Need to know how to estimate rehab costs, even if you’re investing out of state? For most investors, it seems almost impossible to do a full-scale renovation while living hundreds, or thousands, of miles away. But, many time-tested investors have done it (including Tony), and you can too, but you’ll need to know who to go to and what to ask before you start. Or, you could bite off way more than you can chew, and risk losing your rental as a result.
Happy Saturday, rookies! We’re back with another Rookie Reply, where your snowed-in on her birthday host, Ashley Kehr, and Tony J. Robinson are here to answer questions directly from the Real Estate Rookie Facebook Group and the Rookie Request Line. In this episode, Ashley and Tony share their best tips on estimating rehab costs, how to structure a partnership when someone brings money and the other brings effort, separating your rental property finances, and how to find a rock-solid CPA before tax time!
If you want Ashley and Tony to answer a real estate question, you can post in the Real Estate Rookie Facebook Group! Or, call us at the Rookie Request Line (1-888-5-ROOKIE).
Ashley:This is Real Estate Rookie episode 244.
Tony:If your partner is just bringing the capital, if all they’re doing is bringing the capital and you are doing literally everything else, you’re sourcing the deal, you’re managing the rehab, or doing the work yourself, managing the tenants long-term, finding those tenants, maybe you deserve more than 50%, but it’s all going to depend on how much work is moving into that deal.
Ashley:My name is Ashley Kehr, and I’m here with my co-host, Tony Robinson.
Tony:And welcome to the Real Estate Rookie Podcast where twice a week we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And I want to start today’s episode by shouting out someone who’d love to see five star review on Apple Podcast. They go by the username Real-A States. So I like the name, but they say, “Thank you guys so much for the info and for the inspiration. This is definitely the best and most engaging/addictive podcast that has helped change my mindset and my path towards financial freedom.” We appreciate you username Real-A States, and if you haven’t yet left us an honest rating review on Apple Podcast or Spotify, please do. The more reviews we get, the more folks are able to help and helping people is our goal.So Ashley Kehr, I got to start by saying a very happy belated birthday to you. You turned another year older and wiser this past week and I hope you enjoyed yourself. I know you were a little under the weather, but hopefully you still got to enjoy yourself a little bit.
Ashley:Yeah, I was. So I didn’t really do much. So I stayed in my celebration for the weekend. We had a huge snowstorm hit Buffalo, where 10 minutes from me, they got 80 inches. We were lucky we didn’t get quite that much, but there was the Bills game this weekend, which was supposed to be a home game and it got pounded the snow and there’s just nowhere to put any of the snow to clear it out of the stadium or the parking lots for all the tailgaters. So I ended up packing up my Wagoneer with seven people and we drove out to Detroit Saturday, spent the night and then Sunday went to the Bills game in Detroit where it was moved and that was a lot of fun. The best part about it, I think is we got club seats for $30 each. When is that ever going to happen again?So that was considered my birthday celebration I guess. So that was fun. Something spontaneous and if you guys follow me on Instagram and listen to the podcast for a while that my why is so that I can be spontaneous and I got to take my middle child to his first Bills game. So he loved it and it was just a great experience overall.
Tony:That’s awesome. Well, I’m glad you enjoyed yourself and I’m glad you’re feeling better.
Ashley:Thank you. And to Tony, happy anniversary, your wedding anniversary, it was yesterday.
Tony:Thank you. Yeah, it’s been crazy. Sarah and I have been dating for 14 years. We’ve been married for two and it’s crazy to think now literally almost half of my life we’ve been together. So it’s been a great journey together. So we’re grateful and we’re excited for what’s coming next.
Ashley:I saw on her Instagram story, so for those of you that don’t know that want to do some digging one night when you can’t sleep. Tony has a music video out on YouTube and so Sarah had told us before how she had gone and she would stand with Tony and pass out CDs. So this already shows you how much of a hustler Tony was, even at a young age when he was a teenager passing out his mixtapes. And Sarah would go with him and she showed a story and saying that all those years of passing out mixtapes paid off because she finally has a sugar daddy and showed the video of the store of Tony taking her out shopping. So I just thought that was so awesome and true.
Tony:Yeah, she deserved every minute of it. Hang up with me on my crazy ideas.
Ashley:Yeah. Well, today we are going to be going over four rookie reply questions. The first one is going to talk about your reserves and how you actually track your reserves. Should you just keep them in one bank account? Should you have separate bank accounts? The next question is about investing in a burr and estimating the rehab cost. So how, especially if you’re investing out of state, you can’t even be physically in the property. How are people figuring out how much a rehab will cost before they put in their offer? Our next question is talking about structuring a deal with partners. Tony and I always love the partnership questions, so we’ll go into what our thoughts are on partnership and putting 50% of the money from each partner into the deal.And then lastly, it’s about that time everybody should be meeting with their CPAs to do their tax planning if you haven’t already, and how to screen a CPA. So we go through some tactics and questions that you can actually ask somebody when you’re trying to find a real estate specific tax advisor.Okay. Tony, our first question today comes from Cameron Burnett in regards to organizing and separating finances from rental units i.e. vacancy expenses, capital X savings and the money received from rent. Do you guys recommend setting up a separate checking saving account for those things, or what is the best method you have found? Also in regards to repairs, do you use a separate credit card? Is that what you use for day-to-day? Thanks.Okay, so the first thing I think of is it’s going to be on what is going to work best for you. And I put this in a personal finance perspective. If you have always been somebody that can easily save money, you’re not racking up credit cards, you could have a lot of money in your bank account and you are not just going and spending it because you have it, keep that money just in one checking account. There’s no need to actually separate it. But if you are someone that has money in account and you have a very hard time not spending that money or thinking it’s available and you need that out of sight, out of mind money, then go ahead and put that into a separate savings account.I have seen where people even put it into a separate account for vacancy, a separate checking account for capital expenditures, maybe another one for repairs of maintenance, all these different savings account that they have. And you also see this very common in the personal finance community when people are budgeting where maybe they’ll have their Dave Ramsey envelopes where, okay, this month these are how much money I have to spend for each of these things. You could also do that for your properties if you think that will give you a better overall picture of what your finances look for the property and help you save and figure out what you can take as cash flow for yourself by separating those things out.Or you can just simply create an Excel spreadsheet and say, “Okay. I have $5,000 in this bank account, 2000 of that is something I’m saving for capital expenditures. A thousand of that is, I’m saving in case there is a vacancy. And the rest of that maybe is cash flow or your three to six month savings for your mortgage in case it does become vacant.” So I think it really depends on what will help you the best and which will help you stay more diligent in not spending that money.
Tony:Yeah. I think that last statement Ashley is perfect. It’s about what is the system that works best for you? And in my personal finance life, I don’t do this as much anymore. When I was working my W2 job, I had 24 separate checking accounts. So when I got paid, my direct deposit would get dispersed between all these different accounts. It was like my car payments, my mortgage, my insurance costs, my groceries, my clothing expense. I had a different checking account for every major spinning category. And for me that was an easy way for me to budget my money without having to put too much thought into it.And even in our real estate business, we have not to that extent, but we have a separate account for taxes. Every property has its own reserves account. And then we use our operating expense accounts to cover things like vacancy and the short-term rental space need to repairs and maintenance. So I do like to separate it out just so that there is some not to touch that money. If you want to go buy a new bed frame or you want to buy a new appliance or whatever it is that you’re not dipping into the money that needs to be set aside for something else. So I do like the idea of separating those things out.
Ashley:In regards to that, don’t be super strict on, “You know what? I need money to buy a new HVAC, but I don’t have enough in my capital expenditures account.” Sometimes you will have to take money that you’re saving for your rainy day fund or that you are saving for to cover vacancies, things like that, you will have to pull money. So if you do have the money all in one account might have to use a large chunk of that for one thing and then rebuild it with cashflow over the next couple months. So even if it is separated, there may become a time where you have an expense or you need to cover a mortgage payment where you’ll need to draw from several of those accounts.So it’s not what each individual thing is you’re saving for. What matters is the amount or the total dollar amount that you have, saving that percentage that you’re saving for in. We like to recommend three to six months, definitely more towards the six month side, especially as you’re first getting started. And then as you’re building your portfolio, you can decrease that because you have built up this large chunk of money as your reserves that the chances of every single property needing a new roof most likely is not going to happen. So just think about that too when you’re making your decision. And also, who’s keeping track of all this, do you have time to actually track all these different individual accounts too?
Tony:So the second part of that question is do you use a separate credit card for your day-to-day expenses? So we do have one general business credit card that we use for a lot of things, but then we use the property specific account to pay off that credit card. So I’ll usually go in a couple times a week and say, “Okay. I’ll order new charges we built against the credit card,” and then I’ll say, “Okay. For this property, this is for that property,” and then I’ll make a payment to the credit card from each property specific account. So that’s how we do it and honestly we don’t have to do it that way. I just like to get the points and we spend so much with our business that it will be crazy for us not to do that. But that’s what worked for us. What about you Ash?
Ashley:Yeah, I think the biggest thing is if you have the properties in an LLC or not, you want to make sure that your credit card is in the LLC and that you’re making payments from the LLC account to pay off the credit card. But yeah, I agree with Tony with taking those points, those sign up bonuses have gotten me lots of vacations for sure. So anything and everything I can pay with a credit card, I do and I do keep it separate. And then I have it linked to my QuickBooks. So my QuickBooks is pulling information from… So right now I’m using Chase in Wells Fargo, it’s pulling the statements in the charges from those accounts directly. And then also I can use ScanSnap right in my QuickBooks app and I can take a picture of the receipt and we’ll link to that transaction. You can use this with Tessa too, that we always recommend.So I think having that separate credit card is great just for bookkeeping purposes too. And then you’re not having to go through and actually like separate, okay, this was for a personal expense, this was for the business, this was for this property. And I also have different credit cards for different LLCs too, which make it easier so that this charge I know is for a property in this LLC.
Tony:I love that last point. Literally, I was telling Sarah, my wife this the other day that we need to probably add a couple more credit cards because we have our flips, we have our short-term rentals, we have our events. There’s so many different things we’re spending on, it becomes a bit of a pain trying to pay everything off at the end of the month, which is why I usually go in there honestly, once is a week at least. But the idea of having a different credit card for different parts of your business makes a ton of sense too.
Ashley:And there’s certain times where it comes up like, “I need to buy something at Lowe’s for three different properties that are in different LLCs.” So what we try to do then too is even just do check out three different times so it has those three different receipts instead of like, “We need to go through this receipt and break it down line-by-line.” So that has helped too. And the rare circumstances that happens. So Tony, with the business credit cards and the personal credit cards, there is a difference with them too. So when you get a personal credit card, it’s going to show up on your personal credit report.So for example, I got a 0% interest credit card a couple years ago. Actually opened it in my husband’s name and my debt’s income because he had nothing on his credit at that time. So I did it in his name. So it ended up like we did 0% so that we could do our rehab and put our things on that. Well, it reported that balance to the credit reporting agency. So it showed on his credit report that he had this balance on a credit card, even though it was 0% interest, he still owes that money. So it shows up on that.I think the minimum payment on that was $35. So it’s not really killing his debt of income because of that low monthly payment. But still that’s something to be very cautious of that if you are using a personal credit card, you’re not paying it off if you’re getting that 0% and hopefully if you have anything over a 0% credit card, you are paying it off every single month and so it’s not accruing and putting a balance on your debts income.So there are credit card companies that have a limit, and this is why at the time I have been huge into travel hacking. So it’s called the Chase five where you can only open five Chase credit cards within 24 months, I think it is. So I had already reached that Max getting these signup bonuses to get us this great free vacation in Hawaii. So I opened the other one in his name. So be cautious of those things too, that doing in your personal name, there do become limits as to how many credit cards you can open into your name with certain companies.If you go on the business side and opening your LLC… I have a lot of people ask, should I open a business credit card just to establish credit for my LLC? First of all, I’ve never had anyone ask what my credit is for my LLC. I’ve never run into a situation where that’s been an issue. So I don’t even know a circumstance where somebody would look up my LLC credit. I’ve been able to get a business credit card anytime I’ve opened a new LLC without even showing any income or anything yet. They’ll ask what the annual income is and I’ll put in projected based off of what the rent is coming in currently.So with that, it usually does not report to your personal credit report. There is one company, I can’t think of it offhand if it’s Chase or Capital One, but one of them, if you have a business credit card, it will actually still report to your personal credit showing that you have those accounts too. So that’s just something to play the game with is if you want to go the business route or go the personal route.
Tony:Yeah. We do have a business credit card actually through Capital One, but we very rarely use it just because the limit is so low and honestly the points aren’t as good. We have a Chase Sapphire reserve or preserve, one of the Chase Sapphire cards and I love that one and it’s a personal card, but we only use it for business expenses. So we still get the benefit of it being a business credit card even though it’s not. And then just like you said, Ashley, we pay it off. It never carries a balance from one month to the next. I’m literally going in once a week probably and paying the balance down to zero. So yeah. Anything else on that one?
Ashley:No, I don’t think so. Let’s go on to our next question. So the next question is from John Mazzella. Hey everyone. I am planning on doing a bird from a distance. I’m going to use a realtor chart to find the property and provide the ARV with comps. Remember the ARV is the after repair value. My concern is how can I estimate rehab costs to know how much to offer on a house? I don’t think it makes sense to drag the contractor around with me all day while I look at properties I might not buy. I’m very comfortable running the numbers but missing the piece of estimating the rehabs. Any and all suggestions welcome. Thank you. So Tony, when you’re looking at flips, how are you estimating the rehab?
Tony:Yeah. So John, I mean I can sympathize with your situation. So when I first started investing, I live in Southern California and I started investing in long-term rentals in Louisiana. And just like I was targeting properties that needed rehab and I was struggling with that same thing like, “Oh my God, how do I get to these rehab estimates without me being there? Without me knowing really what things cost?” So there was a few things that I did. Okay. First, I found properties that represented what I wanted that property to look like after the rehab. So I found my own comp. Say, “Hey, once this rehab is complete, here’s what I want it to look like.” And I found a few contractor contacts, mostly through my agent and through my bank. And I said, “Hey, I’m looking at purchasing this property, here are some photos of what I want it to look like post rehab, can you give me a ballpark of what this might cost?”So that was one way of showing them, hey, here are the before photos, here are the after photos. I just need a ballpark on what that might cost me. The second thing I did was I asked them to give me… I said, “Hey, for properties that are similar to this, for projects you’ve recently completed, what was the cost per square foot on those rehabs?” So now I have a ballpark number for this property, but that cost per square foot. Now I have something that I can apply to future projects as well. So if I find another property and I know that it was whatever, how much per square foot, now I can go and apply that to this next property I’m looking at without needing to reach back out to that general contractor.And the third thing I did was I offered to pay them. I said, “Hey, here’s one that I’m serious about. I’ll pay you for your time if you just go and walk this and give me a bid.” Now, honestly, I think I only ended up paying one of those contractors, but the majority of the properties I looked at, the contractor was willing to walk for free just because they wanted to work. They were willing to walk it just as part of their bidding process. So those are three steps that I took. So showing the photos of what I want the ARV to look like and ask them for a ballpark, asking them for price per square foot on their previous jobs that were similar to mine. And then the third was offering to pay them for their time to actually go out there and walk it for me. Give me a rehab estimate.
Ashley:Yeah. I think seeing this is you haven’t even put in an offer yet. So when you put in your offer, even if you don’t have somebody come in and estimate the rehab for you yet and you are not sure, you can build in that inspection period, that due diligence period where you can go ahead and put it under contract and then you have the contractor walk through it. You can let them know, I have this property under contract, my intent is to purchase it and go through with it. I just wanted to know that it makes sense. And then if the numbers don’t make sense, you go back and renegotiate with the seller showing them that you had somebody bid out the property and Tony made a great point about paying somebody, offer them to pay them for their time to go and walk through the property.And this also gives you more of a time period. The market is definitely shifting where the minute they become listed, you’re not having to make an offer. There more of a cushion period now so that you could have somebody walk through the property. But also if you build that in that inspection, that due diligence period into your contract, you’ll have more time to coordinate with the contractor to get them into the property. So you’re planning to in invest long distance, you’re not going to be at the property to really look at it. And I think finding somebody local to go through the property is going to even just be an advantage of itself to even if you’re having to pay them, just so that you get an idea yourself of what the property is looking like, instead of just relying on photos off of the MLS or maybe you even do have a great real estate agent who’s taking video for you, FaceTiming you through the property.The last thing that I would do is, this will be time consuming but if you want to keep investing in this market, and if you want to get a safe and sound investment, you want to do your research and do your homework. So you can also reach out to contractors and ask them, “What do you charge to install a toilet? What is your price per square foot to paint a property? What is your price per square foot to install flooring?” And you can build yourself out a template. And this is what James Denyer does. He gets prices from his contractors and he uses his template to do his estimate. And then that’s how he creates his offer based on these estimates of what his contractors have been charging him.And since this is your first property, or even if it’s only maybe your second or third property, you still may not have a great idea of what rehab cost, but you can go through and you can look up, go to lowes.com, homedepot.com, get an idea of, okay, this is the size of the kitchen, this is how much cabinets would cost for this. This is how much the price per square foot is for a decent luxury vinyl plank flooring. And then you can find out what it costs to install. I mean even Lowes and Home Depot, they do a ton of installation services where they’re actually contracting with a lot of the local vendors to do their installs for them.So you can get an idea of how much that is just by going on their website or calling the pro service desk too at your local hardware store and asking them, “What is your current price right now to have carpet installed, have flooring installed, have cabinets installed, anything like that too? And you can get an idea. I mean, you can get real nitty gritty, watch a YouTube video of how to install a toilet and you can see, okay, you need a wax ring, you need the toilet, you need the hose, all these things that you need. And then you can say, “Okay. I’m going to go on Lowes and I’m going to link each of these items into an Excel spreadsheet and build out your material list.” Okay. You’re going to do tile, you need the tile, you need the grout, you need the mortar, you need the tile spacers, all these different things.And then you have this going forward. So there’s multiple ways of estimating the rehab, but give yourself that buffer, so James Nana. Experienced flipper, I mean I’ve done over 500, maybe even be a thousand homes. He still adds in, I think it’s a 20% rehab buffer for his estimates, for things that maybe change orders, things that you couldn’t see until you ripped open the walls or for changing in material costs, things like that. So always add in that buffer, that percentage too.Before we move on to the next question, Tony, I want to hit on when we head on Celine too, on episode 241, he talked about mistakes he made with contractors too, because it’s not only estimating the rehab, but you’re learning how to deal and manage contractors and sometimes the lowest price isn’t always the best price, or the best quality and the best thing for your…
Ashley:Yeah, the best value. So if you go and listen to his episode, he’ll tell you about a couple mistakes he made and that was episode 241. Okay, our next question is from Jesse Uniraff, how does everyone go about structuring a deal with a partner? Do you both put 50% of the money in for the down payment, even when one is doing the bookwork, brought the deal, et cetera?
Tony:It’s a loaded question. It’s something that I feel like comes up all the time. It’s a great question, Jesse, and I think Ash and I both are super passionate about partnerships because we both use them quite a bit and scaling our current portfolios. First, I’ll say is there’s two types of partnerships. You have debt partnerships, you have equity partnerships. A debt partnership would be more so like a private money lender type situation where that person isn’t retaining any equity in the deal, but they do have a guaranteed repayment of their money at some predetermined period of time. But I think what most people think about when they think about partnerships and probably what you’re leaning towards is an equity partnership, Jesse. And the first thing that we’ll say, and Ashley and I have said this a million times over, is that there is no right or wrong way to structure a partnership on the equity side.Some things to consider though are who is doing the hard work, who’s bringing the labor? If you guys are buying a real estate deal, someone has to source the deals. Someone maybe has to set up transaction coordinating the closing process. Someone once you actually close probably needs to manage that property on a long term basis. Maybe if there’s a rehab, someone needs to manage a rehab or actually do the rehab work. Think about all the different things that need to be done to get this deal completed. And ask yourself, is one person doing this? Are you guys sharing those responsibilities equally? Or is one person doing 75%, the other person doing 25%? So I think the first thing to look at is the sweat equity component, the labor component.And the second piece, and this is what I think most people think about is the capital side. Who’s bringing the money for the down payments and the closing costs? If there are any rehab costs, who’s covering the rehab? I will say that I think most people overvalue the capital, especially newer investors, they overvalue the capital, meaning that just because someone’s bringing the capital doesn’t mean that they deserve 80% of the deal or maybe even 50% depending on what that deal looks like.So I think ultimately, Jesse, you and your partner have to sit down and think about what is the structure that you guys are most happy with? But what I can say is that if your partner is just bringing the capital, if all they’re doing is bringing the capital and you are doing literally everything else. You’re sourcing the deal, you’re managing the rehab, or doing the work yourself, managing the tenants long term, finding those tenants, maybe you deserve more than 50%. But it’s all going to depend on how much work is going into that deal.
Ashley:And I think an important part too is if this is your first deal partnering together, make sure that you are not in a situation where it’s going to be every deal going forward. So date this person, first try out this deal, try out this deal structure. Just because you set in stone this one deal structure for this one property doesn’t mean going forward for the rest of your guys’s life, every deal you do together needs to be that same structure. So think about that too. I love putting a cost or a dollar amount per the activities or the job responsibilities that you’re doing for the business too.So making out a list. You said one of them is going to be doing the bookwork. Okay, put a dollar amount to that and maybe they get paid $100 per month or $25 per month, whatever that is to do the bookwork so that when you do eventually decide, you know what, I don’t want to do the bookwork anymore, I want to outsource this. Well, that’s not fair because we’re both 50/50 owners and I’m still doing all the maintenance, but now you’re not doing the bookwork or the leasing and you’re still getting half the cash flow. So putting that dollar amount to the jobs and responsibilities and getting paid for those. So taking in owner’s off for those things that you’re doing, then splinting the cash flow after that.So in your question, do you both put 50% of the money in for the down payment? That also will depend on how you are purchasing the deal. If you are doing it in your personal names or one personal name, or if you’re doing it with an LLC because if you’re putting it into your personal name, the bank is going to require you to show that you have brought all the funds yourself or they were gifted from a family member. So think about that too, is how were you actually purchasing the property too. And then if you’re doing it into an LLC, it’s a lot easier to gather money from wherever to put it into the actual property into the deal.
Tony:And just the last thing I’ll say on that point too is even if one person brings all the capital, there are different ways to repay that person as well. You could set it up so that person maybe gets a certain percentage of the cash flow every month before you guys split it. Somebody’s like, “Hey, the first 10% of all the cash flow goes to partner A for bringing all the capital, then the remaining 90% we split down the middle.” Or it could be a fixed dollar amount every month to say, “Hey, partner A gets back $100 per month every single month until they’re repaid what they brought to the table, regardless of how much profit is generated.” Or maybe there’s no profit that gets paid out and it’s just when you guys sell the property. So that’s called a capital recapture.So you say, “Hey, when you guys go to sell the property, you guys agree to split everything 50/50, but partner A gets paid back first.” So say you go to sell the house and there’s $100 in equity, but partner A put up $25,000 to purchase that property, that means partner A gets their 25K back first and then the remaining $75,000 could split 50/50 between the two of you guys. So there are different ways to even structure paying that capital partner back outside of just like, “Hey, you get all of the equity in this property.”
Ashley:Okay. So our last question today is from Derek Moore. And remember you guys, if you want to ask question, you can leave a question in the Real Estate Rookie Facebook group and we may pull it to be played onto the show where we answer it for you. So make sure you are a member of the Real Estate Rookie Facebook group.Okay. So Derek’s question is how do you all screen a CPA and determine whether or not they’re familiar with real estate investment taxes? Every CPA I’ve spoken with says, “Yes, I know tax strategies for real estate.” Any good screening questions, you all can recommend anything? I should be on the lookout as a red flag. Lastly, anyone in the Tampa, Florida area know of a good CPA? So love for you guys to, if you’re watching this on YouTube, to comment into the YouTube video in the comments below and let us know if you have a good recommendation of a CPA in Tampa. But I think what the cool thing is that it’s very easy to find a great CPA that can be virtual. They don’t have to be in your location. There’s really no need to have a CPA that is located in your market or near you. You just have to make sure they have that knowledge of your state tax prep. So that’s the only thing.As far as screening a CPA, and actually I was on the Real Estate Ricky Bootcamp call last night and we were talking about this too with Tyler Madame. And our recommendation that we gave when you’re trying to find a good CPA is reading the two textbooks that BiggerPockets has by Amanda Han. So it’s Tax Strategies for the Savvy Real Estate Investor is one, and then the other one is more advanced strategies. Reading those books and taking some notes of those tax strategies. And then using your knowledge, your basic knowledge, no reason to go in depth to ask your CPA about those tax strategies.So I think a very common one is obtaining real estate professional status, even if that’s something you don’t need or you don’t even want, asking if your CPA knows what that is. And you can even put in a question about it, given my situation, what would I have to do to be a real estate tax professional? Wait, is that right? Tax professional? Did I say it right?
Tony:I think it’s just-
Ashley:Yeah. It’s just professional as I said that, yeah. So a real estate to qualify as a real estate professional. And then there’s other things in there can ask them a question about 1031 exchange, things like that. So I think giving yourself basic knowledge by reading one of those books can give you enough to build a questionnaire and make sure the question is tailored. So it’s not a yes or no question. So here’s an example, and this is actually a question I feel like Tony and I have gotten a couple times recently is I own a property with another investor and we want to do a 1031 exchange. Can we keep the property in, or can I just buy the new property and my partner just cash out and not have to be a part of the 1031 exchange? So asking different questions like that and seeing how knowledgeable they actually are.
Tony:Those are great qu questions to ask Ashley. I think the only other thing I would ask too is don’t just ask them like, “Hey, are you familiar with real estate investments, the tax strategy?? Say, “How many real estate investments do you own?” And if they’ve only got one or two, maybe not the best person, or maybe ask them how many of your current X number of clients, what percentage are full-time real estate investors? And if it’s a really low percentage, if maybe like 1%, the other 90% are doctors and lawyers and cops or whatever it is, then maybe that’s not the right person for you.But I want to see from my tax strategists, from CPA as someone who has a heavy concentration in real estate investments. Either because they own a lot themselves or because the majority of their clients are real estate investors also. So I really do think that spending time and places like the BiggerPockets forums or the Real Estate Rookie Facebook group and asking for recommendations from other investors is probably, Derek your best bet of finding a good solid CPA that understands real estate investing and its tax implications.
Ashley:Well you guys, thank you so much for joining us for this week’s Rookie Reply. Keep the awesome questions coming. You can leave your questions on the Real Estate Rookie YouTube channel. You can also leave them in the Real Estate Rookie Facebook group or send a DM to Tony or I, and we may choose them to be played onto the show. You can also always leave us a voicemail at 18885 Rookie. Thank you guys so much for joining us and we’ll be back on Wednesday with a guest.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.