Here at Dirty Boots Capital, we’ve been coaching individuals for years.  Whether it be with a new client buying their first real estate investment property or someone working to get to 300 units, we can help.

With nearly 20 years in the niche market of residential apartment buildings, we’ve learned a lot of useful information that we want to pass on to you.  When considering real estate investments, one area we like to start with is leverage.

What is leverage in real estate?

It sounds like a fancy financial term but it’s really not that complicated. Leverage is simply what you bring to the party. Let me break it down to help you understand how to use it to your advantage.

Leverage is most often money, also known as equity.  It’s the down payment (typically 20%) that the bank is going to want you to make using your own money to buy the property.

But leverage can be so much more than just money.

Remember, it’s what YOU bring to the party.  So, say you have no money, zero, zilch, nada!  You can still invest in real estate if you bring something else to the table.

Using Leverage in Real Estate Investing

Let’s say you’re a plumber or that you’re otherwise handy with doing repairs but you just don’t have the money to buy properties. You can get started by going to your local REIA (Real Estate Investment Association or Club) and networking with others. Chances are very high that someone there needs your help (i.e. your equity of being a handyman or plumber, etc.).

Your skill or trade is your EQUITY!

The other guy has the money; don’t worry about that. What he doesn’t have is the ability to fix things.  That’s all you!

Once you find the right partner, they can bring the money and you can bring the skills. And together, you can both create a partnership LLC to split profits/losses and the property appreciation when you sell the building.

And yes, you read that right. I can see some readers now: He said LOSSES!  Can I lose money even though I don’t contribute any financial equity (or money) toward buying the property?

Yes, yes you can.

But in real estate, not all losses are created equal because of a beautiful gift the IRS has given to real estate investors called depreciation.

How to Use the Real Estate Loss Tax Deduction

Depreciation can be incredibly powerful. To illustrate, say you’re cash flowing $800/month (or $9,600/year after all your expenses) on a property you bought for $350,000.  The building component is $300,000 and the land component is $50,000 (you cannot depreciate the land component because land, in a general sense cannot be created or destroyed). However, the $300,000 for the physical building can be depreciated evenly over 27.5 years…or $10,909 per year.

Your CPA will record that you made $9,600 in that year AND THEN subtract the allowable depreciation.  In this case $10,909.  Resulting in a paper loss of $1,309.

So, you just made $9,600 tax free… AND you have another $1,300 of allowable losses to lower your taxable income (typically from your W-2 job).

To make depreciation most impactful you could also perform a cost segregation study that front-loads the depreciation. Not all capital items depreciate evenly–hot water heaters need to be replaced sooner than roofs, for example.

So, in the example above, you might be able to achieve $15,000 or $20,000 of depreciation on the front end.  Every property is different so this is done on a case-by-case basis.

That’s where we come in. At Dirty Boots Capital, we have a lot of unique ideas and we help each individual with their specific scenario and what they are trying to achieve along with the specifics of the asset they are looking to buy.

If you are interested in learning more or want to jump on a free coaching call, be sure to sign up below and we will reach out to you.

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If you’re interested in retail commercial property or storage units, that is not where we operate.  We keep to our swim lane and know it very well.  However, after being in the business for years, we’ve come to know many good people who can help with a variety of asset classes.