Most real estate investors are leaving serious tax money on the table and don't even know it. CPA and investor Larry Pendleton breaks down cost segregation, passive loss rules, and the fractional CFO tipping point that separates the investors who scale from the ones who stay stuck.
Episode 11: The Tax Playbook for Real Estate Investors with Larry Pendleton
Taxes are one of the biggest levers in real estate, but also one of the most misunderstood. That’s why Save to Zero hosts Zach Richards and Mike Seidl sit down with CPA and real estate investor Larry Pendleton to learn how smart investors actually think about taxes, cash flow, and long-term wealth.
Larry brings a rare mix to the table. He’s not only advising investors… he is one, which means everything he shares comes from real-world experience.
We dig into how Larry stays on top of constant changes in tax law, why masterminds and networking play a bigger role than most people realize, and how “real-world reconnaissance” helps him focus on what actually matters to clients.
You’ll also hear a simple breakdown of depreciation and cost segregation (including Larry’s famous Big Mac analogy), and a clear explanation of what investors can and can’t do when it comes to using losses to offset income.
On the investing side, we explore note investing, why Larry shifted focus in that direction, and the realities of managing properties versus just owning the paper.
Towards the end of our conversation, we chatted about how to create more homeowners, what realistic expectations look like, and where opportunities still exist for long-term investors.
“For non-real estate income, you can’t just use real estate losses to offset it unless you meet very specific criteria. Your tax situation matters more than your investment.”
“For a real estate investor, the second most important form on your tax return is Form 8582, because that’s what tracks your passive losses year after year.”
“More millionaires have been made in real estate, but not all of them actually have cash flow. A lot of that wealth is tied up in equity.”
“If trying to be the financial expert in your business is getting in the way of you growing your business… It’s time to bring in help.”
Larry Pendleton’s mission is to help people build cash flow and save on taxes. He is a CPA and tax strategist with over two decades of experience, specializing in tax strategies for investors.
Larry’s company, PC Financial Services, has helped thousands of investors across the US with tax planning, saving them hundreds of thousands of dollars in taxes. In addition to tax consulting, PC Financial Services adds value through cost segregation studies, fractional CFO services, accredited investor validation, and tax preparation.
For over a decade, Larry has also been a real estate investor and active participant in various ventures across the US, including mortgage notes, multi- and single-family rentals, syndications, corporate housing, short-term rentals, new development, and flips.
Along with his current portfolio of notes, PC Financial Services educates investors on how to be the bank and invest as private lenders to build passive income secured by real estate. Larry serves on various nonprofit Boards that promote youth development and financial literacy. He also serves on the Planning Commission for the city of Norfolk, VA.
Finally, Larry is the best-selling author of The Leader's Playbook, is married to his wife, Whitney, and is the proud father of 2 sons, Larry III and Wesley.
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[00:00.1]
If trying to be the financial expert in your business is getting in the way of you growing your business while you're still profitable, you can't get to, you can't get from 1 million to 5 million because you're, you're stuck with doing everything yourself.
[00:15.9]
Like, that's when it's time to kind of invest into that fractional CFO to take that one thing off your plate so you can focus on growing into the next level of your business. Most people think saving money is the answer, but the truth is saving only gets you to zero.
[00:33.1]
Join Mike and Zach as they flip the script from saving to earning, from zero to unlimited potential. Welcome to Save to Zero. All right, welcome Everybody to episode 11 of the Save to Zero podcast.
[00:49.4]
We are here with Larry Pendleton, everybody. Mike Seidel here. I've met Larry a couple years ago at a Mastermind and we've stayed in touch since then. We've been on a investor, cruise together. He's done a couple of things for me accounting wise.
[01:06.5]
And Larry, just so you know, I got two other things I got to run by you. One you're going to have to help me get out of. But, Larry is a CPA as well as a real estate investor.
[01:21.6]
And the thing that I like is he doesn't just crunch numbers. He understands how to crunch numbers, but he doesn't understand them just from a intelligence, intellectual perspective because anybody can crunch numbers. He understands them from an investor perspective because he's been investing in real estate for 10 years.
[01:38.2]
He also, has worked on syndications, cost segregation, et cetera. So he is well rounded. He's also a great guy and easy to talk to. So we're going to jump right into it. So, Larry, I understand you're a cpa.
[01:53.6]
Tell me why on God's green earth you would sit the cpa. Because you're a pretty active guy in cpa, you know. Well, I mean, I mean, someone gotta be crazy enough to do it. So I'm from what my wife tells me, I'm a pretty, I'm a lunatic at times.
[02:11.2]
So it fits. But no, it kind of stems back to growing up. My dad ran a H Vac firm. H Vac company. And besides cursing the, the Washington Redskins, the, the next thing he cursed was taxes. So I kind of got wrapped into at the age of like 10, try to help him with his, help him with his books.
[02:32.2]
Didn't know what accounting was at the time. I was just, I was just punching numbers and I Enjoyed that. I learned about accounting in high school with a, with a crush on a teacher. So, okay, let me take her class. And that's when I learned about accounting. And then once I didn't work out the teacher for obvious reasons, but, once I got to college, I realized this need to be an issue, this taxes things need to be issue for a lot of people.
[02:57.0]
So really just kind of like lean more into that of, okay, maybe back and find a way to help some folks save, some money on the, on the tax piece of it and then start to kind of evolve into the consulting and aspect of it and tying that into investments as well so people can actually build cash flow, and then save on taxes on the back end.
[03:19.6]
So as a tax strategist, because it's forever changing, what are some of the things that you do to stay on top of all the crazy stuff coming out of D.C. but there's the bare minimum of CPAs that we got to do our 40 hours of CPE continuing education per year.
[03:35.7]
But also the reason why I go to mastermind events and different networking events is that so I can meet potential clients where they are and kind of learn more about their, what type of investments and ventures that they're getting into different businesses.
[03:52.8]
So that when I come back home and actually kind of like tied it into different to what the tax code is, as well as trying to get people to do, I can kind of align that with the actual tax code itself. So it's the direct education of the tax code and what areas I'm interested in.
[04:10.1]
Because it's 70 plus thousand places pages. I don't care to read 70 plus thousand, pages. So it's like, hey, what niche should I kind of drill into? Where are the people that I'm looking to serve? And then can I merge those two worlds together? Oh, that's brilliant.
[04:26.8]
So what you do is, and let me understand if I heard this correctly, you go to events with potential clients or where potential clients are located, and then you find out what their issues are and then solve their issues for them as opposed to guessing what their issues are. You're doing some real world, data.
[04:45.9]
What's what I'm looking for real world reconnaissance. And you decide you find. Okay, they want to know X, Y and Z. I know X, I know Y. Let me bone up on Z. And then you jump into the 200 pages of the 70,000, whatever it is. Exactly. That's a great way to break it down. That's brilliant.
[05:04.4]
I Love that. So how did you get into actually let me back up. What are some of the masterminds that you've been to some of the events. I guess you and I have been knowing Dan Zaki for a while. It all started really more so in the multi family like so that's been five, six, seven years ago that I started kind of going to different multi family mastermind events.
[05:32.1]
Some still around, some are not depending on who the guru was at the time. So then, and then I said kind of, kind of scratching the surface itself because I always been big on scales of economy. So the aspect of getting into multi family was always big for me.
[05:49.7]
Important for me as well. But then it started to get more into the real estate development space masterminds, especially with the single family housing and the, the lack of attainable home ownership opportunity for the middle class and how to address that.
[06:04.7]
So I kind of tied it into like personal life missions that I'm on as well as well as the tax piece of it. Then also with the, with the mortgage notes side as well. And actually connect with more just private lenders, in that space.
[06:20.7]
People who actually like buy and sell mortgages as well And kind of once again just things that interest me in the sense of building cash flow. But then also like hey there is some tax strategy. I can kind of help people with that as well. Well yeah, I know you talked about mortgage notes.
[06:36.3]
I know Dan Zytovsky is well known in that space to say the least. And he's not a guru who's going to disappear next year. I think he's been around since the dinosaurs, the Earth because he's old as dirt and I'm hoping he hears this.
[06:51.6]
I was going to say let's see if he listens to this. And I know. Was it noteworthy? Ben Fredericks as well is a person who's big in the space. He actually owns that that conference and he has people go to it.
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So yeah, a lot of people in the space. So have you purchased any notes or sold any notes? Yeah, so I, and the funny thing about it, I tell people I, I started investing a decade ago. If I would have known about no investing then I would have just started with that and not going to rental, rental properties at all.
[07:27.1]
I say I, I, I, I still have rental properties but the aspect of just, just owning the paper just blew my mind. Just, just, it kind of just shows like you, you can never stop Learning and depends on who you, how you, who you surround yourself with, what you can actually learn along the way.
[07:43.7]
So once I started learning about it three years ago, we've been in and out of 12. Yeah, 1212 notes. We currently still have eight of them still active at this point. One that we're dealing with a foreclosure. But that comes with the territory.
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So happy to be still involved with all of them at this point. So let me ask, are you buying consumer notes or just commercial notes for businesses? Consumer residential notes.
[08:15.8]
Oh, that's gotta be a challenge. That's gotta be a challenge. I know that Zach and I in our day job have a private lending company and we lend our capital as well as that of some friends, family and a community that we've created of like minded individuals. And our notes are only business to business because the idea of dealing with consumers.
[08:36.3]
My first two businesses were consumer facing. The first one wasn't bad. That was medical alert systems. That was easy. My second one being a construction company being consumer facing. I'll never do that again. I swear my head would explode. Anytime I hear people that say, and I say this with respect, people who have tenants and they have to deal with tenants toilets and termites.
[08:59.3]
I'm like well you are a much better person than I am because if you call me at 2 o' clock in the morning you say your toilet's overflowing. First of all, I'm not going to answer the phone. And if I happen to answer the phone I'm going to say call a plumber. You stuff the toilet.
[09:14.4]
I can rent you the place with it stuffed. And I understand that that's not very good for customer service. So I have no patience for front facing anymore at all. And I just don't do it. I give you a lot of credit. You're amazing. Yeah. And a note is just a stack of paper.
[09:31.5]
I've never had a stack of paper call me at 2 in the morning. Yeah, I guess the concern is like on the, on the residential piece of, is like hey. And that's why I enjoy it more because we don't get those calls. And I don't miss getting those calls.
[09:47.6]
Now that we have a system with our actual rental properties and a good team in place was okay. I am, I am not the one to be front facing top and topping the tenants. I, I'm gladly pay somebody else to do that. So let me ask, do you have in house property management or do you hire somebody As a vendor to do that so on.
[10:11.7]
So we have short term rentals, so that's all in house. For our midterm and long term rentals, we do work with a property management company for those. And then for our mortgages we do work with really just two loan servicing companies, that's outsourced at this point right now.
[10:31.7]
How is your luck been with loan servicing companies? The reason I ask is because Zach and I do it all in house for the experience of the borrower. And we find that a faster turnaround. You know, when somebody wants a draw, we can, you know, for a rehab draw we, we've been known to send it within a couple of hours.
[10:49.7]
We guarantee 48 hours, but we send in a couple hours. So my question is, how difficult was it to find a outside loan servicer? The communities are great and I think the aspect of the type of note servicing that you are doing, the ones that we use is different where a sense of like, yeah, you're producing draws and all of that.
[11:11.1]
We're like, we're actually buying the mortgage of somebody's home and then we basically replacing the bank at, at that point. So so it's like the, the referrals have been great and is kind of. I just at least get five people to say that, yeah, they'll go with this particular company.
[11:29.9]
So that. And then I'm, I'm kind of like you. Like I want to be hands on, involved. So I, I'm basically. I'm paying you all to do it, but like I want to know what's going on as well, Justin, just to get the experience of it, to know like what exactly what I'm paying for. Yeah.
[11:47.3]
But overall like I said, the connections that we've been having and the communications have been great. Like I said, it's just more so just dealing with every so often someone's not keeping up with their mortgage and having to do the communications of like, hey, we don't want to send the foreclosure. What can we do to get this resolved?
[12:03.5]
So tell me, you're a property management company. How did you find them? Because I understand that that's a challenge as well. So that was because we were managing properties ourselves, not these.
[12:19.9]
And I said with my partner, Terry on Conyers, who's also also a class A contractor. So we was kind of doing stuff ourselves and then still trying to build the relationships of like, who to actually work with. But then once again you can't get the referrals.
[12:37.7]
You try to do the, the short term, agreements like hey, let's say that this goes for, for 90 days, 120 days, see if it's going to work out. And then like I said, this is all kind of like throughout.
[12:53.0]
And then things got kind of flaky with, with our property management companies like throughout, covet, just like no one knew what to do during that when people just getting empowered to just not pay rent, with all the COVID money that was being pushed out there.
[13:13.1]
So that, that put some strings on relationships that we did have. So as we kind of started like scaling back on the actual tangible rental property aspect of it and then bringing some trusted folks in house to kind of handle this, this short term rental change, that we were kind of working towards at, at that point.
[13:35.3]
So now like I said, the, the, the, the few midterm long term rentals that we have. Like I said, like I said, we, we kind of reestablished some relationships some through tax clients of mine. It was like hey, they couldn't do it but they actually work with someone else.
[13:51.5]
So I'm kind of vetting them through other property managers which is kind of a, a good piece about the tax business because it's niche in real estate. So I'm always asking clients, especially my local ones, who y' all working with because I may need one for, for whatever they're doing at that point.
[14:10.1]
Gotcha. Okay, so I hear, I understand. I can see here on your bio that you do cost segregation. Can you kind of explain that for our audience for people who may not know what cost seg is? Oh man. Wish I had my Big Mac slide. It's a presentation I do a lot.
[14:27.0]
If you see the slide, it makes so much sense. And both of y' all see me, I'm a pretty big guy. So I had a few Big Macs in my life. So.
[14:40.7]
To really scale it back to understand cost segregation, you need to know depreciation. The government allows the property owners of investments, not residential homes to recoup the cost of their building over a certain period of time.
[14:56.3]
We're talking about residential 27 and a half years, commercial properties 39 years. So you get this non cash deduction on your tax return year after year because you're recouping that cost of the building value. Not the land, just the building value.
[15:12.7]
All right, so kind of back to the Big Mac analogy here. So you have this Big Mac which is basically your property that's being depreciated in one big number. But you remember the Big Mac song, either one of you remember Slices, cheese, pickles, onion, spc.
[15:33.2]
There you go. This is a great interview. Do you want me to sing the theme, to the Brady Bunch? We'll get to that later. So you have these different components of whether it's your Big Mac or your building, all depreciating at the same rate.
[15:55.2]
However, they're not all the same type of property. But we don't know the value of the individual components of the property itself because the seller had no reason to break it down for you. Like, like why would they.
[16:10.5]
So the cost segregation study, which is an engineering report, takes your property, takes your Big Mac and breaks it up into different and different components. So some's going to be five year property that could be your, your your pickles and your onions.
[16:26.6]
Some could be 15 year property that could be your lesbian tomatoes and some still going to be your, your long term 27, 27 year property. Your, your burger and your bun. So think about your roof, your foundation, that's your lawn. Like you have to, like you can't, that's going to be 27 half your properties, no questions asked.
[16:45.7]
But if you have a fence, you have a porch, a deck, that's going to be More so your 15 year property for the IRS. So your internal property. So, so you have your, your internal property inside the house. You may have LVP flooring, certain light fixtures, appliances, that's your five year property.
[17:08.4]
Anything depreciates that less than 20 years qualifies for the 100 bonus appreciation that people are talk constantly talking about now. But you can't get to that point unless you get the cost segregation study done on the property to break those components up to different, different compartments and applies a value to them per the purchase price, that probably was sold for so long about.
[17:35.6]
Long about. Way to kind of explain the cost study and how it actually kind of ties into depreciation and creates those larger deductions, in year one or whatever year that you want to apply the cost to the property. Gotcha.
[17:51.3]
So let me ask this. When a cost segregation is done and let's say you have a five year hold on the property, is there a recapture of the tax that you saved? Yes. So anytime you claim depreciation, whether it's, if you did a call seg or not you have to recapture the depreciation, which basically means you're going to be taxed, on it somewhere in the 25% range.
[18:17.7]
So that's when you hear about 1031 exchanges or Delaware statutory trusts and stuff like that, ways to just, or opportunity zones to kind of roll the gains into another asset. Because that's really what the ir, they, they allow these type of benefits up front because they want you to do one or two things.
[18:37.7]
They want you to sell it and they can tax you then and tax you harshly with the recapture. Or you're going to keep it and renovate it, I say, or, or, and keep the, and keep the money circulating the economy because you're spending money to keep the property updated, to keep it rented out.
[18:55.6]
So that's the aspect of if you're going to sell or you're part of a fund or syndication that is holding rental properties, then you happen to kind of plan out, okay, they may exit out here and sell the property.
[19:11.4]
And I need to roll these funds to another investment, and go from there. So let me ask this. My understanding is, and my understanding from people who are not syndicators is that you can only take the deduction if you are a real estate professional in terms of the IRS definition.
[19:36.3]
But if I speak to syndicators, they say that is not true. Can you tell me, as a non real estate professional in terms of the IRS definition, can I take these deductions? So here's the thing.
[19:53.2]
Me and my partner are, I want to write a case study between him and I, because we own multiple properties together. I apply these strategies knowing that he can benefit from them and I can't. Why is that? He's a real estate professional. He's a general contractor, class A.
[20:09.5]
He spends all his time in a real property trader business and he's actively involved with our properties. I may own the same properties, but I'm not considered a real estate professional primarily because even though the tax business is niched in real estate is not a real property trader business.
[20:29.1]
I'm just dealing with the numbers and really the paper at that point. So even though you have two people own the same property, one cannot claim the losses directly because me, because I am not a real estate professional. Now I say directly because there could be indirect ways that I can claim those losses.
[20:48.2]
If I had other passive investments that I, that I, that I created gains from, whether from a net pot like net net positive income or just capital gains, I can, I can offset Those losses against, or I, or just I just kind of just.
[21:06.0]
Or I just kind of built up these losses all this time, or my income drops below a hundred thousand dollars, I'm allowed of the losses. So as with most cases, and we're all married, so it's like, okay, you got the husband side, you got the wife side. The truth is somewhere in the middle. So you got the syndicator, you got the non syndicator.
[21:23.5]
The truth is in the middle. Like, and I hate to say it depends. It depends on the individual situation of that, of that, of that non syndicator or that limited partner LP per se. So if they get these losses, what do they have else in a tax return that could eat up those losses?
[21:39.9]
If they're not real estate professional, or could they claim real estate professional status or could a spouse claim real estate professional status so they can use those losses? Okay, what I think I heard you say is that for a non real estate professional active income, you cannot use it against that, but you can use it against, capital gains.
[22:00.1]
Is that correct? Correct. Interesting. So it is still usable. It just depends on what their tax situation happens to be. So let me ask this because I want to know for myself. For what you cannot use, can you hang on to it for the future or is there a time period in which to use it?
[22:20.3]
Yeah, so the losses carry over for at least like 20 years or something like that. But as you have years where there are other passive income or passive gains that come in, it slowly pulls off of ease up those gains along the way.
[22:37.0]
So it's slowly dwindles on years where you have those gains come in. But it does carry over, as I tell people, the most important for a real estate investor, the second most important form on their personal tax return is Form 8582.
[22:52.5]
That is what's tracking all of your passive losses. And if you're not aware of that and you're not and it's not being tracked, especially if you switch CPAs and they don't get it, you may have lost those losses because no one's still tracking that. You have to keep track of that, honestly yourself and your.
[23:10.4]
And whoever, whoever's doing your taxes as well. And what form is that again, please? Did you say 1085. 85 82. Well, I wasn't even close. Okay. Probably my southern draw. So my apologies. No, no, no.
[23:26.5]
All right, so form 8582. So that's a good way to golden handcuff A tax client, they can't leave because you won't give them their 8582. Just kidding. It's funny because. It's funny because I tell people like if someone requests that form in their depreciation schedule from their tax person, the tax person is probably somewhat thinking this person's going to leave me because most time people aren't as funny.
[23:54.6]
That's your red flag that they're going to leave. Okay, just tell me what leave. Like I'll give you the forms. I got one question on here. So because I hear all the time, I see people on Facebook that oh, if you're a dentist and you make 500,000 a year in your practice buy, invest in my syndication and you can offset all your income from your, from your dentist job.
[24:16.4]
That is by and large not true unless your wife's a real estate professional. We're not putting, put that aside. That can't really happen unless they're married to someone who doesn't work. They can claim real estate professional status. This or the, the syndication is a oil and gas syndication because that's a.
[24:39.1]
I tell people like if you want to know what the government cares about people moving money into, just watch like what the tax centers are. Sure. Oil and gas has been around for that tax benefit, has been around forever where it's like you can just put money into this, the, the oil and gas fund of syndication Basel's equipment, cr.
[24:57.5]
These losses, they pass you a K1 it's called working interest. So you're able to use these losses and you're, you're not, you're not looking at the, like the oil, gas equipment, you're not drilling any holes. You're not actively involved at all. Like you are a true passive investor.
[25:13.5]
But the government knows the country runs on that. So they want people moving money into that arena and they'll allow you to use those, the use of losses. But when it comes to tangible real estate, office buildings, apartment building and so forth and so forth is, is, is not as good. It's not.
[25:34.5]
The benefit is not there. Like it's close but it's not, it's not, it's not automatically you're getting those losses per se, but they also assuming with syndicators like because I've been kicked out of out of zooms for calling out indicators. Okay, go on.
[25:50.1]
Yeah but they, but they tend to assume that they're working with high net worth individual, that you're in other investments. So you need My losses to offset your other in passive income. They make, they make that assumption like they. I have many of them tell me that.
[26:05.7]
But that's a terrible assumption because a lot of these limited partners, doctors, whoever, are just starting now. You're there first. Yeah, you can't, you can't, you can't set them up that way because I got explained to them at that point after that, well, to be as diplomatic as I possibly can be, I'm not so sure that it's an oversight on their part.
[26:27.5]
Right. You talked about gurus who weren't around. I think sometimes you get the less scrupulous people, syndicators that know full well. But it's a selling point. And then what they say in the end is, well, I didn't know what your tax situation was. Yeah.
[26:43.8]
And they don't have to even burst the bubble. They don't even have to burst the bubble. Their accountant does. You know, they can sell you on all these losses and stuff, and then a year later you do your taxes and your accountant's like, yeah, you're. No. And it's too late. I burst many bubbles since, the 2017 tax cuts and Jobs act because that's when the live just started for many folks.
[27:08.5]
So it was like, yeah, just, just popping bubbles. That's all. I. Okay, so I gotta ask this of you then, and not to make it a political conversation, because we know that the US Is a hotbed of political conversation right now. So where the government wants your money to go is where you're gonna get your benefits.
[27:29.9]
That is oil and gas and real estate, et cetera. So my question is, where are the members of Congress putting in their money that they get better returns than Warren Buffett? I'm just curious. I mean, that's why a lot of people, like, man, they won't cut that because they use it.
[27:47.8]
And it's like, yeah, they will never cut certain tax benefits. They use it as a, as a way to rally your votes to say, hey, yeah, I'm gonna go after the, the rich and whatever. We're going to cut whatever 10, 31 exchanges and, and get, them pay state estate taxes.
[28:07.7]
But they're the ones that is using these tax benefits as well. So they don't really, like, they don't have an incentive to, to cut it. They have an incentive to use it as just talking points to, to generate votes.
[28:23.7]
But it's, it's, it's always something that's on the cutting board, certain tax benefits. But then it's always removed at the end. And they can always point to the other side and say, like, like. Like it was up there. Blame the other guy. But they didn't vote for it to get it fully cut anyway.
[28:39.3]
Well, that's from the tax side. What I'm asking is how the hell Nancy Pelosi could make $100,000 a year and be worth $60 million. Oh, man. Okay, guys, editor, you can cut this out. They totally missed the humor in there. Let's move on now.
[29:02.3]
So It'd be worth $30 million, and she has a winery. It's just not possible because the winery isn't there. Right. All right, well, also, keep in mind, I know you didn't want to dive into it, but a lot of these politicians, like, are able to get into these different investments and deals based off the weight of their name and where they.
[29:22.5]
How high, up they were. So that opens the door for them to get into these investments that they would not have been able to get into before without that political title next to their name. So, like, say it's like. It's almost like just getting into the right room, but you have to be of a certain stature.
[29:40.5]
Now, I'm not saying that that particular group paid into their. To their campaign. I'm not saying that never. That never happens.
[29:54.0]
But, like, it's. I can't say. I can't say that. But I can't be naive fully and say you would not have been got. You would not have gotten that investment if you wasn't XYZ President or XYZ congressperson. Like, it's naive to truly think that at all.
[30:12.8]
And I think that applies to both sides of the aisle. Okay, now we'll get back on track.
[30:21.7]
Tell me about an accredited investor. Can you tell our audience what an accredited investor is and how one can become accredited investor, what the requirements are? Yeah, so for SEC regulations, if, if you are single and you're generating at least $250,000 of income annually, or 300k if you.
[30:44.2]
If you're married, you're considered accredited investor. Separate from that, if you're. If your net worth not including your primary residence is a million dollars, you're now considered a credit investor. As well.
[31:01.0]
There are certain tests as well. I can never remember the codes and stuff that you can. That you can try to test and apply for to be. To be considered accredited investor. But more often than not, it's really based on either you pass the net income or your income test.
[31:20.1]
Or your net worth. Test. I think there may be some potential changes, to that happening down the road. I haven't, I got to get the updates on that. But, but those are, those are the main two qualifications, for real estate professional.
[31:36.2]
I mean, I'm sorry, for, accredited investor. Okay. Yeah. I had heard some talk and I've heard it various, times throughout the years that they're talking about increasing the, the standard in terms of net worth.
[31:51.9]
Because what's very interesting is, and I love when real estate people say this in order to market to people, they say, more millionaires have been made in real estate than any other profession or any other investment.
[32:08.5]
Well, let's dig down into that. How much of it was from investing and how much was it? Because when you bought your house it was worth X. You didn't move for 40 years and now it's worth. Yeah. So that you are cash poor, you're property rich and you can't do anything with it.
[32:24.0]
You're handcuffed. So I always find that to be an interesting thing and that's my understanding of why. One of the reasons that they're going to, they're talking about increasing it. Yeah. And I believe they set those numbers back in the 80s and they haven't touched them.
[32:40.1]
So with inflation, a million dollar net worth back then is very different than a million dollar net worth today. Just a little bit. Yeah, exactly. Larry, tell me about fractional CFO services. What does that involve? So think of it of like a pocket cfo.
[32:59.5]
Like you don't have the person full time, per se. But like, hey, I need a business valuation done, I need to get a pro forma done. You may be doing your own bookkeeping or have a bookkeeper or just may need someone to kind of oversee all of that.
[33:18.2]
That's really what your fractional CFO is. Like. You're, you basically have a part time, probably a partial time cfo, that you can, that you can call reference to, to address anything that's going on with your business and your investments. Awesome.
[33:34.1]
Zach, you got any questions, bud? Yeah, but going on that fractional cfo, like when, when does. Do you think it makes sense for people in business to hire one? I mean really, because it's easy. I said it kind of ties back into the accredited investor, really more so on the, on the income side, whereas, okay, if you're generating that amount of income from your business, that's where it most likely makes sense.
[34:01.6]
Because one, you have the cash flow coming in to, to, to afford one and not it be a strain onto your business. If you're just starting out and like you may not need a, that, that part time fractional cfo. You may just need someone I can just kind of call a couple of times a year to kind of oversee stuff.
[34:21.7]
So so that aspect of if, if, if trying to be the financial expert in your business is, is getting in the way of you growing your business while you're still profitable. You can't get to, you can't get from 1 million to 5 million.
[34:39.3]
Because you're, you're stuck with doing everything yourself. Like that's when it's time to kind of invest into into that fractional CFO to take that one thing off your plate so you can focus on growing, growing into the next level of your business. Okay.
[34:54.6]
Yeah, you find yourself getting bottlenecked down in, in your, in your books too much. And yeah, especially if you're profitable because you can get bottled down and not be profitable. Was like okay, you may just need, may just need help like, like just some basic bookkeeping to get everything in order.
[35:12.7]
Because you don't want, you want to make sure that it's actually bringing value in the sense of building cash flow or creating more time, creating more time for yourself. If it's not doing either one of those things then like I said, it's not, it's not really worth it at that point. Yeah.
[35:28.4]
So switching gears a little bit back to yourself and the type of investing you do. You mentioned notes and different types of real estate. Do you see yourself, yourself shifting focus into one category over the other over the next few years or has it been pretty stable or what are you like what types of real estate I guess are you looking at?
[35:46.9]
What gets me excited is I do have a passion of bringing the, the American dream of homeownership back to the middle class. So, so the aspect of there's so many people in the apartment space and then there's so many people in the low income space.
[36:05.8]
But like once again the middle is being, is being missed and not being served to at this point. So I definitely want to focus a lot of our real estate stuff on that piece there. Whether it's new construction of single family homes, or just acquiring homes.
[36:25.3]
And, and we're not so much of flipping. Well I guess it'd be still flipping per se, but I prefer the, the, the, the new construction. Especially being an accountant, I have Less variables to deal with at that point. But that's more so on like the, like that's the money generator, but the actual like the, the cash flow, the wealth piece and is more so in the lending space.
[36:50.7]
Let's say we're into the acquiring mortgage notes now. Definitely like to get to y' all level of the, of the private lending on the, on the hard money side as well to B2B. I'm lending but I, I, I, I want, I want to build that piece of the business as well.
[37:09.4]
To constantly still like I said, create those cash flow avenues there. So with, you know, you said bringing home ownership to the middle class, which I think is awesome, through new construction. How, what exactly does that mean? So it's understanding.
[37:24.9]
And I serve on the planning commission, for the city of Norfolk. So I have this weird connection of I know what the city's trying to accomplish. I know what developers are trying to accomplish because I'm one of them. I know when investors are trying to accomplish because I'm one of them and they're my clients.
[37:42.6]
But I also get to hear what the public wants, as well. And we all know what the banks want. So once you understand the who all the main stakeholders are, I didn't just work backwards. Okay. I got focus on, okay, who's the end buyer here.
[37:57.8]
And then how do I navigate through all the stakeholders to make sure everyone wins? In, in the grand, in the grand scheme of things. So in the sense of, from the city perspective, like hey, you all want tax revenue.
[38:15.9]
Got you. All right. But you're not going to sit here and talk about selling, selling property, selling city owned property at the highest price, collect tax revenue off of it and then go on camera. So you care about affordable housing.
[38:32.2]
Those three things don't make sense to me. Maybe, maybe it's just me, but those three things don't make sense. So that aspect of we can get the prices down no different than any other cost was like, okay, if we can, we can reduce our cost there, we can reduce the end price.
[38:49.9]
At that point the communities want more homeowners around them. They don't want more apartments around them. They want pride of ownership. So we can address that, we can still address the return on investments, for investors because we're not really, or reducing their return on investment.
[39:07.8]
We're reducing how much they have to invest into the deal, depending upon if the person is asking for acquisition costs or what, or whatever, at that point. So and now the banks now have a new lending or a new borrower in the market.
[39:23.5]
Now, for, because the average home price where we are for a a three, three two home at 16, to 1800 square feet is between 300 and 330,000. We can, we can get that down to between 250, 275 if the cities.
[39:45.2]
I said as they're working with the cities, understanding the construction costs, tap fees and all that stuff and then pricing it and still hit the same exact profit margins as if we sold it at 300, 330. In my mind that's how I try to calculate the.
[40:02.5]
Okay, here's what the error mean. My income is. Okay, they can afford that amount. They can afford X amount without it being 40 of their monthly intake. Their, their mortgage payment being 40, their monthly intake. All right, can we get to that price point?
[40:19.7]
Here's what we need changed on the, on for the, for the other, for the other stakeholders and mainly it's just the government, the cities at that point. Okay, so you're still trying to build that 32 house that people want. You're not trying to like, you know, you can save money by building two ones that are 900 square feet, but that's not really what people want.
[40:41.3]
Is that what you're finding? Yes, I think people still, I mean people want the, the, the, the 2000-2500 square foot starter home like that. Those days are over. So there, there is like what's realistic expectations.
[40:58.2]
We're like, okay, I know what, whether we're at between 130 to $150 per square foot to get this home built. All right, there may be some variables in there, but we're pretty locked into what that cost is going to be. Can we then do something with these other costs?
[41:16.8]
Knowing especially let's say my calls go back to the city because at the end of the day they are still going to tax that house based on the assessed value compared to all the other homes in their area. So you're able to still kind of one, they lose the sales income, but they get the social equity, which was a lot of politicians want anyways, the social, the social equity, because I don't need to be in camera to boast my chest about it, but I'm glad that they give it to the mayor, the council member to bolster, to say this is what they brought to the city, at that point, but we can still provide that same home just at 2030% less than market value.
[42:01.7]
That's fantastic. Trying to keep, the middle class homes, not the entry level, but taking care of the middle class. That's awesome. And keep the three twos. So we're going to kind of round, we're going to kind of wind this up now.
[42:17.6]
So I wanted to ask you because I see it on here that apparently you're a best selling author and I didn't know that. Can you tell us a little bit about the book? Oh, I didn't realize that. Yes. So yeah, it's the leaders playbook, part of the C Suite, network. And they got a lot of different members in the, in the Heroes Club to kind of jump in and collaborate to create the book of like, like what did that mean to be a, what they call a hero leader, where we put people, over profits.
[42:51.1]
Kind of ties back into the whole housing thing that we were just, we were just talking about there. So grateful the opportunity to. There were some great, great people across the country, to, to put that book together. So it was a Amazon bestseller for a bit. So like got a little notch in my hat for that.
[43:10.0]
Good for you. That's awesome. So Larry, if somebody, and we'll put this in the show notes for everybody, if somebody wants to get a hold of you about either your tax services, your CFO services, your cost segregation and maybe even talk to you about this development where you're trying to do it cost effectively in terms of housing.
[43:30.8]
How do they get ahold of you? What's the best way? Yeah, they can go to the investorcpa.com and they can check out just different things that we got going on as well as booking calls. My email and my number, is up there as well.
[43:47.0]
Or email to. My team is up there as well. So grateful to kind of connect with whoever want to reach out and see where we can grow from there. Awesome. Fantastic. Larry, it's been a pleasure having you on. Looking forward to being on the cruise with you again in March. Yes, sure.
[44:04.7]
Yeah, it's going to be a blast. All right, man. Really appreciate your time. Thank you so much for taking the time out of. I'm sure it's a busy schedule to spend a little time with us and educate our audience. Thanks for having me. Y' all take care. Absolutely.