In this episode, I interview Josh Bauerle, CPA and real estate investor.
Josh is a CPA and the founder of JDB Business Solutions, a tax practice specializing in working with small business owners and real estate investors to minimize their tax liability while keeping them in line with the ever changing tax code. He also owns a real estate investment company, Pinnacle Properties and Development, with his dad, through which they have acquired over 16 rental properties and 5 fix-and-flips. He lives in Denver, Colorado with his wife Courtney; they are expecting twins this February.
When I asked Josh how he got his start in real estate, he shared an incredible story about being in a car accident. He was in a car when it went over a cliff, and he barely escaped before the car exploded. As a result of the accident, Josh received a sizable amount of money. His dad immediately announced that he would not be spending the money on something frivolous, and suggested that they start the real estate company. Josh and his dad started that company and began investing in real estate.
At the start of the company, Josh and his dad were buying houses very inexpensively. They live in Ohio and, when the market turned downward, they were able to pick up great houses for $15,000. When the market started to go back up, they were having a harder time selling, so they turned their focus to rentals.
His interest in tax strategies started after reading the book Millionaire Real Estate Investor. Josh had always loved numbers, and promptly changed his major in college to accounting. He then graduated with his accounting degree.
After working for a company as an accountant for the last eight years, Josh decided he was tired of working for someone else and started his own accounting firm, JDB Business Solutions. His business focuses on small businesses and real estate investors.
Josh strongly recommends to all new real estate investors that you immediately form a relationship with a good CPA that understands the business. They will be able to help give you direction on the type of real estate investing model that makes the most sense for you; they will also be able to help you make a decision in terms of the business entity that you form from a tax perspective. Basically, having a CPA on your team from day one will help set you up so that you can avoid audits and other costly mistakes that new investors and new business owners often make.
I asked John about the different business entities available to real estate investors, and which one should be used for what type of investing. This part of the interview was extremely interesting and is packed with tons of information; too much to list here, but you should definitely listen because it can make a big difference to your bottom line at the end of the year. A quick summary would be that, for long-term investing such as rentals, Josh recommends an LLC as the best way to go from a text standpoint. If you are investing for quick profits, a corporation might be best for you. As I point out in the show, this episode is not to give you specific tax advice. You should speak to your CPA before doing anything.
For any real estate investor, keeping all of your records organized and accurate is key! This is something that I did not do a good job of when I started my real estate investing business, and it caused some problems. Josh recommends that you keep accurate and organized records. If this is not something you are good at, then you should hire a bookkeeper. According to Josh, a good bookkeeper for a brand-new investor who is not doing a lot of transactions per year should cost around $100-$200 per month.
New real estate investors who do not have a lot of properties and are not doing dozens of transactions per year, can probably get away with just using an Excel spreadsheet to track their expenses.
When asked about the common mistakes that new investors make, Josh broke it down into the four most common types:
- Missing out on 1031 exchanges–a method of deferring taxes by rolling the profits of the sale of a property into a new property.
- Not knowing the benefits of being a real estate professional.
- Depreciation, which allows you to show a loss on your tax returns; kind of a “phantom” expense.
- Not knowing how to avoid “dealer” status on the rental properties.
Again, each of these four items is explained in great detail in the episode. Way too much information to list here. Definitely check it out!
Some parting words of advice from Josh are to plan ahead. Planning ahead and being organized is going to be the best thing you can do for your business!
Quickbooks – Accounting software that Josh recommends
CPAJDB.com – Josh’s web site