June 2023

At every company I have ever worked, from small startup to big corporations, there had always been a capped vacation day policy. Vacation days would range from 10 to 20 days a year, depending on your role within the organization. But we tried something last year at our Restaurant Furniture Plus business—we moved to an unlimited vacation day policy. And an interesting thing happened along the way. Read on.

The Advantages of an Unlimited Vacation Day Policy

The obvious primary advantage of an unlimited vacation day policy is your staff’s positive reaction. When we told our team we were moving from a traditional two weeks of vacation a year to an unlimited plan, their reaction was “WOW!!” It earned us a lot of goodwill with our staff, as they saw that as a huge perk, having the flexibility to take as many vacation days as they want.

The secondary advantages included things like: (i) you no longer had to worry about tracking all the vacation days by person, which becomes more onerous as your employee base scales; (ii) there is no longer the need for tracking how many vacation days carry over from year to year, or how many untaken vacation days needs to get paid out at the time of an employee’s termination; and (iii) it is a huge recruiting advantage for your business when trying to attract new talent.

The Disadvantages of an Unlimited Vacation Day Policy

The obvious primary disadvantage of an unlimited vacation day policy is your staff could take advantage of that perk, and potentially take many more vacation days than you ever reasonably thought they should be taking with a capped policy. But this disadvantage is largely kept “in check” by the employee’s psychology, as described below.

The Psychology of the Employee With an Unlimited Vacation Day Policy

It is interesting the psychology of an employee with an unlimited vacation day policy. There are three drivers that typically are on their mind: (i) they don’t want to be perceived as abusing the system, so they typically take about the same amount of vacation days they would have under a capped policy; (ii) they are all busy people, and don’t want to be buried by a sea of work upon returning from their vacation, which typically doesn’t have them away from the business for very long or very frequently; and (iii) they are often taking vacations with their friends or family, and those other parties are typically focused on their limited vacation time during the summer or the holiday season.

The Required Psychology of the Employer with an Unlimited Vacation Day Policy

At the end of the day, there is only one metric that matters on this topic—is the employee satisfactorily getting their job done and hitting their agreed upon goals, or not? If they are hitting their goals, it doesn’t matter if they are taking 2 weeks or 20 weeks of vacation, you should be thrilled with the outcome of their successful results. So post making this change, stop thinking about “why your staff member just took a three week vacation”. Instead, think about, “what has their job performance been, and are they hitting their expected goals, or not”. Said another way, manage your staff on their “outcomes”, and not their “methods”.

Closing Thoughts

What an unlimited vacation day policy really is, is an exercise in trust. Trusting that your staff are all adults and will naturally do the right thing, by not abusing the system. And the reverse of that, your employees feeling empowered and trusted by their managers, which makes them feel good about their relationship with the company. Which in turn, helps promote their long term loyalty and retention with the business. We weren’t sure this move to an unlimited vacation day policy would work or not, but both our management and our team could not be more thrilled with the results.

—

George Deeb is a Partner at Red Rocket Ventures and author of 101 Startup Lessons-An Entrepreneur’s Handbook.

State income taxes are often a complex topic with major implications for real estate investors. Placing your money in states without income tax may be a smart idea and allow you to keep more money in your pocket each year. 

Which states with no income tax does it make sense to invest in? How should you consider structuring your home rental business to optimize results? Understanding your potential tax liability in the nine states without an income tax allows you to make the best decision for your next purchase. 

Alaska Tax Rate

When it comes to the states with the best income tax breaks, Alaska is among the top. In addition to receiving money from the Alaska Permanent Fund every calendar year they live there, residents there pay no personal income tax. 

Instead of charging the over 730,000 state residents income tax, the state levies business taxes on their diverse industries. Much of the state’s annual budget comes from taxes on oil and gas properties, raw fish, the hospitality industry, and fuel transfer taxes. 

Tax liability implications

Although Alaska is a state without an income tax, it does not mean you won’t have to pay anything for a rental property. If a small business controls your rental, you could be taxed between 2-9% based on your earnings. Over 20 municipalities in the state—including the largest cities of Anchorage, Fairbanks, and Juneau—assess an average per-capita property tax of $2,276. You can also expect to pay a local sales tax for rental home improvements, typically between 2-5%.

Florida Tax Rate

Florida is transforming from the home of retirees to a haven for businesses, entrepreneurs, and those seeking a break from states with high income taxes. The southernmost state in the “Lower 48” is possibly the most famous among states with no income tax for everything it offers tourists and residents. 

Instead of personal income tax, Florida collects revenue on several other products and services. The Sunshine State has one of the highest state taxes on gasoline at 43.55 cents per gallon, along with an average sales tax rate of around 7%.

Tax liability implications

Owning real estate in Florida will come with property taxes, a combination of Ad Valorem Taxes based on the property value, and Non-Ad Valorem Assessments from local government services. Property owners can anticipate an average per-capita state and local property tax of around $1,541 annually. Like individual state income tax, sole proprietors, disregarded single-member LLCs, and pass-through S Corporations that do not use Form 1120S to pay federal income tax are not required to file a business tax return. All other companies—including out-of-state companies and other LLCs—may be subject to a flat 5.5% tax. 

Nevada Tax Rate

Possibly a direct result of the gaming industry, Nevada is also one of the states with no income tax. The state does not assess a state business or corporate income tax to encourage entrepreneurs to move in. 

Instead of collecting state income taxes, Nevada charges some of the highest sales and gasoline tax rates. The combined state and local sales tax rate averages around 8.23%, while the gas tax rate per gallon is 50.48 cents—the fifth highest in the United States. 

Tax liability implications

Owning property in Nevada does come with local property taxes. In the 2022-2023 fiscal year, the average county tax rate on property was around 3.18%. Alongside the high local taxes, the Tax Foundation notes that the average per-capita property tax is around $1,153—still among the nation’s lowest. Combined with no business or corporate income tax, Nevada may be one of the best states to own a rental property. 

South Dakota Tax Rate

The home of Mount Rushmore and Deadwood Mountain is one of the nine states with no income tax for individual residents. South Dakota is also one of the few that does not institute a corporate income tax, allowing rental homeowners to institute a structure that works best for their needs. 

Like other states without an income tax, South Dakota makes up the revenue in other taxes. Alongside annual property tax, businesses can expect to pay an average sales tax of 6.4% and gas taxes of 28 cents per gallon. 

Tax liability implications

While there is no state property tax in South Dakota, local governments and special districts can assess property taxes within their jurisdictions. Property tax is based on the full market value of the land, with an average paid tax rate of around 1.17%. Rental homeowners in the state can expect to pay a per-capita average of $1,606 annually. 

Texas Tax Rates

Everything’s bigger in Texas—except for the individual income tax rate. While Texas has the ninth largest economy in the world, the state constitution codifies it as one of the states with no income tax. 

In addition, the tax laws are friendly towards new and small businesses growing in the Lone Star state. Texas does not assess business taxes, personal income taxes, or other fees on sole proprietors, allowing them to continue to invest in real estate and grow their businesses over time. 

Tax liability implications

Although Texas does not charge a statewide property tax, over 4,000 local entities collect taxes on real estate. All property tax is based on current market value and is the same across multiple taxation districts. According to the Tax Foundation, the average per-capita state and local tax burden on properties is around $2,216. For local maintenance items, property owners can expect to pay a sales tax of 8.2% 

Washington Tax Rate

Known as the gateway of the Pacific Northwest, where the mountains meet the coast, the State of Washington is among the states with no income tax. Both individuals and corporations are not taxed in the state, making it one of the best for business in the United States. 

This doesn’t mean everyone gets away without paying their fair share for government services. Washington also has one of the country’s highest combined state and local sales tax rates at 8.86%. State gas taxes are also considerably high, with drivers paying almost 50 cents per gallon of fuel. 

Tax liability implications

The good news for landlords is that leasing or renting real estate for lodging is exempt from the state’s business and occupation tax, reducing your overall tax liability. However, property taxes may still apply based on your rental home’s location. Homeowners can expect to pay a per-capita average of around $1,727 in property taxes annually, making it a comparative value. 

Wyoming Tax Rate

Images of cowboys on the range often come to mind when we think of Wyoming. More importantly for landlords, Wyoming is one of the states with no income tax for individuals. 

Instead, the state makes its income on the wealth of resources available. Mining operations for energy sources, including coal and oil, significantly contribute to the state’s tax base—giving residents and small businesses a break. 

Tax liability implications

Even though there are no individual or corporate income taxes in Wyoming, homeowners must pay property taxes. On top of an average sales tax of 5.36%, the average per-capita property tax is around $2,100. 

New Hampshire Tax Rate

New Hampshire has a unique approach to taxes. While it is a state with no income tax on W-2 wages, it doesn’t mean that taxpayers owe nothing at the end of the year. 

Instead, individuals pay a 5% tax on dividends and interest income. The good news is that it doesn’t apply to rental income—allowing you to reinvest more into your business. 

Tax liability implications

One of the downsides of rental property investments in New Hampshire is the property taxes. The New England state has one of the country’s highest per-capita state and local property taxes, with an average collection of around $3,300. In addition, depending on how you structure your rental company, you could pay an additional corporate tax on your earnings. 

Tennessee Tax Rate

One thing the Volunteer State doesn’t require its residents to do is pay income tax. The nation’s capital of music is one of the nine states with no income tax. 

But like New Hampshire, Tennessee’s taxes are more complicated than the other states on this list. State residents are charged an annual tax on income from taxable dividends and interest, which include interest trusts and mutual funds, interest on bonds, and certain shareholder distributions—not to mention one of the highest average sales taxes in the U.S. at 9.55%.

Tax liability implications

As with other states with no income tax, Tennessee homeowners are subject to local property tax. However, it is among the lowest among all 50 states. According to the Tax Foundation, the average per-capita property tax collection is $845. Alongside the property tax, the top corporate income tax rate is 6.5%, which could affect you based on how you structure your rental company. 

FAQ

Why is a sales tax charged by the states?

Sales taxes are levied at the point of sale to support local and state government services, as approved by voters and legislators. Four states—Delaware, Montana, New Hampshire, and Oregon—do not charge a sales tax, while Louisiana, Tennessee, Arkansas, and Alabama have some of the highest. 

Is it better to live in a state with no income tax or no sales tax?

It depends on several factors, including your taxable income, investment strategy, and the number of rental properties you manage. Generally, high earners can do better in a state with no income tax, as it allows them to better save and reinvest their earnings despite the higher sales tax. 

What are the downsides of living in a state with no income tax?

Living in a state with no income tax has two key downsides. First, state and local governments often make up the difference in higher sales, corporate, or property taxes. Secondly, a lower tax base often requires delicate budgets, which often means fewer funds for infrastructure, like schools. 

Why does sales tax vary from state to state?

The U.S. Constitution allows the federal government to set national taxes appropriate for public welfare, including the military, federal highways, and other infrastructure. The Constitution also allows states to set their taxes, making sales taxes a state issue. Therefore, different states, counties, and cities can set tax rates to reflect their budgets. 

Why don’t more states have no income tax like Texas does?

Policies and priorities determine state and local taxes, varying from state to state. In the example of Alaska and Wyoming, higher taxes on extracting natural resources allow their governments to pass on tax savings to their residents. 

Why do some states have higher taxes than others?

Each state government prioritizes its budgets based on numerous factors, including population, natural resources, industries, and businesses. As a result, state income taxes and sales taxes reflect the diverse sources of income available to the government. 

What U.S. territories don’t pay federal income taxes?

Residents of five U.S. territories are not subject to pay federal income tax to the United States Government: American Samoa, Guam, Puerto Rico, The Commonwealth of the Northern Mariana Islands, and the U.S. Virgin Islands.

Dreading tax season?

Not sure how to maximize deductions for your real estate business? In The Book on Tax Strategies for the Savvy Real Estate Investor, CPAs Amanda Han and Matthew MacFarland share the practical information you need to not only do your taxes this year—but to also prepare an ongoing strategy that will make your next tax season that much easier.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

Wang Tao from UBS Investment Research says slow improvement in the labor market, and property market fundamentals are weighing on the Chinese economic recovery.

Venture capital (VC) is the 3^rd rail of venture financing. It is highly charged and mostly misunderstood. The assumption is that there is a shortage of VC, implying that more VC will result in more home runs, more wealth, and more job creation. Yet, a few VCs earn most of VC profits, and very few entrepreneurs benefit from VC.

VC was developed in the U.S. The first VC fund was in Boston and Silicon Valley has perfected the funding strategy. So VC is not only an American invention, but it could only have been developed in the U.S. Here is why.

#1. VC is about financing high risk ventures. The U.S. accepts high risk.

The U.S. is the most entrepreneurial country in the world. VC is about opening new frontiers by financing emerging technologies and emerging industries. VC is high risk because many enter emerging industries, but few succeed and fewer dominate. About 80% of VC-funded ventures are said to fail. Without financing successes and home runs, VC fails. This is similar to the American spirit of seeking new frontiers and the risking of personal fortunes and lives.

#2. VC is about growing the size of the pie. So is America.

America is about growth and so is VC. Without growth, the U.S. will lose its dream. Increasing the size of the pie allows more to share in the American dream.

#3. VC promotes emerging industries. So does America.

VCs like to get in on an emerging trend and grow with the upward trajectory of the wave of the emerging industry. The U.S. has been the leader in emerging industries from Intel and semiconductors in the 1960s to personal computers to the Internet and AI. This creation and emergence of new trends and industries has been the foundation for VCs and the reason for their high returns. And America created all of them.

#4. VC is about dominating potentially big markets. So is America.

The concept of America has been to create huge markets and dominate them. Similarly, every VC would love to finance an early-stage venture that can dominate a potentially huge market. This has been the case with homeruns from Microsoft to Airbnb.

#5. VC accepts failure. So does America.

80% of VC-funded ventures fail. VCs accept failure as a cost of doing business. So does America. Failing at a business is not seen as the end of business life. Entrepreneurs can, and have, come back. Second chances are available, and comebacks are heralded.

#6. VC is a pyramid. So is America.

As I have noted before, 3% of VCs are said to earn about 95% of VC profits and about 15 ventures are said to account for about 97% of VC profits. That means very few ventures benefit from VC and very few VCs benefit from home runs. America is the same. The top 1% is said to own $41.5 trillion in wealth compared with about $2.6 trillion owned by the bottom 50%.

#7. VC destroys dinosaur industries. So does America.

VCs finance unicorns that build new giants while destroying the old. America is better at destroying obsolete companies and industries in contrast to many countries that try to protect their aging industries and obsolete hierarchies.

#8. Most importantly, VC needs Unicorn-Entrepreneurs. America develops, attracts, and rewards Unicorn-Entrepreneurs.

VCs do not create unicorns. Unicorn-Entrepreneurs do. VCs need Unicorn-Entrepreneurs like Steve Jobs who can take an ordinary idea, such as music downloads on an emerging trend, and build a global juggernaut. VC is dependent on Unicorn-Entrepreneurs like Jensen Huang (Nvidia) who come to America and build their unicorns here. America is dependent on Unicorn-Entrepreneurs to create new unicorns and maintain America’s competitiveness.

MY TAKE: VC could only have been developed in America. VC is about growth and change. So is America. VC is dependent on Unicorn-Entrepreneurs. So is America. For more unicorns in America, we need more Unicorn-Entrepreneurs before we need more VC.

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Encyclopedia BritannicaIntel | History, Products, & Facts

A fourplex may be a good place to start if you’re considering testing the waters as a residential real estate investor. It’s also a sound investment for the first-time homebuyer, as you can live in one of the fourplex units and rent the others—your tenants pay the mortgage. If you want it strictly as an investment property, that’s not a problem, although it may limit some attractive financing options.

What Is a Fourplex?

A fourplex is a multifamily home with four separate units under one roof. You may also hear it referred to as a quadplex. Each unit has its own entrance. Some fourplexes include a common building entrance with separate interior entrances for each unit. The units are either side-by-side or stacked on top of each other.

From the street, a common entrance quadplex may resemble a large, single-family home. 

Fourplex Investing Pros

There are plenty of reasons to invest in a fourplex. Here are some of the best:

Additional cash flow potential

If you’re looking for cash flow, a fourplex represents a better deal than two-to-three-unit properties. Each unit represents an income stream. 

Favorable financing

Quintplex isn’t a term used by most real estate investors. That’s because once a multifamily building surpasses four units, it’s considered a commercial, not residential, property. That makes financing for fourplexes more favorable, as you can obtain a residential mortgage rather than the commercial loan necessary for five or more units.

One mortgage for multiple doors

Buy several single-family homes as investments, and you’ll likely pay a separate mortgage for each property. If you live in your fourplex, you’ve got just one mortgage payment and property tax bill. Paperwork and recordkeeping are simpler.

Economies of scale

Because you’ve got four units, you will pay less on expenses due to economies of scale. That’s true of insurance, lawn care, and snow plowing.

Tax advantages

You’ll pay lower property taxes on a fourplex than if you purchased four separate rental properties. You may receive other tax breaks, such as real estate depreciation and investment tax deductions.

Tenant loss is less impactful

When a tenant leaves, you lose money if the property remains vacant. However, if you are a duplex property owner and rent out one unit, you will lose all rental income if a tenant leaves. When one tenant leaves a fourplex, you still have rents coming in from two to three units, depending on whether you are an on-site owner.

Fourplex Investing Cons

For all the pluses, there are still some reasons a fourplex isn’t suitable for every new investor. Think about whether you can handle the following before investing in a fourplex.

Management responsibilities

It’s one thing for an investor to manage one or two other units themselves. A properly managed fourplex takes a lot more time and effort. If you don’t reside in one of the units, you deal with at least three and possibly four separate tenants. That manageability is one reason the fourplex is in far less demand than a duplex or triplex. Of course, managing a fourplex is still easier than caring for four separate single-family properties. Many investors hire a property management company to oversee their fourplex buildings.

Harder to sell

Because there is less demand for a fourplex compared to duplex properties, it’s often harder for fourplex owners to sell when the time comes.

Less privacy

If using one of the units as your dwelling, expect tenants to knock on your door when issues arise. Expect less privacy when you’re an on-site fourplex landlord. On the plus side, when repairs are needed, or emergencies happen, you’re right there rather than having to go to your rental. While you enjoy less privacy, you benefit from greater convenience.

High tenant turnover

Fourplexes tend to have higher tenant turnover than single-family dwellings. For tenants, fourplex buildings tend to be starter living spaces. Many fourplex tenants wait until the single-family housing market becomes more attractive or save a large enough down payment to move.

How To Find a Fourplex

Work with a local real estate agent or use the MLS to find available fourplexes. BiggerPockets agent finder can match you with an investor-friendly agent specializing in multifamily property deals.

If there is not a suitable inventory of fourplex living units in the local housing market you’re targeting, contact the owners of fourplexes in the area and ask them if they are considering selling. Find the owner by visiting the municipal tax assessor’s or the county recorder’s website. Information from the assessor will include current property taxes.

Financing Your Fourplex

When it comes to financing, a fourplex holds several advantages. A fourplex does not meet the five-unit requirement for a commercial loan, so you can obtain a conventional residential loan with a 30-year fixed-rate mortgage for this investment. 

No matter the current interest rate environment, residential mortgages have lower rates than commercial loans.

FHA loans

Financing is even more advantageous when utilizing a Federal Housing Administration (FHA) loan. The minimum down payment for an FHA loan is just 3.5 percent of the purchase price. Buyers may qualify with a lower credit score than conventional mortgages, at just 580. Purchasers with a credit score of 500 may qualify with a 10 percent down payment. Under FHA rules, you can buy a property with up to four units. A caveat is that you must live in one of the units.

VA loans

Veterans can finance a fourplex with 0 percent down with a VA loan. Interest rates are also lower than with a conventional loan. However, while you can become a fourplex owner via a VA loan, you must reside in one of the units. A VA loan is available only for primary residences, not investment properties. A fourplex offers the best of both worlds.

Can You Live In Your Fourplex and Still Generate Rental Income?

Yes, living in your fourplex and generating rental income from the other units is a prime reason for investing in this type of housing. Live in one unit as an on-site owner, and your tenants pay your mortgage. This arrangement makes a great house hack.

Do you have family or friends seeking a home but don’t want to share your dwelling space with them? A fourplex allows you to rent units to them without sharing your kitchen, living room, bathroom, or personal privacy. While under the same roof, walls and separate entrances allow for seclusion. 

Tips for Investors Interested in a Fourplex

If you’re interested in a fourplex as your next investment property, here are a few tips to follow to ensure you’re maximizing your cash flow:

• Find a good location: As with any real estate investment, the mantra of “location, location, location” holds sway. Look for quadplexes in safe neighborhoods with a strong job market, near shopping, recreational opportunities, and a good school system.
• Determine how to handle utilities: Decide how you want to handle the utilities for each tenant. For example, a separate water meter for each unit billed to the tenant means they pay exactly what they owe. A separate bill means a separate, often steep base fee. If you pay the water bill as a landlord, there’s just one base fee, and you can divide water usage by four. You can raise the rent if water costs increase significantly. You’ll also have tenants saying they aren’t using more water, and the other tenants are at fault.
• Carefully screen your tenants: Perform careful background checks for every tenant. While you would certainly do that with people you don’t know, it may prove a delicate subject if one or more of your potential tenants is a friend or relative. You may know that there is no criminal or eviction history, but you may not know whether that person pays their bills. A credit check report reveals their credit score, much of which is determined by timely bill payments. You don’t want to worry about whether a tenant will pay their monthly rent.

Is a Fourplex Right for You?

Is a fourplex a good investment for you? Much will depend on whether you live in one of the units or are an absentee investor. For the latter, a good property manager is almost always a necessity. 

Consider a fourplex if you’re just getting started in real estate investing. Along with attractive financing choices for fourplex buyers, such a purchase offers hands-on experience with property management. You might find this is right up your alley or that you are better suited to a more passive investment. It’s an opportunity to learn more about real estate investing and yourself. 

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.