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Larry Pendleton – Larry Pendleton CPA
On the Getting the Right People: “”I gotta be able to kind of find the right people to trust instead of finding someone that I halfway trust and I gotta oversee every every step of the way.“
Just about every successful business owner has learned, often the hard and expensive way, that taxes can be a heavy burden to carry. Once your business starts bringing in some money, after going through all of the sweat and challenges, you learn that the government wants a very large piece. But how do savvy business owners navigate the tax code?
They do it with skilled CPA’s that do more than just enter numbers and spit out results. They do it with careful tax strategy to help you and your business make smart moves before it is tax time.
Larry Pendleton is a CPA that went from hustling numbers like most accountants to really bringing tax strategy to his clients. Larry shares his transformative journey from having a limited mindset to becoming an astute real estate investor, thanks to the guidance of a trusted partner. We explore Larry’s first profitable residential investment, the challenges of dealing with contractors, and his strategic pivot from property flipping to new construction for better stability and lower risk.
Larry sheds light on the intricacies of cost segregation, a powerful tax strategy popularized by the 2017 tax reforms, and discusses the depreciation rules that real estate investors navigate. We also delve into the concept of self-directed retirement accounts, a game-changing financial tool that allows for diverse investment options beyond traditional stocks and bonds.
Listen as Larry gives details and strategies for both business taxes as well as real estate investing.
Enjoy!
Visit Larry at: LarryPendletonCPA.com
Podcast Overview:
00:00 Former athlete advising on tax strategies and coaching.
05:15 Accountant becomes year-round adviser and coach.
13:09 Struggling with project, need trustworthy professionals.
15:57 Adapting real estate investments to market changes.
22:45 Rolling over retirement accounts, choosing short-term investments.
29:44 Lack of promotion of self-directing investments.
31:30 Investors look for credibility, security in deals.
38:05 Explore budgeting, technology, and planning for accounting.
45:27 Clients aspire to be investors, achieving freedom.
49:50 Public accounting firms specialize in different areas.
55:52 Depreciation benefits and potential government changes summarized.
57:41 Understanding tax savings and depreciation in investments.
01:04:03 Quick cost assessment for new construction.
Podcast Transcription:
Larry Pendleton [00:00:00]:
Then you wanna know, okay, how much you how much is needed? How is secured? Like, who are you? Like like, what’s your credibility and and and and what’s my returns are going to be. But it’s the security aspect of where like, are you sure, like like like if everything goes wrong, like am I at least gonna be like make my money back where, like, with with stocks and bonds, like, you can really lose everything. You can lose everything in real estate as well, but that’s more so just not doing the proper due diligence, not, not really knowing what you’re doing.
James Kademan [00:00:33]:
You have found Authentic Business Adventures, a business program that brings you the struggle stories and triumphant successes of business owners across the land. Downloadable audio episodes can be found in the podcast link found at drawincustomers.com. We are locally underwritten by the Bank of Sun Prairie as well as calls on call extraordinary answering service and the Bold Business Book. Today, we’re welcoming slash preparing to learn from Larry Pendleton, CPA and tax investment coach. So, Larry, how is it going today?
Larry Pendleton [00:01:04]:
It’s going great, James. Thanks for having me. How are you doing?
James Kademan [00:01:07]:
I’m doing well. I’m doing better now because it’s interesting. We’re talking about taxes. I feel like in a time when we’re thinking about next year. A few months ago, I was angry thinking that my accountant, wasn’t doing essentially what I thought he should have been doing. In the end, I learned after the fact that accountants just play with or work with the numbers that you give them. They don’t necessarily come up with strategies and stuff like that. So he’s doing his job.
James Kademan [00:01:35]:
I just didn’t know exactly what his job entailed. So I appreciate you being on the show.
Larry Pendleton [00:01:40]:
Oh, no. Like, great for the opportunity. So look looking forward to this.
James Kademan [00:01:43]:
Yeah. Let’s start with what is the coaching that you do?
Larry Pendleton [00:01:48]:
So it’s it’s kind of a play on I’m I’m a former former athlete, and to your point where it’s like, accounts, people just typically, like, Hey, I just speak with my account during tax season. And it’s but the numbers are the numbers for the prior year. So is is this the advisory role where it was like, yeah, I I can advise you, but like, how do you really like apply apply these these, these strategies is like, that’s where the coaching aspect of where I had to train you in a way to, like, how to really leverage the tax code to to best mass maximize. Like, I could just tell you all the strategies. You can Google all the all the strategies out there. There’s TikTok Tok and all that. Do a lot of there for you, but how they implement that stuff, that’s when the coaching comes into play there and and merge in the worlds of the boring accounting with the sexy investor, and I and I bring it and I kinda sit in the middle there.
James Kademan [00:02:43]:
Fair. So how did you end up in this role? Because going from athlete to a CPA is probably not a path most people take.
Larry Pendleton [00:02:51]:
Well, actually, I’ve been I’ve been the mindset of an accountant since high school, due to AAAA teacher I had a crush on. Didn’t didn’t work out, but it’s it’s still
James Kademan [00:03:03]:
That’s awesome.
Larry Pendleton [00:03:06]:
So, I’ve always been really big on numbers. And, and then my my dad had a, had a small business, HVAC business growing up and besides, Kurt and Kurt and his football team, you always curse taxes. So I was like, how can I help him? So just always kinda at an early age, but kinda interested, like, there seemed to be a need that he needs. And then once I got to college and started to meet other people, okay, there’s a lot of people that have this issue with accounting and taxes, and I can probably find a way to to to help serve in that in that capacity.
James Kademan [00:03:37]:
Nice. I love that it all originated from a crush you had on teacher in high school. That is safe to say 1 of the most surprising things I’ve ever had for someone driving to go into a certain field. That’s funny. That’s, is she still around?
Larry Pendleton [00:03:53]:
Yeah. She’s still around. Like I said, we’re like, man, we we cool. We laugh about it, but that’s that’s about it.
James Kademan [00:04:00]:
I got into being a CPA because of a girl. That’s amazing. That is a so weird. Right. Fair. Totally fair. So tell me, how do you end up in the coaching world versus just being the the guy with the calculator pushing, filling out the 10 forties and all that james? Like the accountant set I end up complaining about.
Larry Pendleton [00:04:20]:
Well, as, and and I’m guilty as many accounts. What we typically do is that we go into public accounting, and we kinda just run the corporate mill, from from that standpoint. And then we step out and, like, hey. I wanna I can do this. I know I have clients and stuff, that that will will will work with me and start my own start my own business, start my own firm. And that was going okay for a while, but when I wanted to kind of work with more more investors because we started investing in real estate ourselves, It was a it was a crossroad that I had to really kinda come, I came to where it’s like, hey, like, I need to really be doing more advisory work versus just preparing tax returns and, and not just doing bookkeeping. And then you start to kind of realize that there’s different aspects. Similar to doctors and attorneys, there are different types of accountants and different type of CPA depending on what you’re what you’re looking for.
Larry Pendleton [00:05:15]:
So if I wanted to to grow and and evolve, had to get out of this comfort zone of just being a January through April, accountant and be more of a year round adviser, for, for my clients. And then the coaching aspect of it kinda came in where it’s like, the people send me videos, like TikTok videos all the time and Instagram videos. Like, hey. Can I do this? And, like, no, you can’t do that or that you doesn’t apply. So it was always a lot of noes, like, how can I get you to that point? Like, it may start with a no, not right now, but because you’re not doing x, y, and z. So the coaching kinda kinda james a spun off of the advisory where it’s like, I can tell you all these things that you could do, but can you are you in position to do that? Like, everybody wants to be a real estate professional. Do you know what that takes? Are you willing to scale back from your job or you and your spouse? Are you willing you willing to quit your w 2 and you all live off of 1, 1 salary so that you can qualify and get these benefits if if this tax burden is is is what you’re what you’re concerned with. Are you willing to move to a whole different state? And if that’s the case, alright, what states do you consider the movement to? Because just because you moved from California to Texas, yes, there’s less income taxes, but you got high property tax in Texas.
Larry Pendleton [00:06:38]:
But but it’s, like, how, like it’s so I can advise you, but, like, let’s let’s let’s walk this through instead of me giving you a tax plan. Like, let let’s let’s actually, like, talk this stuff through and and and and touch base throughout the year and see how this is actually working out for you and and and learn and adjust from there.
James Kademan [00:06:56]:
That’s interesting. I love it. You know, it’s interesting you mentioned the real estate professional thing. I was just digging into that yesterday, like, literally yesterday, digging into what does it take to be a real estate professional. Because I thought it can’t be that hard. I know some complete morons that are real estate agents. Right? But then I learned what the rules of the game are as far as IRS is concerned for what it takes to be a real estate professional. And then I’m like, you know, I guess that’s not my game.
James Kademan [00:07:24]:
I guess it’s
Larry Pendleton [00:07:25]:
Yeah. And then it also kinda goes to, like but the real estate professional status, like, that’s just 1 piece. Like, now you have to have properties that generate losses to actually put it to use. Because I have a lot of real estate agents as clients, a lot of brokers, but they don’t own rental properties. They’re real estate professionals. And for that, I give them a, like, congratulations, but it doesn’t do anything if you don’t So no use. If you’re not out there investing and buying properties, for your, for yourself. So it’s it’s it’s made sure people have the full picture view of what this is.
Larry Pendleton [00:07:58]:
So for me, the more people know, the better they can adjust and and can act accordingly from there if they have the right information, in in their pocket.
James Kademan [00:08:09]:
Fair. So tell me, when you got into real estate investing, did you get into real estate investing because you’re doing the CPA thing and saw, like, holy cow, there’s tons of opportunity there? Or is it real estate investing more? Hey. I want some passive income, and then you learned after the fact there’s all these tax benefits for that.
Larry Pendleton [00:08:26]:
Well, I always knew the tax benefits, but I personally, I I had a limited mindset at the time that I didn’t that I could be an investor myself. And it took it took my partner, Larry Connolly, who’s a class a contract. He was already in real estate, and he’s like, Larry, you know the numbers. You just gotta put the right team around you to actually execute this. And, based on you, that kick in the butt to to actually get out get out of that mindset. It was like, yeah. I can I can actually do this and then take some lumps around along the way? Because a lot of accountants were also risk averse. But you also gotta get out of that shell as well.
Larry Pendleton [00:09:03]:
Like, you you try to mitigate as much as you can. But you guys, you gotta put yourself out there to take some, take some chances.
James Kademan [00:09:10]:
Alright. And the real estate that you decided or chose to invest in originally, was that residential or commercial?
Larry Pendleton [00:09:17]:
Residential. So Okay. My my my first property was a single family, townhome. No. It was I mean, for years, it was given, like, producing 2, $300 a month in net net cash flow, until until we sold it for for, for a good amount doing these the price was kind of out the roof these past couple of years. But, yeah, I was yeah. I got got a big, big hit on that 1 because it it went so well. Probably manager, we had tenant right in right away, and then started to try again to the to the flipping world.
Larry Pendleton [00:09:51]:
And then that that was a reality check, for me, well, how to learn how to vet contractors, not not doing anything, trying to be cheap or trying to do everything yourself, especially if you’re trying to balance. Because I still had AW2I still was running the tax business on my own tax business and and and having having a family as well. So it’s like, hey. Learning how to build teams, vet people, and and and manage my time in a in a better way, be more appreciative of my time and not trying do do every single thing because it’s that’s not my not my strong suit.
James Kademan [00:10:26]:
Fair. Totally fair. You know, we had a guy on the show, I don’t know, a few episodes ago. He’s talking about real estate investing, and he told the story about how he was repainting the interior of 1 of his 1 of the rental properties that he had. And his wife and son were at the park and they called up and like, hey, you coming to the park? And he’s like, no. I gotta finish up this painting. And he hung up the phone with them, and he was thinking, what am I painting this thing for? I’m painting this thing so that I can have free time to spend with my wife and kid. Yet here I am painting the inside of this building while they’re off playing, asking me when I’m gonna be there.
James Kademan [00:11:06]:
So it’s ends up to be somewhat of a conundrum that you gotta figure out.
Larry Pendleton [00:11:11]:
Yeah. And it is that that that that push for financial freedom and, like, you yes. You gotta put some time into it, and there’d be things that you missed. But that aspect of and the niggas, the Dan Sullivan and the who not how, like having the right, having the right who’s having the right people around you that can do things. And for me, as long as everyone can eat at the table, like, III can, like, I can, I can make sure, like, the returns and stuff make sense for for everybody involved? And it’s like, hey. I’m not losing my shirt. I’m like, okay. I can at least I’m making this amount.
Larry Pendleton [00:11:42]:
I can pay out everything else and just outsource stuff so I can rinse and repeat this. I could scale at that point. It’s like I can’t scale if I’m managing my own properties and doing everything else as well.
James Kademan [00:11:54]:
Fair. Totally fair. So let’s talk about the team you mentioned, especially in regards to flipping houses. You’re dealing with contractors even when you live in the house or you wanna wanna remodel your kitchen bathroom, something like that. I have heard very few stories about customers of contractors that were just like, this guy was awesome to work with. I loved every step of the way. He came in under budget and on time. That is never the story that you hear.
James Kademan [00:12:18]:
So tell me about your experience, flipping houses and working with contractors and subcontractors and all that.
Larry Pendleton [00:12:27]:
Yeah. My mine came from a referral for someone else, but it was actually come to find out it was a glorified handyman. It wasn’t really a true true contractor, like a lot of lot of corners cut, from from from that standpoint. And we were we were over budgeted and very fortunate to to able to get out of that out of that property, get get our investors pay, get their, get their money back. Like I didn’t make any money on it, and was very grateful not to lose my shirt, on on that stand phone. But actually taking the time to not just rush because, okay, this person I like, and they recommend the person. Okay. Well, let’s still get some other other feedback.
Larry Pendleton [00:13:09]:
Like, what the what product you’ve actually have you done something like this? We gotta take out a wall, and and reconfigure the house to make it, make it more, open space from that standpoint. It’s like there’s a lot of different things that, that I kinda let slide through or just kinda let happen because I was trying to to to squeeze every every penny out of it, and and go and go the cheap route. Whereas, okay, even if I had someone who was 2 times as much like we would have made AAA good profit off of it and we’ve been there right and been less stressful, from from there. So a lot of family stress that that that caused, even could get my dad involved and from that standpoint. So and even my own immediate family as well. So it it it it was a humbling experience knowing that, hey. I I gotta be able to kind of find the right people to trust instead of finding someone that I halfway trust and I gotta oversee every every step of the way. And it’s like, that that’s not how this is supposed to be.
James Kademan [00:14:14]:
Fair. Totally fair. So have you grown now to the point that you have staff that’s actually doing work like that, or are you still on a flipping property at all now, maybe?
Larry Pendleton [00:14:24]:
Yeah. So we’re not we’re not in flipping property. It’s been a few years since we did that. We do more new construction now. I said, and now, like I said, got, got a trusted, my trusted partner now, who is a, Class A contractor, does everything by by the books. We split everything, nearly 5050 most of the time. So we we buy land, and just do new construction of a single family residences at that at this time now where we are.
James Kademan [00:14:50]:
Nice. That’s super cool.
Larry Pendleton [00:14:51]:
Yeah. Tell me. A lot a lot easier. Especially when the price started going up, it it became cheaper just to build instead of potentially dealing with someone else’s headache. You know what?
James Kademan [00:15:01]:
It is so so interesting that you say that because I’ve been looking at real estate. I’ve been watching it for a while trying to figure out, like, when do I jump in the pool of the residential side of investment real estate? Looking at different towns, and I’m looking at the price of construction. And I’m like, I don’t, it almost seems to make more sense to build rather than buy a lot of this stuff. I don’t know. I feel like there was a point in my life after 2, 008 and then going forward from there where I was like, I kinda understand how pricing works for real estate. Mhmm. But the last 3 years, I’m like, I don’t know a thing. I don’t know a thing about how the market is priced the way it is.
James Kademan [00:15:43]:
When interest rates go up, they triple essentially over the course of less than a year, but the prices go up, whatever, 20, 30 percent over that same time period.
Larry Pendleton [00:15:53]:
Yeah.
James Kademan [00:15:54]:
Like, I don’t know anymore. I don’t know.
Larry Pendleton [00:15:57]:
Yeah. It is is and there there’s always a different way in real estate use there’s always a constant adjusting to, okay, what the market is saying at at this point. So because I say because we were even looking into commercial ourselves and and dabbling in that space and but more so of can we do more new construction, commercial commercial space mixed use, where we still have a housing crisis, in the country. But, like, can we still kinda mix in getting a solid, commercial space downstairs and, 3, 4 levels of apartments above it. And they helped me buy a lot a lot of downtown areas that we’re that we’re that we’re associated with. So so, like, it’s it’s it’s just kinda finding what works for you, from that standpoint. And and for me being an accountant and knowing that, okay, if I have a I have my budget, I I’m a stick, I want my team to stick to the best they can. I know there’s more gray area.
Larry Pendleton [00:16:56]:
Kademan we put this hammer through this wall, okay, or it’s how bad is our budget gonna blow up once we actually started kinda digging into these to these flips. Whereas, like, hey. Stuff may kind of, like, vary a bit from a new construction, but, like, we know we’re gonna be somewhere where we are per square foot, with the with the pricing, at at that point. There is just now dealing with insurance rates, stuff right now and and working with, private lenders on the on the on the lending side so that we can kinda get a traditional financing, and and it really empower other people to be their own bank at that point.
James Kademan [00:17:33]:
Nice. Tell me why would you I mean, I guess I can speculate a little bit, but tell me why would you move away from the typical bank credit union loans versus going with private lending where you’re having to actually, I don’t know, more or less sell the project to different investors.
Larry Pendleton [00:17:50]:
I thought you still have to sell the project to the bank as well. Amy, you have to either way you guys sell the project and you guys sell it yourself. And I felt like we was constantly going through the same hoops and hurdles. It’s like, okay, we’ve done all these projects. We we we have all these years experience with with new construction and then real estate. But every time we turn around, we gotta basically get out the same documents over and over again. It’s just cheaper money, but, like, the the amount of red tape that that that that we have to go through just didn’t make sense. But I also knew people who were especially a lot of clients who got money in their retirement accounts and convert them over into, self directing accounts where they’re trying to find different ways to grow it.
Larry Pendleton [00:18:36]:
And it’s like, hey. Well, there’s opportunity here to, educate more people about stuff like this, especially those who aren’t familiar with syndications and funds that that I’ve been part of as well was like a u like, you could basically do the exact same thing with the bank dub, which is basically lend from the from the fed and charge you an additional interest rate where, like, you basically take your money out the bank and and or however retirement account where you feel comfortable with and and and that’s your that’s your investment. Just make sure it’s secured from that standpoint. So either way, we’re we’re selling to somebody, whether it’s gonna be traditional bangers like that. I must rather pay a little bit extra more, from an interest and point standpoint, to work with individual knowing that I have that repeat, the that repeat lender going forward.
James Kademan [00:19:25]:
Alright. So, essentially, you get an investor. They work with you on a project. That project comes and goes, and the investor’s like, keep feeding me, man. I’ll keep feeding you kinda thing because there’s Basically.
Larry Pendleton [00:19:35]:
There’s a
James Kademan [00:19:35]:
trust involved?
Larry Pendleton [00:19:36]:
Yeah. You you actually you it’s individual trust. They have a trust within this system with a financial institution, which it has its pros and its cons as as with the private lender side as well. I just I I just I just like that component of that personal feel with that individual. And it was like, hey. III I’ve I’ve gotta make sure I do right by by this lady, because she she has entrusted us with her with her funds.
James Kademan [00:20:04]:
Got it. Now you you mentioned this, and I wanna dig into this a little deeper if you don’t mind because I feel like you’re the guy that would know the answer to this. Tell me more about the self directed retirement stuff.
Larry Pendleton [00:20:15]:
Yeah. So everyone’s familiar with your job. May have a 401 k. Everyone knows you can get a a IRA. But if you’re going through Fidelity, or any of the, the the the the Merrill Lynch’s of of the world, you’re, you’re kind of trapped to just stocks and bonds that they allow you to invest into. You really can’t invest into real estate. They say you can, but more so with through REITs, which are just which is just trust the same as just stocks and bonds through a through a comp through a public company that’s that’s buying real estate itself. If you’re able to work with a lot of companies, Direct IRA, Advantage equity, Equity Quest, a lot of lot of good companies.
Larry Pendleton [00:20:56]:
You can convert those into a self directing, retirement account, then you’re allowed to really tell that custodian, hey. I want to move this. I wanna invest into this company, or I wanna buy this real estate. Now there are certain tax implications, and you’re not allowed to really personally benefit from it, and they have some penalties and and taxes associated with this, but you have to be more still passive with it. And you’re not and you’re not really building any cash flow or money that you can use right now. It still have to be used when you’re retired, but that’s what the self directing law is allow you to grow your account with stuff that you know and and that you understand instead of just what 1 entity is telling that you have to invest into.
James Kademan [00:21:44]:
So it’s interesting you say that because I didn’t know that self directed was even a thing until 2 years ago. And I was chatting with my CPA, like, tell me more about the self directed thing. And he was kinda nonchalant, like, it’s a thing you can invest in real estate and stuff like that. And here I am thinking, wait a second. This seems like a huge deal that is I feel like it would be way more productive than going through the stock market where they just say, throw the stuff in mutual funds or ETFs or whatever, pick your stocks, and hope for the best. And then you see real estate going up, and I feel like there’s never gonna be a time when people are gonna say, you know what? I don’t need a house anymore, or at least not the great majority. Right? So real estate’s always gonna be a thing. And I don’t know that I’ve ever come across well, I can tell you for sure that I personally have not come across anyone that said, this is these are the steps for how you do that.
James Kademan [00:22:41]:
So can you kinda break that down, I guess, as broadly as you can?
Larry Pendleton [00:22:45]:
Yeah. So so 1 is because you can you can you can go to a company that offers self directing. You can open 1 up over your having to or they can work with you on rolling over, old employers, retirement account. Now if you’re currently working for a company and you’re most likely not gonna be able to roll that that active 1 over. So the stuff that’s kinda more old or you have inherited retire inherited IRA that that, that you have and roll those funds over. And then pretty similar to your people, pitching their deals to you and you’re you’re trying for a like, what’s gonna help you grow your retirement account? So you got something that’s actually gonna go into investing to your nest egg. I actually was meeting with a client this morning, about that where he wants to use 1 retirement account for more short term investments, and he wants to use a different retirement account for for longer holds because of, the 1 retirement account was inherited. You want that be more like short term stuff coming coming quick in and out, from from from from that standpoint.
Larry Pendleton [00:23:50]:
Then you’re then coordinating with your custodian. We’re like, hey. Pay these funds out to this this this this deal operator, whether they’re, as a most likely you’re doing it either as a loan, like you’re loaning them the funds, to do it, and they’re paying you paying back into your retirement account with interest, or you’re or you’re investing into it as a as a limited partner or as a as a passive, equity partner in the deal. The money still is all gonna go back into the retirement account. You can’t pull that money out without dealing with early withdrawal, penalties and taxes, associated there. So really, like, it’s the the the lender or the partner into the deal itself is your retirement account, but it’s directed by you. The custodian is just I mean, they have their fees associated, but, like, they’re just doing what you’re, like, telling them to do, from that standpoint. You may have some custodians that may, like, hey.
Larry Pendleton [00:24:48]:
This deal doesn’t look doesn’t look up to par, and that’s some information that’s missing. So they they can kinda help out with with that piece of it there. But that’s that’s really what it is, is that you’re you’re you’re you’re providing instructions to the custodian to what to put your return put your funding. You can still put your money to stocks and bonds. Like, it doesn’t it doesn’t stop you from doing that. You just have other options, whether it’s stocks and bonds, real estate, crypto. I say, I’m an example. I’m trying to get mine to do more, buying mortgage notes, for for 1 of mine and start to kinda, like, build more cash flow that’s gonna be kinda help build that up at the same time as well, as well as use other funds for that I can use to for cash flow purposes, personally.
Larry Pendleton [00:25:34]:
So that’s so that that’s the general premise of it there, is that you’re you’re allowed to have control of where the funds go into people still pitching through you, but then, like, there’s documents and all that make sure it has to be signed to say, hey. This is gonna go here. Make sure the payments are going back. Understanding the type of income that is being sent back in because you may have to deal with certain taxes within the retirement account itself because it ends up becoming its own separate entity, that that that you’re controlling, from from from that angle. But the money that’s come in, like, you’re not filing personal tax returns for the income. It will be possibly in that retirement account between how much and the type the type of income that’s coming in.
James Kademan [00:26:19]:
Got it. And type of income that’s dependent on if it’s rent or residual stuff like that?
Larry Pendleton [00:26:24]:
Yeah. Where there’s rent, like, passive income or, like, yeah, capital gains or if it’s or it’s just, like, if it is getting, like, active income where, like, hey. It’s actually getting active shares, which it should not be because it should be passive from that standpoint, then to be in compliance with with the IRS, we want people to do is to if people to let this money grow for their, for their for their golden years, from some kind of getting point. So but depending on because and the part of it is is, like, you just can’t buy, like, a McDonald’s franchise. I’m not sure why I’m thinking on doing it right now. It’s just it’s just the james popped in my head right now. But, like, you what I do people hear about, like, UBIT taxes, like, unrelated business, business income tax where, like, hey. You’re you’re running a business out of this retirement account.
Larry Pendleton [00:27:11]:
That’s what it’s not for. So you’re dealing with some high taxes if you’re doing stuff like that. But you get your more than that if you’re, dealing with more just rental property, like, you’re not flipping the property within the retirement account. You meet as being the lender of the person, death flipping it flipping the the, doing doing the flipping that you’re not doing yourself. Like, you’re not supposed to be actively involved with anything that the retirement account, owns. Alright.
James Kademan [00:27:39]:
Why do you think, and this is just purely my speculation. I don’t know. But I feel like the whole self directed thing, I don’t feel like that’s really promoted as much as just stick the money in your retirement account. You got your stocks or your mutual funds or whatever, and just watch it grow or hope it grows, don’t pay attention to it. I feel like that’s the story that we’re being told versus, hey. You could do the self directed thing where you’re actually the options that you have for what you’re investing in for your retirement. Mhmm. They’re actually huge.
James Kademan [00:28:13]:
It’s not list listed or limited, I should say, to stocks and bonds and all that kind of stuff. You have all these other things that you could invest in. And I feel like that it’s a way more interesting story, I guess, to invest in all these other things instead of just like, oh, I gotta invest in the stock market, which is if you’re not interested in it. It’s kinda boring. I talked to my wife about the investment stuff and I’m like, when’s the last time you actually looked at your retirement account? And she’s like, why would I look at my retirement account?
Larry Pendleton [00:28:42]:
Yeah. Because
James Kademan [00:28:43]:
From my point of view, I’m like, that’s a big deal. It’s a lot of money kind of thing. Right? It’s grown over time. You wanna make sure that you’re on the right path. And she just kinda shrugs her shoulders. Like, I don’t know. So I’m I’m wondering if you have an idea about why the story is kinda like, just give us your money, slap it in your retirement account, and don’t look at it versus, hey. There’s opportunity here to get your money to actually work more for you.
Larry Pendleton [00:29:07]:
Yeah. No. It it kinda leans in, I don’t know, again, 2 conspiracy theories right now where, like, Wall Street basically is running this this show where it’s like, hey. The the promotions and all that, the what the the the Merle Lynch and the Fidelity of the world, like, what they’re getting paid. Like, they’re getting commissions based off of people putting their money into into into Wall Street. And then that that’s and so that’s ingrained into the culture itself. And just just just wide, ride the wave, like, like, it’s, there’s going to be ups and downs in the stock market. Like, it’s kinda like it’s it’s hands off.
Larry Pendleton [00:29:44]:
You don’t gotta worry about it and so forth and so forth Where the the self directing, like I said, that’s it’s it’s not, it’s not new. Like, it’s like, I’m not, I’m not, I’m not telling anyone anything that that’s brand new. Like, this has been going on for longer than I’ve been alive and I’m 40. So it’s this aspect of like, like, Hey, this is not promoted as much because the custodian isn’t paid as much. Like like like, they’re, like, they’re not making money off of the deals itself. They’re just making their fees. So, like, they don’t have this huge, engine that’s following the the the propaganda to go into self or the marketing go into self directing, from from that angle there. And there’s a small population of of of a old guard that does self directing that they doesn’t want the the masses to know because it’ll possibly dilute it, dilute the value of it.
Larry Pendleton [00:30:37]:
But, like, that’s a very small piece of it, of it there. But I think I think the major piece of it is that the, like, the Wall Street, engine that drives everything and this kinda drives a lot of what’s going on in this country. That’s what’s being pushed out of it, but we kinda settled to believe, as well as the whole aspect of go to school, get a job, and retire with a gold watch after 70 years, something less. Something like that. So it it just all kind of feeds into that. That’s that’s my, my my opinion on that.
James Kademan [00:31:08]:
Alright. I don’t think they have anything to worry about because I feel like there’s people like my wife who are just like, what is the easiest way? I don’t care if it makes me, whatever, 100 of 1, 000 of dollars less as long as it’s easy and I don’t have to care about it. I’m fine. For me, I’m like 100 of 1, 000 of dollars. That’s when you bring it down for a hour, that’s crazy, awesome money.
Larry Pendleton [00:31:30]:
Yeah. Because you’re most likely, because if you’re in control and people having to pitch you like their deal, you’re and I I took when I talk to investors, like, then you wanna know, okay, how much you how much is needed? How is secured? Like, who are you? Like, like, what’s your credibility? And and and what’s my returns are going to be? But it’s the security aspect that we’re like, are you sure, like, like, like, if everything goes wrong, like, am I at least gonna be, like, make my money back? Where, like, with stocks and bonds, like, you can really lose everything. You can lose everything in real estate as well, but that’s more so just not doing the proper due diligence, not, not really knowing what you’re doing. From, from there, like you can, you can have people just overpaying for stuff. It was like, hey. That’s how you lost your money. Like, you you gave yourself no you gave yourself no equity in the deal when you when you bought it, but you should have a hard tangible asset. But if if anything goes wrong, can you just just get that and make your money back based off of the selling at the bare minimum at that point?
James Kademan [00:32:33]:
Mhmm. It reminds me of, vehicles. I like to buy and sell cars, motorcycles, and stuff like that. Mhmm. And I always like to get a deal on it. And the reason I guess 1, because I just like to get a deal on everything. And 2 is because it’s not necessarily a need. So but if push came to shove and a bad day happened to 2, 008, whatever, and you needed to get out of it, I wanna be able to sell that thing and not take a huge hit.
Larry Pendleton [00:32:59]:
Mhmm.
James Kademan [00:32:59]:
So it’s 1 of those, hey. I wanna win the deal just because you win the deal. That’s kind of the entrepreneurial mindset, but you also wanna be able to get out of it without losing your shirt kind of thing if if you ever needed to.
Larry Pendleton [00:33:10]:
Exactly.
James Kademan [00:33:11]:
Yeah. I get where you’re coming from. Tell me how how do you find a custodian?
Larry Pendleton [00:33:16]:
So, like so there’s and I did this power of social media, like like Google, like, self directing custodians, like, and a 100 of them are gonna pop up. Okay. From there, you you may even have some of the non because, like, custodians that that don’t do self directing. They’ll they’ll still pop up. So it’s really just having, like, those, those those can like, having those resources and really just getting into different, networking events and stuff like that. I know there’s 1 coming up in this month called quest, Questcon, and that’s 1 of the, self directed custodians that are out there. But it’s you start to get around more people who know about self direct things. Okay.
Larry Pendleton [00:34:00]:
Well, they’re using they’re using equity trust, and this person is using, directed IRA, and this person using so and so over here. But, like, okay. It’s just a push fees and all that and and easy conversion that’s people have to get make determination of what works best for them there.
James Kademan [00:34:16]:
Alright. And as far as how the custodian makes money, is it a percentage of the investment, or is it typically flat fee or hourly? Or how do you
Larry Pendleton [00:34:25]:
spend the money It’s basically flat fee based off of, like, your account itself. So they don’t they don’t make any money off of the actual deals that you’re that you’re going into. So it it’s really based on, like, fees and how much money that’s really in your account.
James Kademan [00:34:39]:
Gotcha. I love that. I love that. It’s I’ll just tell you really quick anecdotal story here. I had learned maybe, I don’t know, 6, 7 years about Vanguard. And I’m like, what is this all about? Anyways, I look at my retirement, what I got, and I looked at the fees that I was being charged by my retirement guy. And I look at Vanguard, and then I look at what the retirement guy had me plugged into, which is basically just index funds, which is fine. It’s actually pretty good.
James Kademan [00:35:07]:
Vanguard index funds. And then I look at the percentage difference. I’m paying this guy 2a half percent. Vanguard, I’m paying, like, 0.03% or whatever it was. And so I moved him. And the financial planner guy calls me up, and he’s like, James, why’d you move all your stuff? And I was like, well, here’s the situation. Index fund, index fund. These these look like commodities to me.
James Kademan [00:35:31]:
So anytime something’s commodity, I’m just gonna go with the lower price 1. And he’s like, oh. And I’m like, if you can justify the price difference, because maybe I don’t know everything. I’m certain I don’t know everything. Tell me what am I getting for that 2 plus percent for you? And he’s like, anytime you wanna call me, I’m here. I’m like, why do I need to call you? I’m in index funds. Like, what are you gonna tell me?
Larry Pendleton [00:35:57]:
And
James Kademan [00:35:58]:
I’m like, give me give me something more. Like, you give me a fancy pen. Like, what am I getting for this? What’s gonna turn out to be 1, 000 of dollars over the course of time.
Larry Pendleton [00:36:06]:
Right. And
James Kademan [00:36:07]:
you got nothing. You got nothing. So it’s interesting to me how I’m like, why don’t people, why isn’t this more I don’t I hate to play the victim or talk about being the victim or something like that, but I feel like this should be 1 of those things when they say, Hey, throw money in retirement and Hey, these are your options. I feel like the education that we’re getting is just like, Hey, throw money in retirement period. You figure it out kind of thing. And there’s so many opportunities. It’s like playing monopoly, but they don’t tell you about park place. They just tell you about Baltic Avenue.
James Kademan [00:36:40]:
You don’t need to know the rest. It gets confusing.
Larry Pendleton [00:36:45]:
Oh, that’s a good, it’s a good, it’s a good analogy. So at
James Kademan [00:36:49]:
any rate, I’m learning about park place by interviewing people like you. So I appreciate you being on the show here.
Larry Pendleton [00:36:54]:
I’m I’m glad. I hope it helps. This was
James Kademan [00:36:58]:
helpful. Yeah. Oh, absolutely. Absolutely. Let’s dig into the whole tax side. Can you tell us, I don’t top 3 mistakes that you see entrepreneurs make as far as taxes go? Or maybe even if they’re not mistakes, just oversights, things that they’re not even aware of.
Larry Pendleton [00:37:13]:
Well, what is is is the bookkeeping, is is a huge piece. And I understand that it’s not the not the sexiest thing in the world and it’s boring and dull, and I I completely get it. I I understand because I it’s boring and dull to me as well. But, like, that piece there was, like, hey. How do we know what you can write off if it’s everything is not there, like, just and and having the support and re receipts and invoices so that, like, hey. If if anything does happen, we got support. We don’t have to worry about it, there. So, like, that’s the that’s the biggest thing because people either try to do it themselves and then they they halfway do it, or they they try to try to bring in the bookkeeper, but if someone’s just very green and they’re just really cheap and they’re doing the same type of work for a 1, 000 other people, so they’re they’re halfway doing stuff.
Larry Pendleton [00:38:05]:
So it was, like, just kinda understand, like like, what are you willing to budget for? Like, what are you willing to kind of put the time into or just leveraging technology, as well, whether it’s James or QuickBooks or Estesa. There’s so many different accounting softwares that can kinda help, ease that burden for a lot of people, but that that’s the that’s the number 1 probably 1, 2, and 3. I think if if I had to kinda lift it out because it it it goes deeper, into stuff like that. Number number 2 is really kinda get into the the planning aspect of it, where it’s like like, hey. Like, don’t just reach out to your person during tax season because it’s too late at that point. I guess, like, you really have to be reaching out to your person. Because the way we’re the way we’re structured, like, I just don’t randomly just call my clients throughout the year because if I just call you, nothing’s going on. It was like, hey.
Larry Pendleton [00:38:59]:
Well, not what we’re gonna talk about. Like, hope the kids are doing well. But that that’s about it.
James Kademan [00:39:04]:
The weather’s nice. Right?
Larry Pendleton [00:39:06]:
But yeah. But I I try to incentivize my clients to reach out, like, throughout the year as frequently as they can because, 1, you already paid for a 12 12 month package. Like, use use and bruise me as much as you can because I don’t know what you got going on. And you didn’t tell me 7 months later that you bought and sold this property, like, well, we it’s too late to a 10:31 at this point. So or for or if it for for example. So it it’s stuff like that was like like like get involved and like making that time whether it’s a quarterly at least quarterly meetings with your with your tax advisor with a tax advisor. To to assure that you, that you’re you’re in the right path and can know what your what your potential tax liability is and what your options are from there. So that that’s probably the the number 2, behind behind the bookkeeping, from from there.
Larry Pendleton [00:40:00]:
And then number 3 is more often that people are letting the tax tail wag the investment dog or the financial, investment dog itself, which is like, hey. That’s just don’t pay for stuff just for the tax benefits. Like like, people hear about Grant Cardone buying a jet and riding off the jet. Okay. Cool. He it’s great that he has the money to do that, but that’s a 1 time big, big deduction expense. There’s gas, there’s insurance, is it, was it paid with a more with with debt, so now we got interest, like, hey, that stuff was written off, but the big deduction came in year 1. Does your business support these large purchases? And and and a lot of people got into the the 6, 000 pound vehicle and buying GWAC.
Larry Pendleton [00:40:54]:
It was like, hey. Is that is that a financially good decision for you? And that’s for me, that’s where the the okay. Yes. It’s a great tax benefit, but investment wise, it doesn’t make sense for you. Like, your, like, your your your monthly note is gonna be $600. And and and that’s what’s and and that’s gonna be 80% of your of your monthly payment, of your of your income that you got coming in from your business. Like, that that that doesn’t make sense just to get this 1 year write off. So so understanding the full ramifications of, can we get deductions? Yes.
Larry Pendleton [00:41:29]:
But, like, is it going to be a strain on your business in the long term? Or if or if you’re trying to get the the short term rental loophole, that people try to get into because they can’t qualify for real estate professional status. It was like, hey. Great. You can try to get the short term rental. Do you know what it takes to run a short term rental? We have 6 of them. And I just, like, III don’t want I don’t want any parts of it. Like, I’d I’ll I’ll find another way to find deductions. Like, I don’t want any I, we I’ll I’ll take the cash flow, but I’m not going to try to meet this standard just for this benefit, and I hate my life for it for 18 months.
Larry Pendleton [00:42:08]:
So it’s it’s not it’s not working for me, personally. So people have to have to have the discussions with themselves, like, know who they are, understand, like, is all of that worth, worth the tax savings?
James Kademan [00:42:22]:
Alright. So the the headache versus, cash savings?
Larry Pendleton [00:42:27]:
Yeah. Yeah. Yeah. Headache versus tax savings, or is, like, the the cost of doing something a the tax savings is gonna be this, gonna be 30¢ on a dollar, 20¢ on a dollar. Like, is that is that really worth it, from there? Or the cost of doing something outweighed the actual tax savings. So you had a you had a net loss. You got the tax savings, but you ended up paying more in compliance costs.
James Kademan [00:42:49]:
Oh, that’s fair.
Larry Pendleton [00:42:50]:
So there’s situations like that and that, that comes with like, like s corp elections and stuff like that, where, like, you have to understand the full picture, not just, hey, if you do this, you’re gonna say this money james. But it comes with this, this, this, and this. Do you really want all of that? And and for me, like, I’m aware of it, and I feel like I I’m not doing you as AAA I’m not doing right by you just by telling you the tax savings, about telling you the full picture. Because that just that’s just 1 piece of the puzzle.
James Kademan [00:43:25]:
Gotcha. Tell me, you know, it’s funny. Just side thing. It reminds me when I was chatting with my accountant about, buying a vehicle through the business. And I just for me, I could not in my head, I could not make the numbers work. Like, the write offs were cool and all this kind of stuff, but I’m like, just just because the write off doesn’t mean that money’s free. Like, you could argue that it’s discounted because you’re reducing your total tax bill, but in the end, that car’s gotta be paid for by someone and that someone is you. So I didn’t even know anything about the Grant Cardone jet thing.
James Kademan [00:44:00]:
That’s funny. Jets aren’t cheap. I got friends that are private pilots. They’re doing okay, and they don’t work for free. So Yeah. That was interesting.
Larry Pendleton [00:44:10]:
Like, again, that’s huge because, like, the aspect, like, you got you got the insurance, you got the insurance, you got property taxes in, and and god forbid, you put the the vehicle in the business james, that’s worse than personal property taxes. So all of that has to be taken to account. And is your business generating enough income to support that on an ongoing basis? Or is that just gonna be a strain because now you just have a luxury. It’s really, really it is it’s just a it’s just a luxury at that point. And now you got the headache of now you gotta track your mileage. Make sure you got the mileage log in place. You got all the receipts and invoices now. Like, okay.
Larry Pendleton [00:44:50]:
Now you now you got you got the the cost, but now you got this additional work that you have to do in order to do it. It it could be worth it. I’m not saying that it’s not, but make sure that you have ran through all of that and have a full understanding of it instead of just, hey. I saw this on on on on Facebook, and I wanna do it.
James Kademan [00:45:12]:
So it on the Internet. It must be good.
Larry Pendleton [00:45:14]:
Exactly.
James Kademan [00:45:16]:
Tell me, so the people that you are working with, can you paint me a picture about the typical client that you work with? Is there a typical client that you work with?
Larry Pendleton [00:45:27]:
More so in in in a mindset aspect, not so much in, like, what they do. We got clients who own 70 properties. We got clients who own no property, but they they they do construction, and there’s gonna be clients who who who who run syndications, but all of them have this this similar mindset of there’s an entrepreneurial aspect to it, but and if everyone kinda follow the Robert Kiyosaki 4 quadrants, for me, everyone is in like, mentally, they’re they’re in the they wanna be an investor because they don’t have to worry about running a business. Like, every like, all our clients have the mindset, like, I wanna get to a point where, like, I’m just an investor, and my money is working for me. And that’s and and that’s the mindset of majority of our clients is that they’re trying to they’re either at that point or they’re trying to get to that point. And that’s crucial because it’s, like, that’s where for me, I like, I, like, I prefer just to be in the eye quadrant all day every day. And and and and and that’s because that’s true financial freedom, at that point. And then be able to, like, not miss stuff with both my kids and my family, and, and be able to kind of do what I do from anywhere and not worry about having to be the CEO of of of of a company, and and build all these system and processes and make sure that everything and hiring people.
Larry Pendleton [00:46:53]:
Like, I’d much rather be the investor. That’s so that’s kind of, like, the the the mindset of our of most of our clients is debt.
James Kademan [00:47:01]:
Alright. And are most of them in the real estate investment game?
Larry Pendleton [00:47:05]:
Yeah. About 85% of our clients are in real estate 1 way or another. They’re either they’re either flippers, contractors, agent brokers, investors, syndicators. Like, they’re they’re they’re 85% are somewhere involved touching real estate 1 way or another.
James Kademan [00:47:21]:
Alright. And is it to the point where you are coaching them on taxes and investments as well as doing their taxes for them, or is that 2 separate things?
Larry Pendleton [00:47:32]:
Both. So, like, we have, I’d say, probably about only about less than less than 15% of our clients, like, we’re just only doing the coaching for. For. Okay. Next Larry with us, we’re we’re most likely doing their doing their taxes as well. But I like I said, I’m always in position, but people have a person already that they that they know, like, and trusted. They they just they they’re missing something, and it’s the it’s the it’s that coaching advisory piece of it. And I told them, I don’t want to take you away from your person.
Larry Pendleton [00:48:04]:
Like, keep your person. It’s almost like Larry, like, everyone enjoys, AAA rum and Coke. Like, I mean, like, that’s that’s that’s your person. Like, they they they been consistent for you, but every now and then, you need a extra shot of rum in there. Let me be the extra shot of rum. That
James Kademan [00:48:26]:
is totally fair. I love that.
Larry Pendleton [00:48:29]:
So it was like, so we we we can we can build the business. We’re like, we’re primarily just only doing the coaching and without the tact to, like, could we actually coach other tech professionals as well? Like, here’s how the tax trends should look. If you’re gonna do this cost segregation study, here’s how the depreciation, the bones all applies to it from there, how it needs to be set up because because not every not not all tax preparers know that. And that’s and that’s completely fine. Because I tell people, like, similar to attorneys, similar to doctors, accounts are the same way. Like, everyone’s different, and it’s no one’s better than anyone. It’s just Larry specialize in different things. This is what, like, real estate is is is what we specialize in.
James Kademan [00:49:09]:
Got it. Oh, true story there. When I first started my business, we’re still talking 2, 006. I started my 1st real business, and I thought incorrectly, of course, that a bookkeeper, and accountant, and I didn’t even know what tax strategist was a thing, but I thought all 3 of those people were the same person. Like, Hey, you know, numbers and james, you’re 1 of those people kind of thing. And then I learned, very expensively. I mean, education’s expensive. Right? That those are not the same people.
James Kademan [00:49:41]:
And even though I guess just because you believe they’re the same people doesn’t just magically make them the same people. No. It it it could
Larry Pendleton [00:49:50]:
it it all could be for those who are doing, like, all 3 things. Like, it’s I mean, and that’s why, that’s why there’s public accounting firms where like you have the experts of the different areas and then they come together and create a firm. Because there’s very few that, that, that, that want the 2, all 3. Cause that’s like, cause you’re, cause you really involved with that person like all year round and and and and day to day, month to month with the bookkeeping, and then making sure that it’s aligned with the tax strategy. Like like, that’s I see I see many account get burnt out trying to be, that that all in 1 package for for somebody. And it’s like I said, it just doesn’t doesn’t really pan out in the in the long term that well, for that for the individual. So it could be all in 1 part, but most likely, it’s gonna be at least 2 people. Like, it’s gonna be your bookkeeper.
Larry Pendleton [00:50:44]:
It’s gonna be your account, and then your actual tax strategy would also possibly be doing your your tax filing as well.
James Kademan [00:50:51]:
Okay. And where do you or where does your company fit in there?
Larry Pendleton [00:50:55]:
More so the tax strategy and tax filing. Like, we don’t know we don’t do any bookkeeping.
James Kademan [00:51:00]:
Okay. Alright. Now you I mentioned you have a team that’s doing a lot of this. Right?
Larry Pendleton [00:51:06]:
Yeah. So, we have 5 at 5 right now, and like I said, they they work like hamsters. They do a lot A lot a lot of the grunt work with the deed to entry stuff for the tax returns, but that that allows me to to to focus on the the strategies and and and meeting with our clients. Because I enjoy meeting with our clients, especially because they’re mostly in real estate, because I’m curious about the different deals that they got going on because I may want a piece of it.
James Kademan [00:51:33]:
Oh, nice.
Larry Pendleton [00:51:34]:
And myself. So, I’m not I’m not opposed to partnering with my clients on on certain deals or let them know of stuff that we’re working on and see if they wanna jump in on stuff that that we have in place and and and and be more than just a a tax person to them.
James Kademan [00:51:50]:
Fair. Is it so going into that with your team, how tough is it to find someone that’s got that mindset of the CPA mindset, but also the tax strategist mindset?
Larry Pendleton [00:52:01]:
I mean, it’s it’s it’s difficult in is I have a network of other, other, accounts and strategists such as me, where, like, we would never work for each other because, like, we’ll you know, we’d probably be too expensive to to pay the other person. But you do need the got that. I was like, I have a bookkeeper. James was like, you but you’re kinda like, yeah. Like, I have a bookkeeper. Like, that doesn’t mean, like, I I can’t have a bookkeeper, because I could I could be a surgeon. That means I’m a do my own surgeries. Like, this is the same thing.
James Kademan [00:52:36]:
Right.
Larry Pendleton [00:52:37]:
I have I have someone who who’s who’s focus is specialized in in the net. Like, I that’s not my my my focus and my specialty is not in the bookkeeping. So, like, a lot of my team is is in that mindset. Well, okay. They can get into the weeds and make sure, like, hey. At a at a micro level, they’re recovered, and I make sure that at the at the, at the macro level that we’re at the, that we’re still in line with what the big picture is.
James Kademan [00:53:02]:
Fair. Totally fair. You mentioned cost segregation. Cost segregation is something that my I’ve been through 2 accountants over the past dozen years. I knew no cost segregation was a thing. I brought it so I have a commercial property. I brought it up to my most recent accountant few months ago because I saw it on a YouTube video. And I was like, wait, cost segregation.
James Kademan [00:53:29]:
What is that? So I asked my accountant guy like, hey, we got this building. We’ve been working on it for a while. Tell me about cost segregation. And he’s like, oh, you could do that, but then you gotta you gotta pay a guy to break it down, to segregate everything. And I’m like, well, based on what I’d have to pay that person versus the tax savings, can you give me a rough idea? And basically the number was, I mean, it was crazy. It was like, yeah, a few grand here, save you 30 grand here, or you would end up paying that much less than taxes. And I said, I feel like I would make that trade all freaking day. Why why didn’t this like, why don’t we bring this up now instead of, I don’t know, October? Like, I was asking about it in February, and he’s like, oh, you can do that moving forward kind of thing.
James Kademan [00:54:29]:
So I don’t know if there’s anything besides the cost segregation thing. And then when somebody gets into a real estate investment I don’t know. Let’s just talk about top 3 things for tax strategies that real estate investors may or may not know.
Larry Pendleton [00:54:44]:
Yeah. So what the call say, it’s always been around, but it got real popular, when Trump did his tax changes in in 2017 because of the 100% bonus depreciation. But the cost savings has always been there because the general premise of the cost segregation study so, like, with a commercial building, the the it depreciates over 39 years. So you you basically get this paper deduction over the 39 year period. But but then that building isn’t all 39 year property. You may have 5 year property because there’s furniture in there. You may have some 15 year property because there’s a fence, or or or the parking lot. That’s the land improvement.
Larry Pendleton [00:55:27]:
That’s 15 year property. You may have some qualified improvement property. There’s also 15 year property as well. So there’s this other component that depreciates less than 39 years, which creates a large deduction in those in those earlier years. Like, that’s the overall general premise of what the cost segregation study has done. So it create the tax savings from that stamp. And then and then Trump came along, basically put kerosene on the fire. It was like, hey.
Larry Pendleton [00:55:52]:
Well, we if this if this depreciated less than 20 years, now you got you can for the up to 2022 with a 100% bonus, and now we’re in this 20%, sunset over the next 5 years. And we’ll see what, what what what the government does because it supposed to be potentially revamping a 100% bonus for another 2 years forward and and retroactive into 2023. But, we’ll we’ll we’ll we’ll see because it’s just been kinda sitting sitting at congress for a while, and and we’ll see what, what what Biden does if it if it reaches his desk, at at at that point. So so that’s that’s the that’s the overall benefit, the the the level. But I tell people with depreciation, level 1 is that you that you get depreciation. Like, that’s like, you’re able to you’re not able to write off the principal of your note, but, like, you get this actual deduction, which could somewhat be that from that angle. And then the call setting kind of brings in level 2, where it’s okay. At least break it up into the 5, 15, 10 year, the different budget that’s going to give you some of the Larry deductions in those Larry years.
Larry Pendleton [00:57:01]:
And then level 3, this is when we get into the, the the the bond depreciation aspect of it as well. And there’s section 179 components to it once you can start breaking that stuff out further, from theirs and and other, benefits also. But that that’s the high level, the the the the the the the the the the what the cost segregation study is doing or what allows you to potentially do from a tax savings perspective.
James Kademan [00:57:29]:
Right. And is that is the idea, I guess, from your point of view with cost segregation versus non, do you typically do the cost segregation thing, or is there any reason not to?
Larry Pendleton [00:57:41]:
I mean, it it goes back to the same question that you asked your, your tax person. What is the cost and what is the tax saving? That’s that’s that’s the first conversation kademan you nailed it, like, if if if if I’m gonna pay a $2, 000, but I’m getting $30, 000 in tax savings, Why aren’t we doing this? And then it’s also the the the premise of how long you plan on holding the property as well because and what’s your plan how long you are you planning on holding the property, and what is your plans afterwards? Because with depreciation, as great it is, it is a double edged sword. Because when you’re buying any property that you’re holding long term and claim depreciation, You’re signing a a contract to government that you’re gonna be holding this property and providing this housing or this office space for whatever amount of time. Once you sell that property, you now broke that contract with the government, and they want their money back in that depreciation. So you hit that depreciation recapture, aspect of it. So a lot of accountants don’t like depreciation or like the call set because of the the the depreciation recapture. But as an investor, if you know that and you’re like, well, I can 1031 and offset it that way, or I can buy another property, do another call seg, and I can use those losses to offset the gains, from from the kademan then then the the pre ship recapture standpoint, where, like, you’re you’re you’re you’re all with taxes at in general, it’s a it’s a rat race all to itself. Like, you’re constantly gonna be buying into new stuff.
Larry Pendleton [00:59:21]:
And that’s what the government want. They want you to keep reinvesting. You’re just not gonna buy a couple of properties to be set for life. Like, nope. Like, those benefits go away, and you’d be taxing, you’d be looking for the next property to help offset the taxes. And that’s what the government really wants. Definitely how to get the money circulating in in the economy. And and if you’re fully aware of that, then you know how to operate and adjust and know what to look for going forward.
James Kademan [00:59:49]:
Got it. So the cost segregation stuff for the I don’t I’m trying to think of the shorter term stuff, carpet or something like that. I don’t know if 5 or 10 years or whatever it is.
Larry Pendleton [00:59:57]:
It’s carpet carpet is really about 5 years. Okay. It is it goes in it because carpet is 5 years, but if it’s hardwood flooring, or a permanent towel flooring for office spaces, that’s that’s gonna be more 39 year property. So even even the type of flooring can adjust from being a 39 year to 5 year based off what it what it is there, and then you got the get the additional benefits there.
James Kademan [01:00:23]:
Okay. So in the case of, let’s just say carpet, because 5 years. So you get this property, this rental property, whatever. Does that does that 5 year clock recycle every 5 years? Or how does that work? This is not your You’re you’re replacing your carpet. Right?
Larry Pendleton [01:00:38]:
Yeah. So like, so let’s just say that the value, the the cost, let’s say, is 5, 000 to make the number simple. So you’re basically getting the $1, 000 depreciation on that carpet for 5 years. Once that 5 year, that that last 5 years, like, that’s it at that point. Like, there’s no more depreciation
James Kademan [01:00:55]:
Okay.
Larry Pendleton [01:00:55]:
At at at that at that point. So it’s it’s it’s just and now you have this 0 value carpet because you you fully depreciate it, at that point.
James Kademan [01:01:05]:
Gotcha. But the advantage is you’re not taking that essentially $5 over the course of 39 years and getting your, whatever, 5¢ of depreciation or whatever each year.
Larry Pendleton [01:01:15]:
Exactly. Exactly.
James Kademan [01:01:18]:
I remember what I learned about the 39 years, whatever it is. Like, that seems like an awfully long time. So, I mean, the building’s not just gonna crumple and fall down, but like there’s, that’s a long time.
Larry Pendleton [01:01:31]:
Yeah. Because rental is residential probably over 20 7a half years. And I and I keep, I keep looking it up. I keep forgetting why it’s a half year, and I I’ll look it
James Kademan [01:01:43]:
up again.
Larry Pendleton [01:01:43]:
But it’s something that I I’ll read it. I’m like, okay. That’s stupid. And I’ll just forget about it. But so but it’s like, yeah. That’s it. Because no 1 really holds their properties, like, really for that long, like, unless they’re living in it.
James Kademan [01:01:57]:
Right. That’s a long time.
Larry Pendleton [01:01:59]:
Yeah. So it’s it’s it’s a a moment of how they come up with with stuff like that.
James Kademan [01:02:03]:
I am certain there was some committee that was arguing for hours, if not days, about that half year. Tell me, maybe even more than 6 months. Right? Tell me just really quick before I let you go here. Is there any quick, I guess, as far as the investment coach side of you, when you’re looking at a at a real estate deal, is there any algorithm or thing that you have in your head when you look at it, glance at it, whether it’s a 1% rule or something like that, where you look at it and say, let’s pursue this further or not a chance.
Larry Pendleton [01:02:36]:
So and primarily with so the 2 main things that we’re focused on now was land for new construction, and, and, and, and mortgage notes is the 2 focus points. Like, we’ll, we’ll get, we’ll, we’ll get more into rentals if once the market starts to correct itself back in that direction again. So with with with with rentals and with mortgage notes, is more so like, hey, can we make our money back within 5 years? And then are we getting our our minimum return on an investment? And and like I said, well well, sometimes we’ll just both put it at 8. That’s kinda like, hey. We’re really getting at least 8%, from there. We’re we’re we’re shooting for higher, but, like, we’re at least getting that, from from that standpoint on a on a on a annual basis. So and we got calculators and calculating to get that get that real quick for us, there. So and then with the the the the new construction and the sale of those is, like, an all in, can we sell and make at least 70, 000 off of what, walked away with 70, 000?
James Kademan [01:03:50]:
Or
Larry Pendleton [01:03:50]:
actually I’m Larry. 60 say 60. Like, so is, so is it can we all in once everything is once everything is paid for, can can are we able to sell and and walk away with $60, 000?
James Kademan [01:04:02]:
Alright.
Larry Pendleton [01:04:03]:
Like, really quick to the point there that we’re trying to and then that’s the part we like about with the new construction. Like, we know what the land is gonna be. We know how much we’re gonna pay for building a home between 1824 100 square feet. We know what that what that cost is gonna be. So, like, hey. We’re gonna be all in at the end of the day probably about $210, 000. Concerta, like, concerta, maybe even a little bit less than that, from from from that angle. So, like, at cold, like, are we able to, sell it for for for 280 and walk away?
James Kademan [01:04:40]:
Gotcha.
Larry Pendleton [01:04:41]:
At that point. Alright. Make sure that everyone’s paid and make sure our investors are paid and they got their returns, and and and we’re making a decent decent decent profit ourselves.
James Kademan [01:04:50]:
Nice. Very cool. Larry, I appreciate you being on the show. You shared a lot of information, and I’m certain you’re gonna have some entrepreneurs just reaching out to you saying, hey, man. My accountant’s very good at entering data, but they’re not necessarily good at helping me figure out how to make that data turn into something that can actually work for me. So I appreciate your time here.
Larry Pendleton [01:05:16]:
I appreciate it, James, for the opportunity here. So happy to happy to help support anyone who wants to reach out.
James Kademan [01:05:22]:
Yeah. Where can people find you, Larry?
Larry Pendleton [01:05:25]:
They can go to my website, www.larrypenneltoncpa.com. I’m also on Facebook, Linkedin, Instagram at Larry Pellington CPA. Try to keep it simple as much as You
James Kademan [01:05:37]:
know, Faye.
Larry Pendleton [01:05:39]:
So be on those 3 social media platforms and yep. And if they happen to be watching, there’s a QR code up here. They can they can, scan and and and get to the get to our get to my page as well.
James Kademan [01:05:51]:
That QR code is genius. I saw that, and I’m like, oh my gosh. I like this guy. Smart, smart man. I love it. Very well played. This has been Authentic Business Adventures, the business program that brings you the struggle, stories, and triumphant successes of business owners across the land. My name is James Kademan, and Authentic Business Adventures is brought to you by Calls On Call, offering call answering and receptionist services for service businesses across the country on the web at https://callsoncall.com.
James Kademan [01:06:22]:
And, of course, the Bold Business Book, a book for the entrepreneur in all of us, available wherever fine fine books are sold. We’d like to thank you, our wonderful listeners, as well as our guest, Larry Pendleton, CPA and tax investment coach. Larry, can you tell us that website 1 more time?
Larry Pendleton [01:06:37]:
Www.larrypenneltoncpa.com.
James Kademan [01:06:41]:
It doesn’t get easier than that. I love it. If you’re listening to this on the web, if you could do us a huge favor, give it the big old thumbs up, subscribe, and, of course, share it with your entrepreneurial friends. Past episodes can be found morning, noon, and night at the podcast link found at drawincustomers.com. Thank you for listening. We will see you next week. I want you to stay awesome. And if you do nothing else, enjoy your business.