Friends,
Just a quick follow-up on our passive income discussion this week.
We had some great questions come in through our passive income survey a few weeks ago. These are items we will address in our upcoming workbook series. It’s called How to Go From $0 to $10,000 a Month Passive Income.
But I would like to answer some of the top questions that came in as well. I’ll list them Q&A style below.
And by the way, I’m happy to answer any additional questions you may have. If you have a question that we haven’t addressed yet, just reply to this email and ask away.
Q. Can you make the system clear? I lose my way in complexity… thank you.
A. If I had to describe our approach in three steps, they would be:
- Understanding
- Financial Security
- Passive Income
We start with an honest assessment of the monetary system and the ongoing macroeconomic climate. This provides us with understanding.
Then we build a strategic portfolio of reserve assets. This portfolio will leverage our understanding of the macro climate. It provides us with financial security.
And in The Phoenician League, we help everyone craft their own customized asset portfolio with specific investments. We provide consistent updates on our investments as well.
From there we build a passive income portfolio. We use rental real estate as our vehicle. The tax advantages are just too good to pass up.
We also get members matched up with ideal rental properties and all the professionals they need to manage these properties and their overall portfolio.
Our goal is help everybody build a passive income portfolio that throws of $10,000 a month in extra income. And we have a systematic method for adding the properties we need to make this happen.
Q. How do you negotiate a good deal on a property?
A. We invest through a nationwide real estate network. The network’s brokers have relationships with new home builders and local rehabbers in every market that we invest in.
For the home builders, selling properties through our network is much easier than listing on the MLS and hosting retail buyers all day. They can simply move homes much faster by selling to investors.
The same goes for the rehabbers. Having the ability to sell into our network allows them to move properties consistently. That’s critical for their business.
As such, these professionals are willing to work with us on pricing and concessions much more so than they otherwise would be. Whatever they lose in margin, they know they’ll make up on volume. If they can sell into our investment network, that is. We have strict criteria.
Because of this, our network’s brokers can negotiate good deals on our behalf. Our network doesn’t accept any property that doesn’t produce strong cash flow. That is to say, every property has to be priced such that it will deliver great returns for investors.
Q. Is income truly passive? How much maintenance work is required?
A. This is a great question. Can income truly be passive? Don’t you have to do something for it?
From my perspective, our approach to building cash flow with real estate makes it as passive as it could possibly be. That’s because we have professionals in our network who handle every aspect of the transaction and property management for us.
That said, it does require a little bit of work. But not much. Most weeks I spend no more than ten minutes on my real estate portfolio.
These ten minutes consist of bookkeeping and corresponding with property managers. Of course I also go over the property management report every month.
We talk about exactly how to handle these items in our program.
Meanwhile, the rent checks just show up in the bank, month in and month out.
Q. Will you include tax strategies so we can safeguard our earnings?
A. Absolutely! This is the beauty of using real estate as our cash flow vehicle. The tax code treats real estate extremely favorably. We talk about this a lot in our program.
By default we should not owe taxes on our rental income. That’s just utilizing standard deductions and straight-line depreciation.
There are also some more advanced tax strategies we can use to offset other forms of income. Those require more planning… but they are available to us.
Q. Won’t I get put in a higher tax bracket?
A. Not with our approach. Real estate is incredibly tax-advantaged – as we just discussed. If used correctly, we won’t owe any taxes on our rental income.
What’s more, there are ways to use accelerated depreciation to reduce our overall tax bracket for our other income sources. This requires advanced planning. But we discuss the strategy in detail in our core content.
Q. What is the difference between different types of income according to the IRS? And how are they taxed differently?
A. Another great question. This one ties in with the previous.
Please know that the great CPAs in our network would break down this answer in even more detail than I will today. But I’ll give you what I believe is the most relevant answer for our purposes.
The IRS puts “active” and “passive” income in different buckets. And the two buckets are isolated from one another by default.
Active income refers to W2 income and any income we receive from businesses that require day-to-day activity.
Passive income is income that comes from our rental properties, limited partnerships (syndications), and any other source that doesn’t require day-to-day activity from us personally.
To me, what’s important here isn’t the tax rate.
The key is that we can’t use passive losses to offset active income or vice versa. This plays a major role in our tax planning.
For example, let’s say our real estate generated $10,000 a year in cash flow. And with our deductions and depreciation, we show $12,000 in expenses. That wipes out our tax liability and produces a loss of $2,000.
We then carry over this loss to the next year. That way it’s available to us to offset future passive income.
This all may sound complicated… but that’s why we have great CPAs in our network. We don’t have to worry about any of this – our CPA firm will handle it for us.
Now, keep in mind that the IRS says we cannot use this $2,000 passive loss to offset active income. It can only offset passive income.
That is, unless we employ some expert tax strategy. There is a way to cross the arbitrary barrier and use passive losses to offset our active income.
This strategy takes some advanced planning. And it requires us to meet strict IRS qualifications. But to me, it’s the equivalent of modern-day alchemy for those who can pull it off. It’s an incredibly powerful tool to eradicate our tax burden.
I don’t have the space to dive into the details around this strategy today. But we absolutely discuss it in length within our core content in The Phoenician League.
Okay, we’ll leave it here for today. Please be on the lookout for part two of our Q&A series tomorrow.
-Joe Withrow
P.S. Don’t forget that The Phoenician League is currently open to new members.
And for those who join us this week, we’re taking 25% off our normal membership rate. Just use coupon code member25 at the checkout page to claim your discount.
For more information, just go here: The Phoenician League Membership Page