96: Using Retirement Accounts to Buy Multi-Families with Josh Plave

It’s not often that people get started investing in real estate by being the one who helps others fund the deal. Why? Simply because people usually don’t have a lot of capital starting out. So they turn to institutional or private lenders for support.

In the case of Josh Plave, thanks to familial upbringing and financial savvy, he embarked on his real estate journey being on the other side of the table, the lending side. Having been raised by a CPA, he grew up understanding the importance and power of planning for one’s future.

So starting at just age 16, Josh opened his first individual retirement account, and began investing for his future. Somewhere along the road, having secured a good paying job, he stumbled across the awesome power of real estate investing. Up to this point, he’d only been putting money away for retirement paycheck by paycheck. (Real glamorous, we know…) He put two and two together and realized that he can jump straight into multi-family real estate with the capital he already had and grow it even further by lending it out to others.

This allowed him the opportunity to save himself some growing pains and develop a scalable system much faster.

Up to date, Josh focuses on multi-family syndications and looks to continue growing his wealth with an emphasis on having enough passive cash flow to provide for his growing family. 

Takeaways from our conversation with Josh: 1) Understand how retirement accounts work. This can be a very beneficial thing to learn about because it grants you access to a whole new realm of private money. Most people already have their money tied up for retirement anyway, so they’re basically just sitting there waiting to be used. By having the knowledge to leverage this money, as well as the creativity to create winning scenarios, you can use that to your advantage to grow wealth all around.

2) Tax savings combined with compound interest. On their own, these two items are already quite powerful. Put them together, and their power becomes ten-fold. Being able to save money from paying taxes and reinvesting it into something that grows passively, you really do create two pennies with a single penny. The tax code is your friend, use it. 

3) Josh’s steps to invest in syndications while working a full time job: 1. Be aggressive with your contributions. 2. Understand how much control you have over your account(s). 3. Roll over your 401(k) into a self-directed IRA.

Key Terms: 1) Unrelated debt-financed income (UDFI): This is what you use in order to finance your investment, i.e. The mortgage for the property. Your 30% down payment is being leveraged. The other 70% becomes…

2) Unrelated business income tax (UBIT): This is the part of your investment that gets taxed, even when using a Roth IRA. But because these are technically business expenses, you can depreciate the leveraged part of the investment.

3) Deprecation: A paper loss that you claim on the value of the property because of perceived wear and tear. This so-called “loss” can be taken for a certain amount of years at a fixed amount. This results in the ability to deduct against taxable income, thus reducing the amount of taxes owed.

4) Cost segregation: In essence, this is itemizing the expenses of an investment in order to accelerate the depreciation. This is done to frontload the tax write offs and have access to capital sooner rather than later. And with multi-family real estate, cost segregation is sure to have more leveraging power. It doesn’t mean less taxes are paid, it just gives you more flexibility of when to pay them.

5) Depreciation recapture: Remember those sweet tax write offs from depreciation? Those costs are then paid (or recaptured) when the investment is sold, as a way to make up for some of the taxes that were deferred or otherwise not accounted for. 

If Josh could go back and talk to his 16 year old self, he’d tell him, “Trust [your] gut.”

An unexpected benefit of real estate investing, Josh said, was the ability to have the flexibility to dictate his schedule and have the total control of his time.

A piece of advice Josh would tell his friends looking to get started in real estate would be to “Educate, educate, educate!”

Josh recommends using Expensify to help you keep track of your receipts and expenses come tax time.

Josh recommends reading Multi-Family Millions: How Anyone Can Reposition Apartments for Big Profits by David Lindahl to help you learn everything you need regarding apartment syndications.

If you’d like to get in touch with Josh, visit: www.walltomain.com