolio while reducing the amount of work needed to get the house ready for the market. One thing that makes choosing the right turnkey property challenging is some properties have hidden problems with the way they are managed but appear to be turning profits on paper. Researching a potential turnkey property to evaluate the effectiveness of the property management company increases your likelihood of success. In addition to finding out the purchase price, net operating income, current and potential rental rates, and detailed information about the local market, when choosing a turnkey property to buy, you should also investigate the property’s condition, recent improvements, and current maintenance needs. Property maintenance and repair numbers can be deceptive. Very low numbers, for example, can either indicate the property has few maintenance and
repair problems or ineffective property management. If regular maintenance and repairs are not performed, or the property manager delays repairs or ignores problems, that could cause unexpected expenses for you in the future. An inept or even mediocre property management company can actually create problems for you, the new owner, by failing to complete basic (and necessary) property management tasks. For example, a rental property with relatively new appliances and HVAC unit might sound good, but if those appliances or HVAC unit have never been serviced, they may very well be on the verge of failing. Other small maintenance tasks, if neglected or done poorly, can quickly become a big problem. Blocked gutters or improper water drainage can damage a house’s foundation, roof, and landscaping. Drafty doors and windows can result in high utility bills, clogged furnace filters, and even encourage mold growth. Discovering such
problems after buying a property can become an expensive mess, not to mention the hassle of suddenly needing to find a new property management company. The good news is that you can easily keep yourself out of such situations by thoroughly evaluating the property management company in charge of the turnkey property you want to buy. Gather as much information about the company as you can, and from different sources. For example, check their references and online reviews. If possible, check out some of their current properties and speak to a current tenant or two. This information can help you form an accurate picture of the property management’s processes, practices, and how effectively the property you want to buy has been maintained, helping you make a more informed investment decision. For more information on how to assess the quality of a property’s management, contact your local Real Property Management office today. •
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Houston Housing Market Forecast
HOUSTON REAL ESTATE MARKET: RENTALS, TRENDS, AND INVESTMENT OUTLOOK.
by Marco Santarelli, Norada Real Estate Investments
H ouston is an enormous city located in the state of Texas. With a population of 2,145,146 people and 605 constituent neigh- borhoods, Houston is the largest community in Texas. Houston is neither predominant- ly blue-collar nor white-collar, instead having a mixed workforce of both blue-collar and white-collar jobs. Overall, Houston is a city of sales and office workers, service providers and professionals. There are especially a lot of people living in Houston who work in office and administrative support (13.48%), sales jobs (11.02%) and manage- ment occupations (7.71%). Houston, like many big cities in America, has a public transpor- tation system, but the citizens of Houston are lucky because theirs is one of the most extensive and widely used. Many commuters choose to leave their cars at home and instead use the bus to get to and from work. In fact, for some people it is feasible to forgo car ownership entirely, avoiding the cost and headache of driving in heavy traffic. The benefits include
reduced air pollution and load on the road network.
Hispanic origin can be of any race). People of Hispanic or Latino origin account for 43.81% of the city’s residents. Important ancestries of people in Houston include German, English and Irish. In addition, Houston has a lot of people living here who were born outside of the US (28.31%). The most common language spo- ken in Houston is English. Some people also speak Spanish. For more information on prop- erties in the Houston market go to noradarealestate.com. Information by Department of Numbers, Bureau of Labor Sta- tistics, U.S. Census Bureau and Location Incorporated are deemed reliable but not guaranteed. • Marco Santarelli is the founder and president of Norada Real Estate Investments, a national real estate investment firm offering turnkey investment property in growth markets nationwide. He is also a published author and host of "The Passive Real Estate Investing Show," a podcast for real estate investors interested in building substantial passive income and creating long-term wealth. Learn more at NoradaRealEstate.com.
HOUSTON INFORMATION AND DEMOGRAPHICS In terms of college education, Houston is somewhat better ed- ucated than the 21.84% who have a 4-year degree or higher in the typical US community: 28.21% of adults 25 and older in the city have at least a bachelor’s degree. The per capita income in Hous- ton in 2010 was $25,927, which is upper middle income relative to Texas and the nation. This equates to an annual income of $103,708 for a family of four. However, Hous- ton contains both very wealthy and poor people as well. Houston is an extremely eth- nically-diverse city. The people who call Houston home describe themselves as belonging to a vari- ety of racial and ethnic groups. The greatest number of Houston resi- dents report their race to be White, followed by Black or African-Amer- ican. Houston also has a sizeable Hispanic population (people of
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