Originally Posted by
TED74
I promise to reread this three times to better understand. It seems like a lot of tax deferral, but also a ton of work. I don’t want to work more, I want to work less. And if depreciation recapture is taxed at 25%, and I’m involved in a lot of turnover with short time horizons, isn’t my tax deferral rather limited? 25% is lower than my marginal tax rate, but it’s definitely not zero.
We’re also talking about 415c spillover, so perhaps only a few thousand a month that could be flowing to the MBCBP in the latter months of each year, not a large lump sum that is immediately liquid to dump into sizable real estate adventures. Instant tax savings of 40% without me lifting a finger sounds pretty good to me, even if the returns on that money are only 5% with extraordinarily low risk. Perhaps no where else in my portfolio will I need to hold bonds and my overall risk matrix post-MBCBP looks just like it did before MBCBP. But I will have added 10-50k more tax deferral than I had before the program was established.
DALPA was tasked with improving retirement and this seems like a win to me. It’s stated to have optional participation. If it turns out not to be optional, it won’t be implemented. If these things are good enough for high-earner private practice docs/lawyers/entrepreneurs, they’re good enough for me. Y’all want to pay the tax man first and then go crawl that money back through side gigs, property management, tenant evictions, complicated audit-attracting tax returns and hvac repair calls at 3am, it sounds like those options will all be available instead of using the MBCBP.
Real estate investing is not synonymous with property management. I have yet to receive a phone call from any of the tenants living in the apartments I've invested in. They are purely investments that send K-1s at the end of the year. Yes, it is more time consuming than acquiring VOO on autopilot. This month I have to place 75k of capital returned from a 50k investment made early last year. I will have roughly 25k of depreciation recapture and another 25k LT capital gain. By reinvesting all 75k I should generate a 50k year one deduction on the next investment. Additionally, the cash flow from the replacement property will be based on 75k invested vs only 50k on the initial deal. This is the "Equity Snowball" effect of real estate investing. Real estate investing produces spendable cash flow now, rather than being locked up until retirement age. In this area of real estate investing, I regularly network with pilots, engineers, lawyers and other business owners. Ironically, many of them have liquidated retirement accounts so they can retire early.
*DYODD, YMMV, not every deal turns out like this, some are better, some are worse.
In addition to investing in real estate, I do have side hustles in real estate development and property management. This often gets mixed in with my discussion of real estate investing, creating the perception that investing requires property management work. I keep investing, management and development separate to the point of having different entities and intra company agreements to pay for services. This helps track what is management income, investment income and equity gained from development activity. If you do choose the self-managed route, there are tools available for single family, multi family, self storage, RV parks and commercial property management. Things like lease applications, tenant screening, rent payments, maintenance requests and even repair bids can be done online without phone calls. Committing to this level of involvement speeds up the equity creation process, especially when you commit to rehab. I started out down the self managed path as new hire looking to insulate myself financially from the airline.
It is not necessarily the best option for working professionals with high incomes.