We have heard time and time again that one of the big benefits of owning Real Estate is the tax benefits. We currently own one investment property, and we have not held it for a full tax year. We still have yet to see what these benefits look like on paper. However, we are not waiting until tax season to come up with a game plan.

This is why we’ve been hunting for a tax strategist that will provide the coaching and guidance needed to maximize the potential benefits in the realm of taxes. We are currently onboarding with a firm, and I am very happy to say that we are already on the cusp of realizing some of the benefits from this proactive strategizing.

Taking a big step back, I don’t think I’d even heard of developing a tax strategy before delving into REI. And when I talk to people about tax strategist services, the response that I mostly get is along the lines of, “Is that the same thing as a CPA?”. I think the short answer there is, “No” because tax strategy is not the same thing as a CPA. The way I like to think of it is that the strategist builds the plan that is going to take into account your unique situation, assets, and objectives. Then, the CPA is part of the implementation detail; they will be a critical part of executing the plan.

Now that we have delineated between a strategist and a CPA, I want to talk a little bit about what we are already realizing from onboarding with the aforementioned firm: basically, a few paychecks from now, we should have a lot more money in our pocket each month. And when it comes to investing, there can be plenty of planning and speculation. But where the rubber really meets the road is dollars in your bank account. Dollars that you can turn around and spend on base necessities, luxuries, or even more investments.

So, how are we realizing this benefit? It is quite simple: We are changing our withholdings or, to be more frank, we are going to stop paying taxes. That’s right, we are about halfway through the calendar year at the time of this authorship, and our strategist forecasts that we have already paid Uncle Sam enough. Both my wife and I will be changing our withholdings soon and keeping more of our hard-earned money. Say you are keeping $3 for every $5 you make, but on the next paycheck, you get to keep $5 of every $5 you make. If you do the math, that’s like getting an instant 66% raise! And you can do whatever you want with the extra… even, say, buy more real estate.

I will say that this is a very scary step. We have never done anything this fancy, so this change does come with a lot of fear of the unknown. But that’s exactly why we got savvy professionals on our team. Pro sports players have coaches; pickup and recreational players do not. On this road to realty, we are not just playing around, we are going pro.

So, more money in our pockets! Hooray! For any gamers like myself reading this: Achievement Unlocked! But now what’s the plan? I will give you a moment to guess and perhaps check the URL of this blog. If you guessed that we are going to buy more real estate, then you are correct. Our goal here is to repeat this process and create a snowball-like growth of our portfolio. Right now our snowball is quite small. Our portfolio, excluding our primary residence, is one door. But the bigger the snowball gets as it rolls means faster and faster growth. We plan to reinvest until we’ve got a nice, sizeable, snowball.

I also think it’s good to pause here as well. This strategy of reinvesting is not necessarily glamorous. And by that I mean, you aren’t going to see us in Lambos on the socials any time soon. And that’s okay; that’s not our “why,” and that’s not what’s driving us. We are trying to build something, and we are willing to put in the work now. Yes, our strategy is not as aggressive as it could be. In fact, our strategy is quite boring: Save up capital for a down payment, and procure financing. That’s really it.  Remember though, we just hit a major milestone in terms of our taxes and withholdings. Think of how that is going to impact the “save up capital” part of our strategy! It’s a nice, simple one-two punch. Who said being a real estate investor had to be complicated?

The last thing I want to talk about is the time-value of money. That is a fancy term for the idea that today’s dollars are worth more than tomorrow’s dollars. If you’ve felt the effects of inflation, then you know what I’m talking about. This milestone has come with a unique learning experience about the time-value of money and taxes. When I first started researching REI, I kept hearing about the tax benefits, but I didn’t really know how that would work. Like, should I be expecting one massive refund at the end of the year? I’ve always just been a heads-down worker that didn’t think too much about taxes. So it is also quite exciting to see this aspect of REI demystified. We are realizing money today because of our approach on taxes and not waiting for a refund. The material percentage that comes with money now vs money a year later is also not to be overlooked!

And there we have it. We’ve planned, we’ve learned, and best of all, we’ve saved. I know that we did not do a deep-dive into the mechanics and details behind the “how” did we save this much on taxes, but we’ll surely be talking more about some of the breaks in future posts. The point here is we wanted to share that it’s possible, but it requires a plan.