Start a Business

I realize this may sound cliché or even crazy, but the FIRST Step I have learned over my 14 years as an Attorney and CPA, is that if someone REALLY wants to build wealth and save taxes, they need to Start a Small Home Based Business.

Please hear me out for those of you that work a ‘regular job’ and DON’T want a small business.

Now, I’m not asking you to quit your ‘day job’, I’m just asking you to at least have a small business ‘on the side’.

There are so many good reasons to have a small project brewing on the back burner, and very few reasons not to.  Some say it is too ‘risky’ in today’s economy to start a business.  I say it is too risky NOT to start a small business!!

Obviously, there is a reason why YOU may start your own small business, but let me give some suggestions as to why you may take this leap of faith:

1. How about having another source of income to fall back on?
2. Embarking on a project you love
3. Turning your hobby into a business that actually make’s money
4. How would it be to have the independence to run a business the way you think it should be ran?
5. The ability to hire your own family members to pass on a legacy AND to save taxes
6. One of the biggest reasons to start a small business and one dear to my heart: Save taxes
7. and the MOST important reason in my opinion:  A way to build more wealth

Wealth building…yes…my number one reason!  Not saving taxes (I know that may shock you). But, I propose that when you think long and hard about it, many of you would agree that it is very very difficult to build significant, self-sustaining wealth when working exclusively for someone else. When you exclusively work for someone else, you are building their wealth.

Notice I used the word ‘exclusively’ in the preceding sentence.  I’m not saying you can’t have BOTH a ‘day job’ AND a small business…in fact…I often times encourage you have both.  With a small business your potential can be unlimited.  With a day job you can have security and benefits.   Together, you aren’t limited in your income, but you also have a safety net.

With that said, please allow me to just mention “Tax savings” as my second most powerful reason to start a small business. As many new small business owners quickly discover, the small business will allow you to legitimately convert otherwise personal expenses to valid business expenses.  When you have a small business, there are expenses such as travel, home office, dining, entertainment, cell phones, computers and all sorts of expenses that you can write-off legitimately with a small business purpose.

Of course, I’m not proposing setting up any sort of business to simply lose money for tax write-offs, but to build a business that allows you to make more money, paying less tax and driving down your effective tax rate on your cash flow.

On a cautionary note, before you get started, please know there are obvious risks and A LOT to learn about the proper way to start and operate a small business.  Let me mention a few important steps along the way:

• Build a business plan for every idea you have…some business plans will indicate you should NOT start the business
• Don’t give up on your education learn all you can about small business and real estate…they go hand in hand
• Start small and don’t quit your day job or put your life savings into the business
• Test your idea and product…build a focus group over and over again until you get the right product and price point
• and finally, don’t give up…remember it takes time.

AGAIN, I’m not asking you to quit your career, job or the trade or skill you have been cultivating for years, but please at least start building a project on the side that can give you additional income to invest in the market, buy real estate or simply build equity in the business itself.

PLEASE Don’t give up on this concept of “Starting a Small Business” and let it simmer, you may find it could just be your ‘cup of tea’.

Happy Investing! 

Editor's note: Both Mark Kohler and I are big fans of direct sales companies as the easiest, simplest, least risky way to own your own business. In addition to real estate, I run a direct sales travel business that allows me to travel at deep discounts, get paid to travel, and to help other people realize their own dreams of running a profitable business. If you would like more information, send me a private message at HomeLandInvestment@gmail.com

Today's blog courtesy of Mark J. Kohler is a CPA, Attorney, Radio Show host and author of the new book “The Tax and Legal Playbook- Game Changing Solutions For Your Small Business Questions”  and “What Your CPA Isn’t Telling You- Life Changing Tax Strategies”.

Financial Leverage

Financial leverage is an essential investment tool for the savvy real estate investor. George Antone, author of The Wealthy Code and The Bankers Code, writes about financial leverage, which is, making money off of money. He will be speaking more about this at his presentation to the Real Estate Association of Puget Sound’s April meeting.

The way that most people are familiar with making money off of money is by earning interest on their savings in a bank account. Typical interest earnings on a bank account may be in the range of 0.01-1%, and on a bank certificate of deposit may be  1-2.5%. This is considered to be a fairly “safe” investment, in that it has low risk, and correspondingly low interest earnings.

Higher risk investments generally carry a higher level of interest. Private lenders may earn anywhere from 3-12% on private funds loaned to real estate investors, while hard money lenders may earn anywhere from 10-18%, along with “points.” Points are calculated as 1% of the loan amount and are typically paid by the borrower up front. Most hard money loans will have anywhere from two to five points on the loan. So a hard money loan of $100,000 would be paid to the borrower as $95,000 after paying five points. The interest is typically calculated on the full amount of the loan until repaid.

Sometimes a private money lender will borrow money to make money. For example, someone with good credit and income could take out a home equity line of credit on their house, for say, 4%. He might then lend that money as a private lender to a real estate investor for 10%, making a 6% spread on his money. Otherwise, equity in one’s home just sits there, earning 0% interest.

In sandwich lease options, a real estate investor may negotiate terms with a Seller on an owner-financed mortgage at 4% annual interest; then turn around and charge the end-buyer an interest rate of 6% simple interest, making a 2% spread on the investment.

I financed much of my commercial real estate development using credit cards with 2-4% interest for 12-18 months. I charged my development company 10% for the use of those funds, which will be paid back when the property is sold or syndicated within that time frame. I will be reimbursed with interest as an expense to the company before net profits are split with my partner. Hence, I will earn both interest and profits on my investment.

Not everyone is comfortable with the idea of interest. The east African Oromo cultural group wanted to buy my commercial property on a Seller note, but were culturally precluded from paying any interest. Needless to say, this made any potential sale to them less attractive to me.

But for those willing to learn more about financial leverage, the use of interest and debt to make money is a great option for the real estate investor to employ in his bag of creative investment strategies.

Happy Investing!