Why You Want to Have an Annual Powwow With Your CPA, Attorney, and Insurance Agent

Why You Want to Have an Annual Powwow With Your CPA, Attorney, and Insurance Agent

Whether you own one investment property or dozens, you are the CEO of your own real estate business.  As the CEO, it is your responsibility to protect your business, set a strategic vision, grow your income, and keep your expenses low.  Therefore, you should have at least one meeting a year in which your tax advisor, attorney, and insurance agent are involved together.  (If you employ a financial advisor and/or have a mortgage lender, consider including them too.)

I see too many investors paying out too much money because the advice they take from their attorney, accountant, and insurance agent is sporadic and never coordinated together.  An investor may end up over-insured or under-insured, overexposed to liability, and overpaying for expenses.

Personally, I prefer getting my CPA, attorney, and insurance agent together in one room for the synergies and creative ideas that can come from it.  However, coordinating schedules may be difficult.  A conference call can be just as effective.

Why should you get everyone on the same page?  Here are some reasons:

Let’s say asset protection is highly important to you.  An attorney may lean toward recommending you have a separate Limited Liability Company for each property you own.  That should maximize your segregation of assets, yet your accountant can point out that each LLC tax return costs you money, plus some states charge annual fees for each entity you own.  If you owned your properties in your own name, your insurance agent might recommend increasing your liability coverage and/or adding an umbrella policy to provide you with additional asset protection.  (There are also other ways to enhance your liability protection.  For instance, I have been a member of Legal Shield since 2005.  I pay less than a dollar a day.  If my wife or I were sued, Legal Shield covers many upfront expenses along with providing attorneys to give me advice at no additional charge.  Contact me if you want to know more.)

So, if you had the right liability coverage from your insurer, your attorney and accountant might agree that you should own properties in your own name for now.  Therefore, you would save money on tax returns and corporate fees.

Or, if you have a number of properties and your attorney strongly recommends holding them in one or more LLCs, then perhaps your insurance agent could lower your liability coverage to produce a cost savings that will defray the costs of having one or more LLCs.

Another way to save money is to increase the deductible on your insurance policy.  If you have substantial cash reserves, perhaps it is prudent to raise your deductible.  My wife and I set aside a little money each month from our tenants’ rent payments into an account for the inevitable repairs and maintenance costs that come up.  When a water heater breaks, we have the money saved up to buy a new one.

Your accountant could advise you about taking steps before the end of the year to reduce your taxes.  Sometimes it may be prudent to engage in tax loss harvesting in December, where you sell an asset at a loss to reduce your total profit on other assets.  If you’re able to go into a lower tax bracket because you lowered your projected adjustable gross income (AGI), you’ll be glad you did come tax time.  Putting money into rental properties and taking the tax benefit of depreciation is helpful.  Also, your accountant may suggest indefinitely deferring your taxes through a 1031 exchange.

Your accountant may also advise you on strategies, such as owning a property for more than a year and a day before selling it.  By doing so, you would only pay long term capital gains tax (15% for most people) instead of short term capital gains tax (whatever your ordinary income tax rate is).

If you include your mortgage lender in the conversation, he or she may note that it is easier for you to obtain loans in your own name.  He or she may add that the loans you qualify for require less money down and/or have a lower interest rate.  Preserving your capital could help you buy more real estate.

Lastly, it makes sense for you to tell your advisors where you would like to grow your business in the future.  Is it your goal to buy two rentals next year?  Do you dream of owning 50 units in the coming decade?  They should know where you want to go with your business.  They can generate ideas, suggest strategies, and connect you with others to accelerate your path to success.

To sum up, you are the CEO of your real estate empire.  A great CEO consults their advisors, and it makes sense to bring them together periodically for group discussions.  You will end up saving money, increasing your income, and protecting your assets better.  Get this powwow scheduled in your calendar right away.

Tai DeSa is a graduate of The Wharton School of the University of Pennsylvania.  He became a full-time real estate investor in 2004 after serving in the U.S. Navy.  Tai has made colossal mistakes in investing (and learned some things along the way).  He has owned over 200 properties with various investment partners, and he has been involved in over 200 more transactions as a real estate broker in both Pennsylvania and Tennessee.  Tai and his wife Amira enjoy hunting for investment properties.  Contact Tai if you need some consultation on real estate investing.  Tai may be available for coaching and speaking engagements on a variety of real estate topics.  Send an email to tai@investandtransform.com.  Tai is passionate about helping investors make money and avoid mistakes.

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