\n
Ashley:
This is Real Estate Rookie episode 244.<\/p>\n
Tony:
If your partner is just bringing the capital, if all they\u2019re doing is bringing the capital and you are doing literally everything else, you\u2019re sourcing the deal, you\u2019re managing the rehab, or doing the work yourself, managing the tenants long-term, finding those tenants, maybe you deserve more than 50%, but it\u2019s all going to depend on how much work is moving into that deal.<\/p>\n
Ashley:
My name is Ashley Kehr, and I\u2019m here with my co-host, Tony Robinson.<\/p>\n
Tony:
And welcome to the Real Estate Rookie Podcast where twice a week we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And I want to start today\u2019s episode by shouting out someone who\u2019d love to see five star review on Apple Podcast. They go by the username Real-A States. So I like the name, but they say, \u201cThank you guys so much for the info and for the inspiration. This is definitely the best and most engaging\/addictive podcast that has helped change my mindset and my path towards financial freedom.\u201d We appreciate you username Real-A States, and if you haven\u2019t yet left us an honest rating review on Apple Podcast or Spotify, please do. The more reviews we get, the more folks are able to help and helping people is our goal.
So Ashley Kehr, I got to start by saying a very happy belated birthday to you. You turned another year older and wiser this past week and I hope you enjoyed yourself. I know you were a little under the weather, but hopefully you still got to enjoy yourself a little bit.<\/p>\n
Ashley:
Yeah, I was. So I didn\u2019t really do much. So I stayed in my celebration for the weekend. We had a huge snowstorm hit Buffalo, where 10 minutes from me, they got 80 inches. We were lucky we didn\u2019t get quite that much, but there was the Bills game this weekend, which was supposed to be a home game and it got pounded the snow and there\u2019s just nowhere to put any of the snow to clear it out of the stadium or the parking lots for all the tailgaters. So I ended up packing up my Wagoneer with seven people and we drove out to Detroit Saturday, spent the night and then Sunday went to the Bills game in Detroit where it was moved and that was a lot of fun. The best part about it, I think is we got club seats for $30 each. When is that ever going to happen again?
So that was considered my birthday celebration I guess. So that was fun. Something spontaneous and if you guys follow me on Instagram and listen to the podcast for a while that my why is so that I can be spontaneous and I got to take my middle child to his first Bills game. So he loved it and it was just a great experience overall.<\/p>\n
Tony:
That\u2019s awesome. Well, I\u2019m glad you enjoyed yourself and I\u2019m glad you\u2019re feeling better.<\/p>\n
Ashley:
Thank you. And to Tony, happy anniversary, your wedding anniversary, it was yesterday.<\/p>\n
Tony:
Thank you. Yeah, it\u2019s been crazy. Sarah and I have been dating for 14 years. We\u2019ve been married for two and it\u2019s crazy to think now literally almost half of my life we\u2019ve been together. So it\u2019s been a great journey together. So we\u2019re grateful and we\u2019re excited for what\u2019s coming next.<\/p>\n
Ashley:
I saw on her Instagram story, so for those of you that don\u2019t know that want to do some digging one night when you can\u2019t sleep. Tony has a music video out on YouTube and so Sarah had told us before how she had gone and she would stand with Tony and pass out CDs. So this already shows you how much of a hustler Tony was, even at a young age when he was a teenager passing out his mixtapes. And Sarah would go with him and she showed a story and saying that all those years of passing out mixtapes paid off because she finally has a sugar daddy and showed the video of the store of Tony taking her out shopping. So I just thought that was so awesome and true.<\/p>\n
Tony:
Yeah, she deserved every minute of it. Hang up with me on my crazy ideas.<\/p>\n
Ashley:
Yeah. Well, today we are going to be going over four rookie reply questions. The first one is going to talk about your reserves and how you actually track your reserves. Should you just keep them in one bank account? Should you have separate bank accounts? The next question is about investing in a burr and estimating the rehab cost. So how, especially if you\u2019re investing out of state, you can\u2019t even be physically in the property. How are people figuring out how much a rehab will cost before they put in their offer? Our next question is talking about structuring a deal with partners. Tony and I always love the partnership questions, so we\u2019ll go into what our thoughts are on partnership and putting 50% of the money from each partner into the deal.
And then lastly, it\u2019s about that time everybody should be meeting with their CPAs to do their tax planning if you haven\u2019t already, and how to screen a CPA. So we go through some tactics and questions that you can actually ask somebody when you\u2019re trying to find a real estate specific tax advisor.
Okay. Tony, our first question today comes from Cameron Burnett in regards to organizing and separating finances from rental units i.e. vacancy expenses, capital X savings and the money received from rent. Do you guys recommend setting up a separate checking saving account for those things, or what is the best method you have found? Also in regards to repairs, do you use a separate credit card? Is that what you use for day-to-day? Thanks.
Okay, so the first thing I think of is it\u2019s going to be on what is going to work best for you. And I put this in a personal finance perspective. If you have always been somebody that can easily save money, you\u2019re not racking up credit cards, you could have a lot of money in your bank account and you are not just going and spending it because you have it, keep that money just in one checking account. There\u2019s no need to actually separate it. But if you are someone that has money in account and you have a very hard time not spending that money or thinking it\u2019s available and you need that out of sight, out of mind money, then go ahead and put that into a separate savings account.
I have seen where people even put it into a separate account for vacancy, a separate checking account for capital expenditures, maybe another one for repairs of maintenance, all these different savings account that they have. And you also see this very common in the personal finance community when people are budgeting where maybe they\u2019ll have their Dave Ramsey envelopes where, okay, this month these are how much money I have to spend for each of these things. You could also do that for your properties if you think that will give you a better overall picture of what your finances look for the property and help you save and figure out what you can take as cash flow for yourself by separating those things out.
Or you can just simply create an Excel spreadsheet and say, \u201cOkay. I have $5,000 in this bank account, 2000 of that is something I\u2019m saving for capital expenditures. A thousand of that is, I\u2019m saving in case there is a vacancy. And the rest of that maybe is cash flow or your three to six month savings for your mortgage in case it does become vacant.\u201d So I think it really depends on what will help you the best and which will help you stay more diligent in not spending that money.<\/p>\n
Tony:
Yeah. I think that last statement Ashley is perfect. It\u2019s about what is the system that works best for you? And in my personal finance life, I don\u2019t do this as much anymore. When I was working my W2 job, I had 24 separate checking accounts. So when I got paid, my direct deposit would get dispersed between all these different accounts. It was like my car payments, my mortgage, my insurance costs, my groceries, my clothing expense. I had a different checking account for every major spinning category. And for me that was an easy way for me to budget my money without having to put too much thought into it.
And even in our real estate business, we have not to that extent, but we have a separate account for taxes. Every property has its own reserves account. And then we use our operating expense accounts to cover things like vacancy and the short-term rental space need to repairs and maintenance. So I do like to separate it out just so that there is some not to touch that money. If you want to go buy a new bed frame or you want to buy a new appliance or whatever it is that you\u2019re not dipping into the money that needs to be set aside for something else. So I do like the idea of separating those things out.<\/p>\n
Ashley:
In regards to that, don\u2019t be super strict on, \u201cYou know what? I need money to buy a new HVAC, but I don\u2019t have enough in my capital expenditures account.\u201d Sometimes you will have to take money that you\u2019re saving for your rainy day fund or that you are saving for to cover vacancies, things like that, you will have to pull money. So if you do have the money all in one account might have to use a large chunk of that for one thing and then rebuild it with cashflow over the next couple months. So even if it is separated, there may become a time where you have an expense or you need to cover a mortgage payment where you\u2019ll need to draw from several of those accounts.
So it\u2019s not what each individual thing is you\u2019re saving for. What matters is the amount or the total dollar amount that you have, saving that percentage that you\u2019re saving for in. We like to recommend three to six months, definitely more towards the six month side, especially as you\u2019re first getting started. And then as you\u2019re building your portfolio, you can decrease that because you have built up this large chunk of money as your reserves that the chances of every single property needing a new roof most likely is not going to happen. So just think about that too when you\u2019re making your decision. And also, who\u2019s keeping track of all this, do you have time to actually track all these different individual accounts too?<\/p>\n
Tony:
So the second part of that question is do you use a separate credit card for your day-to-day expenses? So we do have one general business credit card that we use for a lot of things, but then we use the property specific account to pay off that credit card. So I\u2019ll usually go in a couple times a week and say, \u201cOkay. I\u2019ll order new charges we built against the credit card,\u201d and then I\u2019ll say, \u201cOkay. For this property, this is for that property,\u201d and then I\u2019ll make a payment to the credit card from each property specific account. So that\u2019s how we do it and honestly we don\u2019t have to do it that way. I just like to get the points and we spend so much with our business that it will be crazy for us not to do that. But that\u2019s what worked for us. What about you Ash?<\/p>\n
Ashley:
Yeah, I think the biggest thing is if you have the properties in an LLC or not, you want to make sure that your credit card is in the LLC and that you\u2019re making payments from the LLC account to pay off the credit card. But yeah, I agree with Tony with taking those points, those sign up bonuses have gotten me lots of vacations for sure. So anything and everything I can pay with a credit card, I do and I do keep it separate. And then I have it linked to my QuickBooks. So my QuickBooks is pulling information from\u2026 So right now I\u2019m using Chase in Wells Fargo, it\u2019s pulling the statements in the charges from those accounts directly. And then also I can use ScanSnap right in my QuickBooks app and I can take a picture of the receipt and we\u2019ll link to that transaction. You can use this with Tessa too, that we always recommend.
So I think having that separate credit card is great just for bookkeeping purposes too. And then you\u2019re not having to go through and actually like separate, okay, this was for a personal expense, this was for the business, this was for this property. And I also have different credit cards for different LLCs too, which make it easier so that this charge I know is for a property in this LLC.<\/p>\n
Tony:
I love that last point. Literally, I was telling Sarah, my wife this the other day that we need to probably add a couple more credit cards because we have our flips, we have our short-term rentals, we have our events. There\u2019s so many different things we\u2019re spending on, it becomes a bit of a pain trying to pay everything off at the end of the month, which is why I usually go in there honestly, once is a week at least. But the idea of having a different credit card for different parts of your business makes a ton of sense too.<\/p>\n
Ashley:
And there\u2019s certain times where it comes up like, \u201cI need to buy something at Lowe\u2019s for three different properties that are in different LLCs.\u201d So what we try to do then too is even just do check out three different times so it has those three different receipts instead of like, \u201cWe need to go through this receipt and break it down line-by-line.\u201d So that has helped too. And the rare circumstances that happens. So Tony, with the business credit cards and the personal credit cards, there is a difference with them too. So when you get a personal credit card, it\u2019s going to show up on your personal credit report.
So for example, I got a 0% interest credit card a couple years ago. Actually opened it in my husband\u2019s name and my debt\u2019s income because he had nothing on his credit at that time. So I did it in his name. So it ended up like we did 0% so that we could do our rehab and put our things on that. Well, it reported that balance to the credit reporting agency. So it showed on his credit report that he had this balance on a credit card, even though it was 0% interest, he still owes that money. So it shows up on that.
I think the minimum payment on that was $35. So it\u2019s not really killing his debt of income because of that low monthly payment. But still that\u2019s something to be very cautious of that if you are using a personal credit card, you\u2019re not paying it off if you\u2019re getting that 0% and hopefully if you have anything over a 0% credit card, you are paying it off every single month and so it\u2019s not accruing and putting a balance on your debts income.
So there are credit card companies that have a limit, and this is why at the time I have been huge into travel hacking. So it\u2019s called the Chase five where you can only open five Chase credit cards within 24 months, I think it is. So I had already reached that Max getting these signup bonuses to get us this great free vacation in Hawaii. So I opened the other one in his name. So be cautious of those things too, that doing in your personal name, there do become limits as to how many credit cards you can open into your name with certain companies.
If you go on the business side and opening your LLC\u2026 I have a lot of people ask, should I open a business credit card just to establish credit for my LLC? First of all, I\u2019ve never had anyone ask what my credit is for my LLC. I\u2019ve never run into a situation where that\u2019s been an issue. So I don\u2019t even know a circumstance where somebody would look up my LLC credit. I\u2019ve been able to get a business credit card anytime I\u2019ve opened a new LLC without even showing any income or anything yet. They\u2019ll ask what the annual income is and I\u2019ll put in projected based off of what the rent is coming in currently.
So with that, it usually does not report to your personal credit report. There is one company, I can\u2019t think of it offhand if it\u2019s Chase or Capital One, but one of them, if you have a business credit card, it will actually still report to your personal credit showing that you have those accounts too. So that\u2019s just something to play the game with is if you want to go the business route or go the personal route.<\/p>\n
Tony:
Yeah. We do have a business credit card actually through Capital One, but we very rarely use it just because the limit is so low and honestly the points aren\u2019t as good. We have a Chase Sapphire reserve or preserve, one of the Chase Sapphire cards and I love that one and it\u2019s a personal card, but we only use it for business expenses. So we still get the benefit of it being a business credit card even though it\u2019s not. And then just like you said, Ashley, we pay it off. It never carries a balance from one month to the next. I\u2019m literally going in once a week probably and paying the balance down to zero. So yeah. Anything else on that one?<\/p>\n
Ashley:
No, I don\u2019t think so. Let\u2019s go on to our next question. So the next question is from John Mazzella. Hey everyone. I am planning on doing a bird from a distance. I\u2019m going to use a realtor chart to find the property and provide the ARV with comps. Remember the ARV is the after repair value. My concern is how can I estimate rehab costs to know how much to offer on a house? I don\u2019t think it makes sense to drag the contractor around with me all day while I look at properties I might not buy. I\u2019m very comfortable running the numbers but missing the piece of estimating the rehabs. Any and all suggestions welcome. Thank you. So Tony, when you\u2019re looking at flips, how are you estimating the rehab?<\/p>\n
Tony:
Yeah. So John, I mean I can sympathize with your situation. So when I first started investing, I live in Southern California and I started investing in long-term rentals in Louisiana. And just like I was targeting properties that needed rehab and I was struggling with that same thing like, \u201cOh my God, how do I get to these rehab estimates without me being there? Without me knowing really what things cost?\u201d So there was a few things that I did. Okay. First, I found properties that represented what I wanted that property to look like after the rehab. So I found my own comp. Say, \u201cHey, once this rehab is complete, here\u2019s what I want it to look like.\u201d And I found a few contractor contacts, mostly through my agent and through my bank. And I said, \u201cHey, I\u2019m looking at purchasing this property, here are some photos of what I want it to look like post rehab, can you give me a ballpark of what this might cost?\u201d
So that was one way of showing them, hey, here are the before photos, here are the after photos. I just need a ballpark on what that might cost me. The second thing I did was I asked them to give me\u2026 I said, \u201cHey, for properties that are similar to this, for projects you\u2019ve recently completed, what was the cost per square foot on those rehabs?\u201d So now I have a ballpark number for this property, but that cost per square foot. Now I have something that I can apply to future projects as well. So if I find another property and I know that it was whatever, how much per square foot, now I can go and apply that to this next property I\u2019m looking at without needing to reach back out to that general contractor.
And the third thing I did was I offered to pay them. I said, \u201cHey, here\u2019s one that I\u2019m serious about. I\u2019ll pay you for your time if you just go and walk this and give me a bid.\u201d Now, honestly, I think I only ended up paying one of those contractors, but the majority of the properties I looked at, the contractor was willing to walk for free just because they wanted to work. They were willing to walk it just as part of their bidding process. So those are three steps that I took. So showing the photos of what I want the ARV to look like and ask them for a ballpark, asking them for price per square foot on their previous jobs that were similar to mine. And then the third was offering to pay them for their time to actually go out there and walk it for me. Give me a rehab estimate.<\/p>\n
Ashley:
Yeah. I think seeing this is you haven\u2019t even put in an offer yet. So when you put in your offer, even if you don\u2019t have somebody come in and estimate the rehab for you yet and you are not sure, you can build in that inspection period, that due diligence period where you can go ahead and put it under contract and then you have the contractor walk through it. You can let them know, I have this property under contract, my intent is to purchase it and go through with it. I just wanted to know that it makes sense. And then if the numbers don\u2019t make sense, you go back and renegotiate with the seller showing them that you had somebody bid out the property and Tony made a great point about paying somebody, offer them to pay them for their time to go and walk through the property.
And this also gives you more of a time period. The market is definitely shifting where the minute they become listed, you\u2019re not having to make an offer. There more of a cushion period now so that you could have somebody walk through the property. But also if you build that in that inspection, that due diligence period into your contract, you\u2019ll have more time to coordinate with the contractor to get them into the property. So you\u2019re planning to in invest long distance, you\u2019re not going to be at the property to really look at it. And I think finding somebody local to go through the property is going to even just be an advantage of itself to even if you\u2019re having to pay them, just so that you get an idea yourself of what the property is looking like, instead of just relying on photos off of the MLS or maybe you even do have a great real estate agent who\u2019s taking video for you, FaceTiming you through the property.
The last thing that I would do is, this will be time consuming but if you want to keep investing in this market, and if you want to get a safe and sound investment, you want to do your research and do your homework. So you can also reach out to contractors and ask them, \u201cWhat do you charge to install a toilet? What is your price per square foot to paint a property? What is your price per square foot to install flooring?\u201d And you can build yourself out a template. And this is what James Denyer does. He gets prices from his contractors and he uses his template to do his estimate. And then that\u2019s how he creates his offer based on these estimates of what his contractors have been charging him.
And since this is your first property, or even if it\u2019s only maybe your second or third property, you still may not have a great idea of what rehab cost, but you can go through and you can look up, go to lowes.com, homedepot.com, get an idea of, okay, this is the size of the kitchen, this is how much cabinets would cost for this. This is how much the price per square foot is for a decent luxury vinyl plank flooring. And then you can find out what it costs to install. I mean even Lowes and Home Depot, they do a ton of installation services where they\u2019re actually contracting with a lot of the local vendors to do their installs for them.
So you can get an idea of how much that is just by going on their website or calling the pro service desk too at your local hardware store and asking them, \u201cWhat is your current price right now to have carpet installed, have flooring installed, have cabinets installed, anything like that too? And you can get an idea. I mean, you can get real nitty gritty, watch a YouTube video of how to install a toilet and you can see, okay, you need a wax ring, you need the toilet, you need the hose, all these things that you need. And then you can say, \u201cOkay. I\u2019m going to go on Lowes and I\u2019m going to link each of these items into an Excel spreadsheet and build out your material list.\u201d Okay. You\u2019re going to do tile, you need the tile, you need the grout, you need the mortar, you need the tile spacers, all these different things.
And then you have this going forward. So there\u2019s multiple ways of estimating the rehab, but give yourself that buffer, so James Nana. Experienced flipper, I mean I\u2019ve done over 500, maybe even be a thousand homes. He still adds in, I think it\u2019s a 20% rehab buffer for his estimates, for things that maybe change orders, things that you couldn\u2019t see until you ripped open the walls or for changing in material costs, things like that. So always add in that buffer, that percentage too.
Before we move on to the next question, Tony, I want to hit on when we head on Celine too, on episode 241, he talked about mistakes he made with contractors too, because it\u2019s not only estimating the rehab, but you\u2019re learning how to deal and manage contractors and sometimes the lowest price isn\u2019t always the best price, or the best quality and the best thing for your\u2026<\/p>\n
Tony:
Best value.<\/p>\n
Ashley:
Yeah, the best value. So if you go and listen to his episode, he\u2019ll tell you about a couple mistakes he made and that was episode 241. Okay, our next question is from Jesse Uniraff, how does everyone go about structuring a deal with a partner? Do you both put 50% of the money in for the down payment, even when one is doing the bookwork, brought the deal, et cetera?<\/p>\n
Tony:
It\u2019s a loaded question. It\u2019s something that I feel like comes up all the time. It\u2019s a great question, Jesse, and I think Ash and I both are super passionate about partnerships because we both use them quite a bit and scaling our current portfolios. First, I\u2019ll say is there\u2019s two types of partnerships. You have debt partnerships, you have equity partnerships. A debt partnership would be more so like a private money lender type situation where that person isn\u2019t retaining any equity in the deal, but they do have a guaranteed repayment of their money at some predetermined period of time. But I think what most people think about when they think about partnerships and probably what you\u2019re leaning towards is an equity partnership, Jesse. And the first thing that we\u2019ll say, and Ashley and I have said this a million times over, is that there is no right or wrong way to structure a partnership on the equity side.
Some things to consider though are who is doing the hard work, who\u2019s bringing the labor? If you guys are buying a real estate deal, someone has to source the deals. Someone maybe has to set up transaction coordinating the closing process. Someone once you actually close probably needs to manage that property on a long term basis. Maybe if there\u2019s a rehab, someone needs to manage a rehab or actually do the rehab work. Think about all the different things that need to be done to get this deal completed. And ask yourself, is one person doing this? Are you guys sharing those responsibilities equally? Or is one person doing 75%, the other person doing 25%? So I think the first thing to look at is the sweat equity component, the labor component.
And the second piece, and this is what I think most people think about is the capital side. Who\u2019s bringing the money for the down payments and the closing costs? If there are any rehab costs, who\u2019s covering the rehab? I will say that I think most people overvalue the capital, especially newer investors, they overvalue the capital, meaning that just because someone\u2019s bringing the capital doesn\u2019t mean that they deserve 80% of the deal or maybe even 50% depending on what that deal looks like.
So I think ultimately, Jesse, you and your partner have to sit down and think about what is the structure that you guys are most happy with? But what I can say is that if your partner is just bringing the capital, if all they\u2019re doing is bringing the capital and you are doing literally everything else. You\u2019re sourcing the deal, you\u2019re managing the rehab, or doing the work yourself, managing the tenants long term, finding those tenants, maybe you deserve more than 50%. But it\u2019s all going to depend on how much work is going into that deal.<\/p>\n
Ashley:
And I think an important part too is if this is your first deal partnering together, make sure that you are not in a situation where it\u2019s going to be every deal going forward. So date this person, first try out this deal, try out this deal structure. Just because you set in stone this one deal structure for this one property doesn\u2019t mean going forward for the rest of your guys\u2019s life, every deal you do together needs to be that same structure. So think about that too. I love putting a cost or a dollar amount per the activities or the job responsibilities that you\u2019re doing for the business too.
So making out a list. You said one of them is going to be doing the bookwork. Okay, put a dollar amount to that and maybe they get paid $100 per month or $25 per month, whatever that is to do the bookwork so that when you do eventually decide, you know what, I don\u2019t want to do the bookwork anymore, I want to outsource this. Well, that\u2019s not fair because we\u2019re both 50\/50 owners and I\u2019m still doing all the maintenance, but now you\u2019re not doing the bookwork or the leasing and you\u2019re still getting half the cash flow. So putting that dollar amount to the jobs and responsibilities and getting paid for those. So taking in owner\u2019s off for those things that you\u2019re doing, then splinting the cash flow after that.
So in your question, do you both put 50% of the money in for the down payment? That also will depend on how you are purchasing the deal. If you are doing it in your personal names or one personal name, or if you\u2019re doing it with an LLC because if you\u2019re putting it into your personal name, the bank is going to require you to show that you have brought all the funds yourself or they were gifted from a family member. So think about that too, is how were you actually purchasing the property too. And then if you\u2019re doing it into an LLC, it\u2019s a lot easier to gather money from wherever to put it into the actual property into the deal.<\/p>\n
Tony:
And just the last thing I\u2019ll say on that point too is even if one person brings all the capital, there are different ways to repay that person as well. You could set it up so that person maybe gets a certain percentage of the cash flow every month before you guys split it. Somebody\u2019s like, \u201cHey, the first 10% of all the cash flow goes to partner A for bringing all the capital, then the remaining 90% we split down the middle.\u201d Or it could be a fixed dollar amount every month to say, \u201cHey, partner A gets back $100 per month every single month until they\u2019re repaid what they brought to the table, regardless of how much profit is generated.\u201d Or maybe there\u2019s no profit that gets paid out and it\u2019s just when you guys sell the property. So that\u2019s called a capital recapture.
So you say, \u201cHey, when you guys go to sell the property, you guys agree to split everything 50\/50, but partner A gets paid back first.\u201d So say you go to sell the house and there\u2019s $100 in equity, but partner A put up $25,000 to purchase that property, that means partner A gets their 25K back first and then the remaining $75,000 could split 50\/50 between the two of you guys. So there are different ways to even structure paying that capital partner back outside of just like, \u201cHey, you get all of the equity in this property.\u201d<\/p>\n
Ashley:
Okay. So our last question today is from Derek Moore. And remember you guys, if you want to ask question, you can leave a question in the Real Estate Rookie Facebook group and we may pull it to be played onto the show where we answer it for you. So make sure you are a member of the Real Estate Rookie Facebook group.
Okay. So Derek\u2019s question is how do you all screen a CPA and determine whether or not they\u2019re familiar with real estate investment taxes? Every CPA I\u2019ve spoken with says, \u201cYes, I know tax strategies for real estate.\u201d Any good screening questions, you all can recommend anything? I should be on the lookout as a red flag. Lastly, anyone in the Tampa, Florida area know of a good CPA? So love for you guys to, if you\u2019re watching this on YouTube, to comment into the YouTube video in the comments below and let us know if you have a good recommendation of a CPA in Tampa. But I think what the cool thing is that it\u2019s very easy to find a great CPA that can be virtual. They don\u2019t have to be in your location. There\u2019s really no need to have a CPA that is located in your market or near you. You just have to make sure they have that knowledge of your state tax prep. So that\u2019s the only thing.
As far as screening a CPA, and actually I was on the Real Estate Ricky Bootcamp call last night and we were talking about this too with Tyler Madame. And our recommendation that we gave when you\u2019re trying to find a good CPA is reading the two textbooks that BiggerPockets has by Amanda Han. So it\u2019s Tax Strategies for the Savvy Real Estate Investor is one, and then the other one is more advanced strategies. Reading those books and taking some notes of those tax strategies. And then using your knowledge, your basic knowledge, no reason to go in depth to ask your CPA about those tax strategies.
So I think a very common one is obtaining real estate professional status, even if that\u2019s something you don\u2019t need or you don\u2019t even want, asking if your CPA knows what that is. And you can even put in a question about it, given my situation, what would I have to do to be a real estate tax professional? Wait, is that right? Tax professional? Did I say it right?<\/p>\n
Tony:
I think it\u2019s just-<\/p>\n
Ashley:
Yeah. It\u2019s just professional as I said that, yeah. So a real estate to qualify as a real estate professional. And then there\u2019s other things in there can ask them a question about 1031 exchange, things like that. So I think giving yourself basic knowledge by reading one of those books can give you enough to build a questionnaire and make sure the question is tailored. So it\u2019s not a yes or no question. So here\u2019s an example, and this is actually a question I feel like Tony and I have gotten a couple times recently is I own a property with another investor and we want to do a 1031 exchange. Can we keep the property in, or can I just buy the new property and my partner just cash out and not have to be a part of the 1031 exchange? So asking different questions like that and seeing how knowledgeable they actually are.<\/p>\n
Tony:
Those are great qu questions to ask Ashley. I think the only other thing I would ask too is don\u2019t just ask them like, \u201cHey, are you familiar with real estate investments, the tax strategy?? Say, \u201cHow many real estate investments do you own?\u201d And if they\u2019ve only got one or two, maybe not the best person, or maybe ask them how many of your current X number of clients, what percentage are full-time real estate investors? And if it\u2019s a really low percentage, if maybe like 1%, the other 90% are doctors and lawyers and cops or whatever it is, then maybe that\u2019s not the right person for you.
But I want to see from my tax strategists, from CPA as someone who has a heavy concentration in real estate investments. Either because they own a lot themselves or because the majority of their clients are real estate investors also. So I really do think that spending time and places like the BiggerPockets forums or the Real Estate Rookie Facebook group and asking for recommendations from other investors is probably, Derek your best bet of finding a good solid CPA that understands real estate investing and its tax implications.<\/p>\n
Ashley:
Well you guys, thank you so much for joining us for this week\u2019s Rookie Reply. Keep the awesome questions coming. You can leave your questions on the Real Estate Rookie YouTube channel. You can also leave them in the Real Estate Rookie Facebook group or send a DM to Tony or I, and we may choose them to be played onto the show. You can also always leave us a voicemail at 18885 Rookie. Thank you guys so much for joining us and we\u2019ll be back on Wednesday with a guest.<\/p>\n
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