Book Review: “Rich Dad’s Real Estate Advantages: Tax and Legal Secrets of Successful Real Estate Investors” by Sharon L. Lechter & Garrett Sutton

This is another book in the Rich Dad’s series. This one targets the real estates, strongly advocated by the Rich Dad organization. Summary below:

The key tax saving strategy: component (capital) depreciation and building depreciation as a phantom deduction/cash flow. Need to qualify as a real estate professional or get a sliding scale of $25,000 deduction between $100K and $150K income.

The book went to some gory details of tax-free 1031 exchange – not very interesting. But using the IRA money through a trust company and with the title held in LLC to buy real estate was an interesting concept. The UBIT (unrelated business income tax) tax (37.5%) may be applied for the loan portion of the net income less $1K exclusion. The balance remains in IRA tax-free and accumulated tax-free.

If one runs a business, consider owning the building through an LLC for protection and tax advantage. The other three tax strategies: installment sale, incomplete contract of sale, and charitable remainder trust.

On legal strategies: homestead exemption (Florida has the best exemption), insurance, and asset protection.

4 types of ownership: 1. fee estates, 2. life estates, 3. estates at will, and 4. leasehold estates (rental: fixed-term tenancy or lease, periodic tenancy/rental, tenancy at will).

Landlord liability: duty of care (public policy), duty to inspect (for unsafe conditions), duty to disclose a dangerous condition, implied warranty of habitability.

Insurance: first line of defense.

Asset protection: LLC and limited partnerships (LP) – cannot be forced to sell the property but only with charging order (right to receive distributions from the entity). Nevada and Wyoming have the best charging order. Land trusts can be used to hold title to the property of another person (beneficiary) for that other person’s benefit.

4 ways to protect your primary residence: 1. insurance, 2. homestead exemption, 3. debt, 4. single-member LLC.

Structures for holding your real estates: personally-held (no asset protection), partnership (LP or LLC, distribution comes out at basis), S corporation (flow-through entities, distribution at fair market value, no self-employment tax), C corporation (higher capital-gain tax).

Great case studies or stories sprinkled throughout the book to make the book interesting. This book serves as a comprehensive reference book who wants to invest in real estates. Excellent book.