HONOLULU (AP) — A woman who purchased a vacant lot in Hawaii was surprised to find out a $500,000 house was built on the property by mistake.

She’s now mired in legal wrangling over the mix-up.

Annaleine “Anne” Reynolds purchased a one-acre (0.40-hectare) lot in Hawaiian Paradise Park, a subdivision in the Big Island’s Puna district, in 2018 at a county tax auction for about $22,500.

She was in California during the pandemic waiting for the right time to use it when she got a call last year from a real estate broker who informed her he sold the house on her property, Hawaii News Now reported.

Local developer Keaau Development Partnership hired PJ’s Construction to build about a dozen homes on the properties the developer bought in the subdivision. But the company built one on Reynolds’ lot.

Reynolds, along with the construction company, the architect and others, are now being sued by the developer.

“There’s a lot of fingers being pointed between the developer and the contractor and some subs,” Reynolds’ attorney James DiPasquale said.

Reynolds rejected the developer’s offer for a neighboring lot of equal size and value, according to court documents.

“It would set a dangerous precedent, if you could go on to someone else’s land, build anything you want, and then sue that individual for the value of it,” DiPasquale said.

Most of the lots in jungle-like Hawaiian Paradise Park are identical, noted Peter Olson, an attorney representing the developer.

“My client believes she’s trying to exploit PJ Construction’s mistake in order to get money from my client and the other parties,” Olson told The Associated Press Wednesday of her rejecting an offer for an identical lot.

She has filed a counterclaim against the developer, saying she was unaware of the “unauthorized construction.”

An attorney for PJ’s Construction told Hawaii News Now the developer didn’t want to hire surveyors.

A neighbor told the Honolulu news station the empty house has attracted squatters.

Just like most things in life, there are frameworks for goal setting.

I would highly suggest NOT reinventing the wheel.

Choose a framework and stick with it.

S.M.A.R.T

The oldie but goldie, SMART goals (Specific, Measurable, Achievable, Relevant, and Time-bound) have been my go-to for structured planning.

Golden Circle

Dig into the ‘why,’ circle through the ‘how,’ and then land on the ‘what.’ Simon Sinek’s Golden Circle flips the traditional model on its head.

Goals Pyramid

Stack your goals from the base up, with your mission at the bottom and your tasks at the top.

Locke and Latham’s 5 Principles

These principles pivot around Clarity, Challenge, Commitment, Feedback, and Task complexity to make goals stick.

B.H.A.G. (Big, Hairy, Audacious Goals)

Not for the faint-hearted, B.H.A.G.s are transformative goals that shift how you think about scaling and growth.

HARD

Heartfelt, Animated, Required, and Difficult – HARD goals tap into your emotional energy and fully engage you in the goal-chasing quest.

WOOP

This mental strategy stands for Wish, Outcome, Obstacle, Plan – a mental contrasting technique that helps cement goal achievement.

Here’s a cool graphic that I created about all these B.A. frameworks.

Pro Tip: If you’re new to setting goals, start easy. You’re looking for a goal snowball where you CRUSH a goal and then set another one.

When you make your goals too lofty, you lose steam when you fall short.

Coming up with a down payment for a house presents the greatest barrier to buying for homeowners and real estate investors alike.

But do you have to put down a down payment on a house when you buy it? Are there creative workarounds that homebuyers and real estate investors can use to minimize the down payment?

It turns out there are ways to minimize down payments, especially for real estate investors. Of course, they have to come up with a far larger down payment than the average homeowner.

Why Is There A Down Payment Requirement For Most Real Estate Loans?

For the lender’s side, down payments are used to hedge against the risk of a non-paying client. It also gives the impression that the clients are capable of managing their finances to meet loan obligations over a long period.

For the borrower, a down payment can affect the overall state of your loan, including interest costs and monthly payments—and, yes, it also reduces risk on the buyer’s side. Higher down payments can lead to lower interests and monthly payments, or even shorter loan times.

How Much of a Down Payment Do I Need?

Homeowners must typically put down 5-20% of the purchase price when buying a house.

While it’s commonly known that 20% is the expected amount, this has changed in recent years, with the average down payment for a home in the US coming in at 14.4%. However, the government does sponsor some loan programs with particularly low down payments.

As we can see, FHA loans require only 3.5% down from borrowers with credit scores over 580. On the conforming side, Fannie Mae offers a 3% down mortgage program, as does Freddie Mac. Military veterans can even score 0% down mortgages from the VA!

Several factors impact the down payment required by your mortgage lender. Your credit history makes a huge impact, so if you have a few dings on it — or haven’t established much credit history — work to repair or build your credit fast. Lenders also look at the stability of your employment and income because they ultimately price and structure loans based on the perceived risk that you will default.

Remember that if you put down less than 20%, you must pay private mortgage insurance (PMI). PMI can add $1,000 or more to your annual mortgage costs, seriously affecting your budget.

Real estate investors, in contrast, must typically come up with a greater down payment. Expect to put down between 15-30%, with strong borrowers generally putting down 20-25% depending on their credit, investing experience, and the lender.

That higher down payment requirement leads some investors to get creative and look for loopholes in using homeowner financing to buy investment properties.

Tips To Minimize The Down Payment On Your House

 Let’s go over your options on how to lower the down payment for your next house purchase. 

Loophole 1: Occupy the Property for One Year

To qualify for a homeowner mortgage, you must live in the property for at least one year. After a year, you can move out and keep the property as a rental.

This strategy keeps your down payment and interest rate low. Some conventional loan programs require just 3% down! You can compare instant prequalified interest rates and down payments on Credible*.

That said, this strategy has several drawbacks. First, it sets a speed limit of one property per year. If you’re relying on owner-occupied financing, you can’t build your rental portfolio faster than that.

Second, these mortgages all report on your credit. One or two mortgages reporting on your credit can boost your credit score, but five or ten? They can ruin your credit.

Third, most conventional mortgage lenders limit the number of mortgages that can appear on your credit. For many loan programs, that limit is four—after that, you’ll have a hard time getting a mortgage.

Finally, you have to buy the property under your name rather than under an LLC or other legal entity to maintain your privacy as a landlord and avoid personal liability in the event of a lawsuit. If you want to borrow a loan for an LLC, plan to get a proper rental property mortgage from a portfolio lender.

This strategy is how the Hoeflers built their rental portfolio and reached financial independence. It worked especially well for them because they combined it with house hacking.

Loophole 2: House Hack a Multifamily

Another way real estate investors can use homeowner financing to minimize their down payment and interest rate is through house hacking a multifamily property.

While there are many ways to house hack to live for free, the classic model involves buying a small multifamily, moving into one unit, and renting out the others. Take Tim, for example, who house-hacked a duplex. His neighboring renters pay enough to cover his monthly mortgage payment and much of his maintenance and repair costs.

And, like the Hoeflers, you can always move out after a year and buy another multifamily!

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When Rhonda Burnett went to sell a home in 2016, she knew she would have to pay a commission to her real estate agent.

The house was a second home — she and her husband, Scott Burnett, had purchased the three-bedroom house in the Hyde Park neighborhood of Kansas City, Mo., as a place for their oldest son to live after he was accepted to law school in Kansas City in 2008.

Her real estate agent presented her with a form that detailed how much commission they would pay, with choices in four boxes: 6%, 7%, 8% or 9%.

Burnett was instructed to select one, and she picked 6%.

The rest of the form, which stipulated that the commission would be evenly split among the buyer and seller agents, was already filled out; Burnett asked if she could lower the commission paid to the buyer’s agent, but her agent told her doing so would discourage agents from showing her home.

“I shop sales,” Burnett, 70, said with a laugh. She spent three decades as a stay-at-home mother while her husband, Scott Burnett, 72, worked for a waste management company and spent 20 years working as a local legislator. “I’m always looking for a break. But when I asked her if I could negotiate, she said, ‘No, you really can’t.’ ”

Three years later in 2019, Rhonda Burnett became the lead plaintiff in a landmark legal case about home sale commissions against the National Association of Realtors that led to a settlement this month that real estate experts say will rewrite the housing industry in the United States.

The settlement followed a federal jury verdict in October in favor of the Burnetts and four other plaintiffs, on behalf of 500,000 Missouri home sellers, that ordered NAR to pay $1.8 billion in damages. Under the agreement, sellers’ agents will no longer be able to make offers of commission to buyers’ agents on most of the databases where homes are listed for sale, a shift that will, experts say, lower commissions across the board. For decades, most agents in the United States have charged an industry standard of between 5% and 6%, which is higher than in nearly any other developed country.

The plaintiffs argued that NAR and several large real estate brokerages had conspired to inflate real estate commissions, pointing to several NAR rules that required a seller’s agent make an offer of commission to a buyer’s agent. Those commissions, the home sellers argued, were negotiable in name only, and unnecessarily high, forcing home sellers to pay unnecessary fees to close a sale.

Burnett spoke for both herself and her husband. She told the jury how she felt that the rules of the real estate industry had seemed fixed, and she believed she was forced to pay a commission that was never truly negotiable.

In an interview, Burnett stressed that she didn’t blame her real estate agent, whom she believes was just doing her job. Burnett spent several years as an advocate for the Kansas City public schools, meeting with educators and parents that helped her district. Her real estate agent was also a school advocate, and they often saw each other at district meetings. She blamed the industry, and the powerful National Association of Realtors, which had set the rules.

“It’s not the Realtors. But the Realtors are controlled by a huge spiderweb,” she said. “After I joined the lawsuit, I learned so much about how the industry is run. It goes all the way to the brokerages and up to NAR.”

Despite the settlement, which is pending a federal judge’s approval, NAR continues to deny any wrongdoing in terms of its rules for agent compensation.

“NAR does not set commissions, and commissions were negotiable long before this settlement. They are and will remain entirely negotiable between brokers and their clients,” the organization said in a recent statement.

Before the lawsuit went to court, NAR — a powerful trade organization with 1.5 million members, more than $1 billion in assets and a cash-flush lobbying arm — seemed impregnable. It had fended off a Justice Department inquiry into anti-competitive behavior for more than a decade, and successfully sued upstart real estate companies that challenged its stance. The Justice Department inquiry is ongoing.

But in U.S. District Court for the Western District of Missouri, the home sellers were speaking directly to a jury of their peers. It offered them an opening.

Michael Ketchmark, 58, a plain-spoken personal injury lawyer who became lead lawyer on the case, sensed his advantage on the first day of the trial.

Stepping to the front of the courtroom on Oct. 17, he gestured to his mother and father, who are in their 80s and attend all of his trials. On that day, Margaret and Eugene Ketchmark were seated in the front row.

“I told the jury that everything I needed to know about this lawsuit, I learned from my mom and dad when I was in kindergarten,” Ketchmark said in an interview. “If you take something that doesn’t belong to you, you have to give it back. And that’s what this case was. It was a refund case. It was about giving the money back.”

Ketchmark was referred to the case by a friend and fellow attorney who knew the Burnetts. He then began looking for other plaintiffs across Missouri who might have similar grievances.

Ketchmark had never tried a housing case before, but he was no stranger to big wins — in 2002, he won a $2.2 billion civil judgment against Eli Lilly and other drugmakers, claiming that they failed to uncover the scheme of a Kansas City pharmacist who was diluting chemotherapy drugs. The drugmakers, who never admitted any wrongdoing, later settled for $72.1 million.

Ketchmark had a similar upbringing to the plaintiffs in the case against NAR, with parents who didn’t make a lot of money and who saw a house as their biggest investment. He grew up in West Des Moines, Iowa, as one of four children, and his father worked at a bank. His mother didn’t finish college until he himself was in law school — she put herself through night school.

He had a strategy: Talk to as many average Americans as he could about the case, and find out what resonated. His team began running and filming mock trials.

“We would watch the tape, and start developing out the themes of the case,” he said. By the time they got to trial, Ketchmark estimates he had watched 2,000 hours of video of mock jurors discussing the case.

“I intuitively knew when the trial started that if we could win this, that if the jury followed the law and reached the right result, that it would change the industry. And it has,” he said.

He pressed Burnett, who grew up in Georgia and met her husband when they were both working in President Jimmy Carter’s White House — Scott did field organization, Rhonda worked as an administrative aide — to describe her childhood with a stay-at-home mother who sold Tupperware and a father who worked at the federal penitentiary and took on shifts selling sporting goods at the local Sears for extra cash.

Burnett’s agent listed the house for $275,000 but it sold for $250,000. Burnett paid $15,298 in commission.

Ketchmark guided Jerod Breit, 42, another plaintiff in the case, to share stories of working as a police officer in St. Louis before saving up enough to buy his first home in south St. Louis. And he encouraged Hollee Ellis, 53, to tell the jury about her mother, who worked as a real estate agent.

Ellis, a former high school English teacher who now works in nonprofits, talked about joining her mother at real estate showings as a child, and later even working as an assistant at her brokerage at one point. She joined the lawsuit, she told the jury, not in spite of her mother but because of her.

If real estate agents were actually able to negotiate commissions, she said, she believed her mother could have made more money, rather than less.

“She operated under that assumption and that practice and that standard for so many years,” Ellis said of the split 6% commission. She shared with the jury that her mother is now suffering from Alzheimer’s and has advanced dementia. “Whereas I know she worked very, very hard for some of her buyers and possibly could have negotiated a different rate.”

Ellis described selling a modest three-bedroom, single-level brick house in 2016 and feeling that she could not negotiate the 6% commission she paid that was split between her agent and her buyer’s agent. “It’s not about money at all,” she said of the case. “It’s about reversing a practice that I feel is unfair.”

Ellis and her husband, Jerry Ellis, a forklift driver, were looking to sell their house in Ash Grove, Missouri, because Hollee Ellis had a new job opportunity at a nonprofit in South Carolina.

They owed $107,000 on their mortgage. They hired a real estate agent who sold the house for $126,000, netting them just over $18,000. Forty percent of that ended up going to real estate commissions for both their agent and the buyer’s agent.

“It was a hard pill to swallow that we were walking away with so little,” she said.

Breit also said he felt he had money taken from him.

He spent more than a decade as a police officer. He bought his first home, a two-bedroom brick Tudor in south St. Louis he described as a “gingerbread house,” with the help of a fellow officer’s father — a retired paramedic who worked as a real estate agent on the side.

When it came time to sell that home, Breit said, that same retired paramedic offered to help again, he said, and promised he would only take the “law enforcement special” of 5.5% commission.

Breit took issue with the commission to his buyer’s agent, and had joined the class-action lawsuit when lawyers began reviewing the contracts of his home sale. It was only then, one day before he was scheduled to take the stand, that he learned he hadn’t been offered a law enforcement special anyway.

He sold the home for $149,900 in 2017. He was charged $4,946.70 in commission to his seller, and $4,047.30 in commission to his buyer, totaling $8,994. When the numbers were brought to his attention, he did the math in his head several times, disbelieving. His agent, using forms that were preprinted, had gone ahead and charged him the full 6%.

“I know people say it’s negotiable,” he said. “But it’s really hard for me to believe that it’s negotiable when the documents are pre-filled and we don’t question it.”

Breit left the police force in 2017 and now serves as a regional executive director for Mothers Against Drunk Driving.

“I’m just a person who sold a house,” he said. “I don’t go to Jiffy Lube to pay for an oil change next week, and I don’t pay for someone else’s Hulu account because we live on the same block. People should only have to pay for what they use.”

You might be wondering how exactly you can attain such groundbreaking growth.

The path to increasing your business by 33% is filled with actionable strategies, innovative approaches, and untapped potential just waiting to be explored.

Ready?

Increase Your Prices by 10%

You can approach this tactic in a few ways to suit your business model and customer base best:

1. Yearly Price Increases for Existing Customers: Implementing a systematic annual increase for your existing customers can be a practical method to boost revenue. Pro Tip: Bake this into your contracts.
2. Increase the Price by 10% for New Customers: Alternatively, you can opt to increase the price of your products or services by 10% for new customers. This strategy enables you to test the market’s response to your pricing and adjust accordingly.

Example:

Imagine a business coach:

The business, which offers professional development workshops, currently charges $200 per participant. With an average attendance of 50 participants per workshop, the revenue per session is $10,000 ($200 * 50).

By implementing a 10% price increase, the charge per participant would rise to $220 ($200 + $20). Assuming the attendance remains constant at 50 participants, the new revenue per workshop would be $11,000 ($220 * 50).

If most people were willing to pay $200, they wouldn’t blink an eye at $220. Wouldn’t you?

Get 10% More Customers

Acquiring 10% more customers is a critical step toward achieving your goal of 33% growth.

This task can be approached through three main strategies: Referrals, Outbound Selling, and Inbound Marketing.

Each strategy requires a tailored approach and presents unique growth opportunities.

Here’s how to get started with each:

Referrals:

Referral Programs: Encourage your existing customers to refer new customers by offering incentives for the referee and the referrer.

Easy Start: Create a simple referral form and email it to your current customers, explaining the benefits for them and the person they refer.

Outbound Selling:

Cold Emailing and Calling: Reach out to potential customers who fit your ideal customer profile but are not currently in your network.

Easy Start: Identify 10 potential businesses each week and send personalized emails or make calls introducing your offering.

Social Selling: Leverage social media platforms to engage with potential customers and showcase your products or services.

Easy Start: Start building your brand on LinkedIn by writing great content (daily). From there, connect with your target audience and strike up great conversations.

Inbound Marketing

There are TONS of ways to do inbound marketing.

If you’re not currently doing inbound marketing, get started.

If you are doing some of these methods, expand into others.

SEO: Optimize your website to rank higher on search engine results, making it easier for potential customers to find you.

Easy Start: Include relevant keywords in your website’s titles, headers, and content.

AdWords: Google AdWords allows you to skip the line and pay for placement at the top of Google’s SERPs (search engine results pages).

Easy Start: Start with a small budget ($500/month) to test different keywords and ad copy to see what brings the best results.

Email Newsletter: Keep your customers engaged and informed by regularly sending out an email newsletter with updates, offers, and useful information.

Easy Start: Set up an opt-in form on your website. From there, write a weekly email newsletter in your niche.

Organic Social: Leverage social media platforms to build relationships and communicate with your audience without paid advertising.

Easy Start: Choose one social media platform where your target audience is most active and post valuable content daily.

All of these are easy to say and hard to do. Get started today.

Increase Buying Frequency by 10%

Encouraging customers to buy more often boosts sales and deepens customer loyalty and engagement.

Here are some practical ways to encourage customers to make purchases more frequently:

Upselling:

Offer customers an upgraded or premium version of the product they’re interested in at the point of sale.

Example: If you’re a business coach, offer a 1/2-hour and a 1-hour time slot.

Cross-Selling:

Recommend related products or services that complement the customer’s original purchase.

Example: Using the coaching example, let’s say you offer coaching around social media growth and social selling. Start offering social templates.

4. Guerilla FSBO Tactics

Real estate agents are expensive for exit strategies, and aren’t always necessary. Sure, unique and upscale properties probably need a realtor to do some serious sales maneuvers, but an average middle-class house? The primary marketing is a simple MLS listing.

Today’s real estate investors can list their properties on the MLS using flat-fee listing services such as Clever and Houzeo that cater to For-Sale-By-Owner customers, at a fraction of the cost of a traditional realtor. But MLS listings are just the beginning.

There are entire Facebook groups dedicated to local real estate available for sale. If you’re targeting investors, there are also Facebook groups for local real estate investors, not to mention local real estate investing clubs. For that matter, you can take advantage of our nationwide Facebook group for real estate investors, with roughly 32,000 members!

It doesn’t take a realtor to put a “For Sale” sign in the window, or host an open house. Or, for that matter, to post flyers in the local grocery stores, fitness clubs, coffee shops, etc.

In some ways, this technique is the opposite of hiring an auction house. You’ll do all the work yourself instead of handing it off, but you’ll maintain much more control over the process, and you can wait for the right price. You’ll also be in an excellent position to offer seller-financing as part of the package, to help encourage buyers along (more on this later).

5. Auctions

Auctioning off properties works great when you need a quick sale.

Don’t expect top dollar – auctioning real estate prioritizes sale date over sale price. But when you absolutely, positively need to sell a property by a certain date, auctions are a reliable way to sell.

As anyone who has auctioned anything can tell you, who you choose as the auctioneer matters. A lot. Reputable auction companies attract serious, reputable bidders, who trust that the auctioneer is not deceiving them. It takes time for auctioneers to build trust – just ask Sotheby’s, who has been around since 1744.

Established auctioneers also have powerful marketing machinery in place, to reach the maximum possible audience. They cultivate extensive mailing lists, standing ad slots with local publishers, familiarity with the best ways to reach the right prospects in the local market.

But even when you use a reputable, experienced auctioneer, the outcome remains a gamble. Your final price will come down to who turns out that day, which can be affected by random variables like the weather, or seemingly unrelated events like a conference taking place across town. Maybe the traffic is just exceptionally bad that day, and prospective bidders decide not to make the drive.

Auctions aren’t quite an act of desperation, but they certainly won’t attract top dollar, either.

6. Dodge Taxes by Rolling Your Profits into a Larger Property

Taxes suck, even lower capital gains taxes on real estate. They siphon off money you could otherwise put toward building passive income and reaching financial independence. 

Fortunately, you don’t have to pay taxes on your profits from selling real estate. Not if you use them to buy another property, using a 1031 exchange. 

Within 45 days of selling your old rental property, you identify a replacement property you plan to purchase. You must then settle on the new property within 180 days of selling the old one. 

The new property must cost at least as much as the property you sold — it’s a tool for scaling your real estate portfolio, after all. 

Read up on how 1031 exchanges work before pulling the trigger, and keep rolling your real estate profits into ever larger rental properties with greater cash flow!

7. Pull Out Equity with Loans (Which Your Tenants Pay Back)

One of the most common real estate exit strategies is to sell the property to cash out the equity. But then you lose the asset, and no longer benefit from ongoing cash flow or appreciation. Where’s the fun in that?

Alternatively, you could keep the property and still pull out the equity through a rental property loan. It clips your cash flow, but you get to keep the property, which continues appreciating, and you can keep raising the rent each year. You get paid out for your equity, but you don’t have to pay taxes on it. Quite the opposite: you get to deduct the interest as a landlord tax deduction!

In other words, you can have your cake and eat it too. And your tenants can pay the mortgage back down again, just like they did the first time around. 

Win, win, win.

The FBI appears to have launched an investigation into a Bellevue-based real estate investment firm, the first indication that the company’s former executives could face criminal charges connected to allegations they ran a Ponzi scheme.

For at least the last decade, iCap raised money from investors in Washington state and elsewhere, promising to invest in Seattle-area real estate projects. But last spring, investors grew concerned as the company stopped making monthly interest payments. By the fall, iCap filed for bankruptcy and a third-party restructuring firm, Paladin, took over.

Paladin said last month it believed iCap was a Ponzi scheme, using investor funds to repay other investors while doing little of the real estate redevelopment it promised. According to bankruptcy filings, the company owes 1,800 investors and other entities a total of $250 million.

As part of the bankruptcy case, attorneys for former CEO Chris Christensen wrote in court filings last week that the U.S. Securities and Exchange Commission and FBI “recently opened a criminal investigation into iCap.” 

“It is too soon to know whether the investigation will lead to any indictments or who the targets are,” Christensen’s attorneys wrote, urging the court to hold off on determining whether the company was a Ponzi scheme “until the parties have a clearer understanding of the criminal investigation.”

Christensen has denied that the operation was a Ponzi scheme.

The restructuring company last month urged a bankruptcy judge to find that iCap operated a Ponzi scheme, alleging that most of iCap’s income came from investors, not from real estate projects, and that iCap used most of its cash to make payments to investors, not for real estate projects. A Ponzi finding could allow the company to tap into more financing to fund the ongoing bankruptcy, according to court filings.

The dispute appears to have attracted the attention of federal regulators in recent months.

The SEC notified Christensen in February it was investigating iCap, and the “federal government confirmed its investigation of the same” this month, Christensen’s attorneys wrote.

Both agencies declined to comment. It’s unclear how the investigations are related. The SEC does not conduct criminal investigations.

While investigations are in their “nascent stages,” Christensen and others have received subpoenas from the SEC and the Washington State Department of Financial Institutions, the attorneys wrote.

Christensen’s attorneys did not respond to a request for comment Monday, but have denied in court filings that he operated a Ponzi scheme. 

Attorneys representing iCap investors, who are still waiting to find out if they will ever recoup their investments, welcomed a federal probe. Investors “should feel encouraged knowing that federal investigations are underway,” John Bender, an attorney representing the committee of investors in the bankruptcy proceedings, said in a statement. “We will support federal investigators however we can.” 

Christensen, the former CEO, “vehemently disputes” the Ponzi scheme allegations, his attorneys wrote.

ICap “bought, developed and sold or otherwise exited out of approximately 60-70 real estate projects in Vancouver, Seattle, Tacoma, Bellevue and Renton, generating hundreds of millions of dollars in proceeds,” they wrote this month. That work included securing permits and paying for construction work, “a large business operation that completed a large number of complicated real property projects.”

That activity “stands in stark contrast to the typical Ponzi scheme,” they argued, adding later, “Even an unprofitable business is not synonymous with a Ponzi scheme.”

Christensen also disputed the conclusion from a consultant Paladin hired that iCap was a Ponzi scheme, claiming the consultant lacked expertise in real estate and based his findings on incomplete records.

Christensen, the restructuring company and other parties in the bankruptcy continue to argue about whether iCap operated a Ponzi scheme and whether a bankruptcy judge should decide on that question any time soon.

Christensen’s attorneys contend the criminal investigation could interfere with Christensen’s Fifth Amendment right against self-incrimination and that the government could use the bankruptcy process to get “premature access” to evidence relevant to the criminal case. 

Bankruptcy Judge Whitman Holt appeared sympathetic to that argument during a recent hearing, saying he found “this dynamic very troubling” and was “concerned about rushing forward in a way that steps on other people’s toes or creates problems.” 

Investor attorney Jay Kornfeld noted that a year has passed since iCap stopped making interest payments to investors. “For investors and individuals [who] have lost in many cases their life savings, that is a long time, and we would urge the court to keep this process going,” he said.

The next hearing in the case is set for Wednesday. 

Working for a company is the most common way people in the United States earn their living. As an employee, your earnings are reported on IRS Form W-2, and federal, state, Medicare, and Social Security taxes are withheld every time you are paid.

Although there are benefits to being an employee—like simplified tax preparation—you may pay more in taxes than self-employed individuals or business owners because you can’t claim certain deductions. That doesn’t mean you don’t have options, however. You may be able to supplement your income, grow your net worth, and reduce your tax obligation by investing in real estate.

Understanding Real Estate and Tax Basics

An investment in real estate can be used to lower the overall taxes you pay, including your W-2 income. This is done by using certain tax strategies, like depreciation, 1031 exchange, deducting mortgage interest, and taking advantage of tax credits. Your ability to use real estate tax deductions to offset your W-2 income from investment losses may be limited by the “passive loss rules,” however.

A passive loss occurs with a rental property when the operating expenses exceed the rental income. If one of your rental properties suffers flood damage, for example, and you don’t have flood insurance, the repairs could be more than your rental income in a year, depending on the severity of the damage.

There is an exception to the passive loss rules for the 2024 tax year if you qualify as a “real estate professional.” A passive real estate investment is one in which you do not materially participate, like renting apartments or single-family homes. 

If your adjusted gross income is $100,000 or less and you incur a loss from your rentals in a tax year, you may be able to use the loss to offset non-passive income, like W-2 income, for up to $25,000 if you are a real estate professional.

To qualify as a real estate professional in the eyes of the IRS, you must meet two criteria:

• Material participation: You are actively involved in the operation of your real estate investments. The IRS provides several tests to determine material participation.
• Time spent: You must spend more than 50% of your working time in a tax year materially participating in your real estate investments. This is to make sure your real estate activities are your primary occupation.

If you believe you qualify as a real estate professional, it’s important to keep detailed records of your participation in your real estate activities to prove it. If you are audited, you’ll need proof of the hours you worked and the nature of your involvement.

Real Estate Strategies for Reducing W-2 Taxes

There are several ways that you may be able to reduce your W-2 taxes with a real estate investment. The type and whether you have an equity or debt investment determines the strategies you will qualify for.

Direct ownership and rental properties

Owning long-term rentals lets you grow your net worth almost on autopilot. Other than making sure your rentals are maintained and a few other tasks, this strategy can be mostly passive.

The most common way investors reduce W-2 taxes with rental real estate is by depreciating their properties. Depreciation is an accounting strategy that allows you to deduct a portion of the purchase price of your property on your taxes each year until the full amount has been deducted. Remember that the depreciated value of a property is not the same as its market value.

For a residential property, the IRS allows you to depreciate it over a period of 27.5 years in 2024. For commercial properties, the depreciation period is 39 years.

Real estate investment trusts (REITs)

A real estate investment trust (REIT) is a way to invest in real estate without having to deal with tenants, maintenance, and other time-consuming real estate issues. REITs are companies that own and operate income-producing properties. They invest in many different types of properties, including residential, commercial, industrial, and others.

Although some REITs are privately controlled, many are publicly traded on stock exchanges, which makes them highly liquid investments. Income from a REIT is received as a dividend.

Although a REIT does not directly lower your W-2 taxes the same way as rental properties, there are some indirect ways that it may provide tax benefits. REIT investors can benefit from tax-deferred growth on their investments, for example, if they are held in tax-advantaged accounts such as IRAs or 401(k) plans. Qualified dividends may also be taxed at capital gains tax rates in 2024, which are lower than the rates for ordinary income.

Real estate crowdfunding platforms

In recent years, a new way to find real estate opportunities has made it easier to invest. Real estate crowdfunding platforms operate entirely online and allow you to pool your money with other investors for certain projects. You can browse many different opportunities and crunch the numbers to see which ones appeal to you.

The best real estate crowdfunding platforms offer different types of investments, including single-family homes, apartments, commercial properties, industrial properties, and real estate development projects. You can invest in income-producing properties or act as a lender and earn interest.

If you are a W-2 earner investing through a crowdfunding platform, the tax implications will depend on whether you are a debt or equity investor. And if you are lending money (debt investing) to earn interest, the interest is taxable as ordinary income in 2024.

If you are an equity investor who earns investment income, you may be subject to capital gains tax if you sell your investment for a profit. You may also be able to take a depreciation deduction for the portion of the property you own.

More Advanced Real Estate Tax Strategies

If you are an experienced investor, you may be considering a 1031 exchange or investing in an opportunity zone. Both strategies may help you save on capital gains taxes in the current tax year. Here’s a look at each.

1031 exchange

A 1031 exchange is a strategy that allows you to defer the capital gains tax when you sell a property for a profit. Named after Section 1031 of the IRS tax code, some people refer to it as a “like-kind” exchange because you purchase an investment property that is similar to the one you just sold: You essentially swap one property for another.

This strategy doesn’t eliminate the capital gains tax, however—it just postpones it. The tax will eventually need to be paid. The main benefit of a 1031 exchange is that it gives you more money to invest in a new property when you sell.

Opportunity zones: investing in economic development

An opportunity zone is an area that the government believes will benefit from economic development to spur job creation. They are usually low-income communities with older homes and few businesses. Real estate investors can take advantage of certain tax benefits by investing in qualified opportunity funds (QOFs), which invest in businesses or real estate projects in opportunity zones.

An important benefit of investing in a QOF involves the deferment of capital gains tax. If you sell an investment property and reinvest the proceeds in a QOF within 180 days, you can defer paying the capital gains tax until you sell your investment in the QOF or until Dec. 31, 2026, whichever comes first.

Seeking Professional Advice

Coming in at nearly 7,000 pages, the U.S. tax code is complex and changes every year. Because it’s important to make sure your taxes are prepared correctly, be sure to seek the help of a tax professional. Some real estate tax strategies are complex—like 1031 exchanges—so you want to make sure you get everything right.

Seeking the advice of a financial advisor is also a good idea if you are considering certain real estate strategies. A financial advisor can provide expert guidance and may make recommendations to help you reach your investment goals faster and save money on taxes.

Finding someone to help you with your investment strategy and taxes has never been easier. With the BiggerPockets Tax & Financial Services Finder, you can quickly find an investor-friendly professional near you.

Final Thoughts

Investing in real estate for W-2 employees offers many benefits that go beyond tax savings. You could invest in rental properties, for example, to supplement your future retirement income. If you use the monthly rental income to make the mortgage payments, the notes will eventually be paid off, and you will own the properties free and clear. You can then enjoy mostly passive income in your retirement years, or sell your properties for a lump sum.

With careful planning, a real estate investment can also be used to lower the taxes you pay on your W-2 income. In addition to helping you save money, your investment will also appreciate over time, making it a strong hedge against inflation.

Before you take a tax deduction or credit, be sure it’s permitted in the current tax year. The tax code is amended every year, and something that is a tax break one year may not be the next. 

If you are unsure about a particular tax strategy, a tax professional can ensure that your taxes are prepared correctly and that you take every legal deduction and credit that you are due.

Related IRS Publications and Resources

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.