Every year, tax day comes as a major headache for most real estate investors. However, what most don’t know is that working with an accountant that specializes in real estate tax can actually save you thousands of dollars yearly!
In this week’s episode, our hosts welcome Natalie Kolodij, founder of Kolodij Tax & Consulting, a tax firm that specializes in minimizing tax costs for real estate investors who are looking to maximize their growth.
Natalie has made it her life mission to help real estate investors gain financial independence through tax strategies and financial education. Join us this week as she shares her insider tips and tricks for finding the right locations to invest in, vetting the perfect accountant, and leveraging tax knowledge to save on costs every year.
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Watch the episode here
Listen to the podcast here
Leveraging Tax Knowledge for Real Estate Write-Offs With Natalie Kolodij
I know this is a pretty timely episode but we got Natalie Kolodij.
She is amazing, literally, a wealth of knowledge. She’s got a really cool story about getting into real estate a bit of a different way, that’s kind of the first half. The second half, she goes pretty deep into some really easy ways to save lots of money. I’m not kidding, if you listen to this episode and maybe even listen to it twice and share it with your friends, you could save probably tens of thousands of dollars just listening to this one episode because she names three really low hanging fruit that a lot of accountants that aren’t real estate savvy don’t know to look for that could literally save you tens of thousands of dollars in taxes, especially if you own rental property. So make sure you listen through all the way to the end and I’m not going to spoil any of the secrets right now. Let’s bring Natalie onto the show.
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Natalie Kolodij. Welcome to the show, my friend, and I probably still — did I say it right? I feel like —
That was right. You nailed it.
It was right? Okay, I knew it, because you literally just told me three seconds before we got on. But you have some enlightening stuff to share with us today and I’m super excited to get you on and learn all about taxes, things that everyone wants to talk about. But before we do that, why don’t you kick it off and tell us where it all started? How you first heard about financial independence?
Yeah. So I was a finance business major so I’ve always been kind of nerdy on anything finance related and then, for me, it dove heavy into real estate right out of college, that’s where I found BiggerPockets, and I started off learning through The Worst Way Possible, which was a weekend guru seminar, but that is what drove me into basically going down the rabbit hole of passive income and fire and real estate.
Awesome.
Did you pay $50,000 for this seminar or…?
You know, luckily, I was broke because I just got out of college so I gave them all of my $3,000 and that was all I had to give so small blessing on that one.
Yeah. And did they — so it sounds like this — was it useful, at least? Because, I mean, there is some value in them, I’m saying that most of them are just like blowing smoke but…
Yeah. So, for me, I feel like it was helpful in that it sort of opened my mind to things that were possible. But did I leave there able to do a deal? Absolutely not. But then that is what led me on to BiggerPockets to try to find the missing pieces so it all kind of worked out in the end because that’s really how I met a lot of the people I’ve dealt with since then, a lot of the great partnerships and people I know.
Sure, yeah, no, that’s amazing. And I think like those events and those conferences, that’s where I started too. I first went to my first conference, started meeting people, like kind of drank that Kool-Aid, got the buzz, and you get on BiggerPockets and the buzz continues and, yeah, and so give us a little perspective on like what year was this when you went to that conference?
That was 2014.
Okay, so 2014 is basically when you started and so then you go on, you find BiggerPockets. How long between that real estate summit that you went to all the way until during your first deal?
So, time wise, really, it was less than six months but my first deal was a weird one because I started off flipping mobile homes so that’s where I landed what I decided to try first because it wasn’t so big and scary.
Like mobile homes? Like individual mobile homes, not mobile home parks?
Yeah, flipping mobile homes in parks, yeah. So I was flipping them and then I would resell them on owner financing.
Oh, no way. Okay, so tell us a bit more about that.
It’s actually pretty common.
How did you get into, like why did mobile homes attract you? Just because the low price point? In what area were you investing?
Yep, that was exactly it. Yeah, I was in the Seattle market so the average home at that time was like $650,000 and, again, I had just given my only $3,000 to that mastermind, that weekend seminar, so my thought with mobile homes was, well, if I’m terrible at this and completely fall on my face, at least I’m not out $600,000.
So, for me, it was a good jumping off point to get out of that analysis paralysis and try doing something and I feel like I learned a ton of the same basic skills so I feel like it’s a really good starting point that a lot of investors don’t even… Share on XYeah, that’s funny, I would never — I’ve never heard of anybody starting with mobile home, like mobile homes. And you made a good point. It’s always like, house hack, house hack, house hack, house hack, and me, I’m like Mr. House Hack over here and so I’m really excited to learn a little bit more about this perspective that you brought. And so, Z, you know what this sounds a lot like?
Yep.
The For Real Deal.
Super catchy. Natalie, this is the first deal that you’ve ever done, intentionally or unintentionally, and, with you, it sounds like it was very intentional so why don’t you dive in and tell us all about your first mobile home flip, how you found it, what you bought it for, how you purchased it, all the goodies?
Yeah. So, the first deal that I did was a mobile home, it was actually listed on MLS for like — I think it was listed at like $38,000 or something like that. The owner actually reached out to me, I just had ads on Facebook Marketplace and Craigslist that just said, “I buy crappy mobile homes, any condition, email me,” and so he sends me this listing on MLS and it was nice and it was above what I was trying to pay and I was like, “Oh, no, I’m so sorry. I guess reach out when it’s your last resort,” and he was like, “We’re there,” like they had inherited it, they had been spending $900 a month in lot rent, it was in a 55 and over community so they couldn’t live in it, the realtor was dragging their feet because it was only a $38,000 sale so they were just ready to be done with it and so I said, “Okay, well, I will give you $8,000 if I can do four grand now and four grand in like 30 days,” I think it’s what I said because I figured I could like resell it by then, fix it up, resell it, and he says, “Okay, what about if you just bought it now?” and I was like, “I will do six grand if you’ll just sell it today,” and so he’s, “Hold on,” I can hear him like mumbling, talking to the wife, he comes back, “We’ll take the six, we just wanna be done,” so it was on — I bought it for 30 grand under ask for $6,000 having no idea what it would resell for but I figured for six grand, I could do something with this. So that was my first deal and it was in a really nice park that was kind of like a gated community, like swimming pool, all the mobiles matched, it was great, just happened to be manufactured homes.
Wow, that’s incredible. I really love those 55-plus communities. They can be some really nice ones. So, yeah, I think when people think mobile home park, they think really rundown but those are fancy. So, okay, how much did you actually have to do to it? Because fixing up a mobile home is not the same as fixing up a house, it’s kind of funky.
Yeah, so this one was pretty nice when we got it. They had already fully replaced the kitchen so the kitchen was nicer than like most of my apartment kitchens had ever been so really all we did was a ton of paint, like everything got a coat of Kilz primer and then a nice paint on it and we updated all of the fixtures and it just got a facelift, pretty much. I think we only put like $2,000 max into it.
When I think of Kilz, I think of smelly So was there like smoke odor or animals or something like that?
Good question. It did not smell bad. Mobile homes are weird because they’re never made of real building materials so everything in there is like paneling or like a plastic coated, it’s like if you had a hybrid between cardboard and drywall, that’s what the insides are made of so you have to be really careful with what you paint over them first. Like you’ll see people try to patch and paint the wood paneling, they’re like, “Oh, we just caulked the seams and painted over it,” and that will 100 percent not work, that always separates again, but if you’re just going over the flat walls or like the bathrooms are always this like — it’s not normal wall so anything that sticks better is what you want in a mobile home.
So how did you know all this? This feels like something that a newbie wouldn’t know on your first deal.
BiggerPockets. It was a combination of me asking questions online and then trial and error, like we learned about painting over the bathrooms had — it was like the drywall had built-in wallpaper almost, it was like a one-piece thing and we learned the first time by trying regular water-based paint and then it just like peeling back off and we were like, “Oh, that looks wrong,” so then we kind of went down that rabbit hole and Googled what sticks to wallpaper or what sticks to kind of water-resistant materials.
Wow.
Very cool.
And so let’s just reflect on these numbers for a second. This thing was — this might be like the most under asking from a percentage basis I’ve ever heard of. So, $38,000 was the ask, you purchased it for six, which is basically like 85 percent off so like, basically, what a down payment would be for most people, you purchase this entire home for. You put $2,000 into it and so now you’re all in for $8,000, and so tell us the end. What’s the final chapter? How do you get rid of it?
Yep, the biggest mistake we meant in the cost we weren’t expecting was holding costs. Because it was a nicer park, we were like, “Oh, this is awesome. This is a beautiful park.”
The nicer parks have much stricter requirements for living in them so it was harder to find a qualifying tenant because they didn’t just have to be able to buy it from us, they had to meet the park’s credit requirements and job history. Share on XThey screen tenants, same as like an apartment. So even though you own the home, they still have to meet that requirement. So that took a few months. So that was three months of holding at $800 a month and so that was another almost $3,000 in, and then I think we ended up selling that one for like 28 or 29 on owner financing so then there was also some interest on top because we carried the note on it.
Okay, so how do you structure — how do you negotiate that? How do you negotiate carrying a note and why did you want to go that route versus just getting the cash?
Yeah, it’s kind of tricky to get financing for a mobile home. There are some places that do loans on them but not a lot so if you’re in a position where you can do that, that’s what I would typically recommend because then you’re not just making the selling price, you’re making 9 percent interest, 12 percent interest, whatever’s reasonable on top of it and, typically, it’s only just like a five-year note. It’s priced like a car so I would just structure it after a car amortization.
Very cool. Very cool. Awesome.
So after that mobile home and on that one, I also didn’t pay for it either. I had a co-worker who I’d been talking to about real estate, I went to school with him, we ended up working at the same CPA firm. He overheard basically the whole thing and so that was his $6,000 to buy it and we just paid for renovations so that was great in that element too. The next one that we did was one that we — same thing, I actually on this one had — I had a search set up that just notified me of any mobile homes within like an hour for under 10 grand and there was one listed for free, literally for free. So I went and checked it out the very next day and it was in rough shape but livable, same thing, had been inherited, she was tired of spending money on it, just wanted it gone, so I gave her $50 to make it a legally binding contract so the next one I bought for $50 just outside of Seattle, Washington.
Amazing.
So crazy. Oh my gosh.
Yeah.
And that was on the MLS?
That one wasn’t on MLS, that one they listed on like Craigslist for free.
Okay.
She just wanted it gone.
Man.
That is so cool.
That is absolutely — yeah, and so, okay, so tell us how, so that seems like a pretty easy negotiation, there’s really not — can’t really negotiate down anymore.
I negotiated up.
Yeah, you’re like, I guess I have to pay you $50, please take my money.
Yeah.
And so tell us a little bit about this one, like this one seems like it’s a little bit more of a rehab and so what did you do to it?
Yeah, it was more involved and this one, I literally bought it, signed the contract with the lady, an hour later, I put my sign in the window that said it was going to be for sale by owner and less than two hours later, it was sold. Like I had just bought it and someone rang the bell and was like, “I’ve been trying to find anything where I can live in this area, the cost of living is so high, but my daughter and grandkids live out here and I’m retired so I’m just trying to find something affordable. What are you selling it for?” She was like ready to buy it that day. And when I told her we were going to be renovating it first, she was like thrilled beyond belief. So then she asked me though, “What are you gonna sell it for?” and I was like, “I don’t know, I’ve only owned it for an hour and a half. I have no idea what I’m going to sell this for.” So I kind of came up with a price like just offhand and this was an older one, it was small, and I think that one, we sold to her for $17,000 with a 30-day window basically, so it was presold within two hours, I had 30 days to fix it up and turn it over to this lady.
Wow, and so did she just buy that cash or did you do seller financing on that one?
She just bought that one cash, actually.
Cool.
Man, the power of just having like ads in the window. I love that. But, okay, so what did you do in 30 days? Because that’s a pretty tight window and you have a job so were you just like hustling?
So on that one, it needed more done to it. It needed a lot of new subfloor, new flooring. It needed like a bunch of drywall torn out. It needed like some plumbing repairs that had caused mold behind the drywall. And so we hired a contractor who ended up halfway through we had to fire him because he did awful work, like tore down a wall to replace the drywall but then closed wires into it loose that shorted out half the house and we had to get an electrician so we ended up dropping him halfway through our 30 days, so then the last 30 days, it was my best friend and I and we both worked full-time jobs and so we’d work all day and then we’d go work on this home ourselves from like six to ten or whenever it turned into quiet time and we ended up doing drywall in that, that’s where I like learned how to do drywall, did all new subfloor, did all new flooring, did paint, fixtures, did a bunch of stuff, just working these long hours and it was really fun because that was another senior park and I loved doing it because all the neighbors — like neighbors love seeing when you’re working on stuff and so it would just be all these like retired guys coming by being like, “What are you doing? Yeah, that looks good. You need — I have a better saw for that, I’ll go grab it for you,” and they would just like hang out with us and help. It was adorable. So we had to figure out a bunch of stuff on that like on the fly, basically, like YouTube videos as we’re doing it.
I’m surprised there wasn’t like an old grandpa there, like maybe in his like 60s that like is pretty handy and just like, “Hey, can I just help you guys? Like I kind of just want to feel accomplished or something and help some women out.”
There kind of were, and it was adorable because sometimes they weren’t condescending at all, they thought it was so cool that these girls would show — because like I worked in a CPA firm, I’d show up and like a blazer and slacks and then we would be like trying to take out drywall with our hand tools and he was like, “This is ridiculous, let me go get you my miter saw,” like, okay, thanks. So it was just — it was super heartwarming. So we got it done in the 30 days just barely, learned a ton, like learned how to do a ton of things, and I ended up selling that one just for cash to the lady who bought it two hours after I did. Yeah.
That’s amazing. So with all that work you had to do, I mean, did you really make much money because $17,000 feels a little bit tight?
That one was tight materials wise because I think the contractor had only been paid like $1,500 before we fired him. One of my favorite things of mobile homes is that they’re little so we were able to do all new LVP flooring everywhere except the bathroom and we found that on Craigslist, it was someone’s remnants from doing a big house project because they had an extra 700 square feet or whatever it was of this one specific flooring that was enough for our little tiny two-bedroom mobile home. So we were able to keep costs down with a lot of that. On the countertops, we refinished them with an epoxy kit instead of replacing them. We painted all the cabinets and things like that.
The other weird thing with mobile homes is the sizing is weird on everything, so your doors, your windows, your closet doors aren’t always standard size. Share on XSo we had closet doors that they had — the person who lived there did some wacky stuff, they had glued like craft store mirrors all over the doors and, again, everything’s made of like a cardboard almost, it’s like a cardboard drywall hybrid, so taking them off, it tore apart these doors. Yeah, we couldn’t buy new ones, they didn’t make them in the right size for this opening, and then we found that there’s actually places in most cities that are like a mobile home parts junkyard. It’s like second hand doors, windows, furnishings, like parts for mobile homes so if you look at doing these, look into one of those because that’s where you’ll find stuff really affordably and the right size for all your weird openings that aren’t standard size.
Okay. So, at some point, I imagine you graduated to a house, right? But how long did it take you to get to that place?
Well, so what happened in between was I started a tax firm, which I don’t recommend for your real estate journey, it’s kind of a pretty big detour because it’s pretty time intensive. So, flipped mobile homes, and then in 2017, 2018, 2018, I moved to Charlotte and then this is actually where I bought my first primary and then my first midterm rental was here in Charlotte just a couple years ago. So there was a few years in between where it was sort of focusing on building my main business before I could circle back to the real estate side of things and that’s kind of where I am now.
What gave you the confidence from working that W-2 job in the tax arm to then starting your own thing? Were you confident in real estate and that was what got you there or was it just like, did you have savings, or…?
That was exactly it. So, it wasn’t even a long-term plan, like, “Oh, five years in, I’m gonna start a firm,” I just ended up really, really specialized in real estate. I was bringing in a ton of clients who were investors, most of the work I was doing was with investors, so it’s a lot easier to become an expert when you’re working in this area of something, it’s like going to a cardiologist versus a GP, like you’re only working in this one very specific area.
So I became really confident in real estate and I realized I could add more value to clients by having kind of more flexibility to work with them in a way that made sense versus trying to squeeze them into a firm that worked with every type of business… Share on XOkay, can you explain what an EA is? Because I am just blown away that I only learned about that, I don’t know, a couple days ago. And so I was like, “What? There’s others than CPA?” I mean, I know there’s tax preparers, but EAs, from what I just learned a little bit on the internet, they specialize in real estate, right? And they’re cheaper generally than CPAs.
So they specialize in tax is kind of the biggest difference.
Okay.
So CPAs is a really, really broad designation. So that’s what I was going to do first, actually, so I went to school for five years so I could take the CPA exam, but it’s a really time intensive exam and the only thing it legally qualifies you to do is work in the audit side, like sign audited public financials for publicly traded companies, and I don’t work in audit at all, I only do tax. An EA exam, you’re licensed through the IRS and the whole exam, the whole licensing, everything is wrapped into tax specifically whereas the CPA is also like some economics, it’s auditing, and like most tax people never work in audit, they’re completely — this is like apples and oranges. So the EA exam is just much more specialized. They tend to be tax specific and they tend to do representation work, so if you as a taxpayer ever are being audited by the IRS or you have to defend something, typically, EAs do that more than CPAs. They work with the IRS more, they defend taxpayers. Some are lower price but not all, it’s really specialty like dependent, like so if someone’s kind of real general, small, like they work with just personal tax returns, that might be more affordable, but there’s an across-the-board pricing kind of with every type of credential, it’s just dependent on really what they offer and their skill set.
Great. I’m curious about what got you into taxes, because taxes, to me, are like the worst thing that we have. And so for someone to be like, “Oh my gosh, I love them so much,” I just can’t even imagine that.
Yeah. So the way it like started was I was in college just for business, I just knew I wanted to do something entrepreneurial, I always loved finance and business and anything with numbers. And in my accounting class, the professor literally walked up to the dry erase board on the first day of class and he wrote the starting salary of someone with a business degree versus someone with an accounting degree and I said, “Oh. Well, I can do accounting, that sounds better,” and, again, it’s just because you have that specialized knowledge versus a whole general degree. So that was the initial start for me and sort of what geared me towards it.
And then I found that I really like it because everyone thinks taxes is like numbers that like we just do math all day and it’s almost no math, it’s laws. Share on XIt’s like knowing laws just about money, like it’s money laws. So a lot of what it is is really just knowing how to read and interpret tax laws and then, for me, what I like about it is that it’s like a puzzle, like the better I learned this, it keeps people from spending more money or like saves the money so it feels like a like a puzzle with a monetary prize at the end. It’s really exciting for me.
I love it.
Yeah, I could tell that you’re just like getting off on taxes right now, which is crazy because that is something that not a lot of people are passionate about, but I will add to what you just said and I thought you were going a different route with what your teacher put on the board, but if I was a teacher and putting stuff on the board, I would put like what people spend the most money on and people would probably think, “Oh, housing. Oh, cars. Oh food,” but, actually, what’s above all of them is taxes. Taxes is what Americans spend the most money on but you don’t notice it because it comes out of your paycheck or if you’re a 1099 whatever you got to pay at the end of the year, and me and Z are probably like squeezing our cheeks right now because April’s coming and we’re both 1099 and so…
It’s okay, I’m not paying taxes this year.
Yeah, me neither, but like that’ll be cool.
I know.
Yeah. Anyway, but, yeah, a good tax person in your court is so good and I’ve worked with multiple CPAs and not to say that CPAs don’t know what they’re doing but I will say, I also listen to a lot of podcasts and like pretty much every way to save on real estate, I feel like I know, I legitimately, no joke, I taught my CPA that I could do a cost segregation on a single-family home. I shouldn’t be teaching my CPA that. And so now, I now work with an EA and she’s awesome and, yeah, and it’s just the — the breadth of what you can do is just incredible. So, sorry, I’m just rooting for your business.
Honest, all facts here.
Yeah, yeah, sorry. It’s so true. But so, clearly, you saw that kind of niche and so you do two years of doing that and then — so you need to do two years of doing that in order to qualify for the next house. Is that why it took you two years or did that just kind of work out in its own way?
Yeah, well, it was a combination because now I was self-employed so I had to wait for two years of self-employed tax returns and then I laugh because I started a tax firm the same time as like the tax cuts and Jobs Act, which was the biggest tax overhaul we’ve had since I think like Reagan was in office and I was like awesome timing for me, super good job. now at least starting to do this on your own the year the rules are all changing, excellent. So it was just time intensive. Running any business takes a lot of time and so trying to focus on real estate and focus on that, I kind of had to pick a side to focus my attention on for a little while so focused on building my business so that I could get things stabilized, get systems in place, and then could kind of turn back to real estate. But the whole time I was working with investors so now I also have like a really great network and I’ve learned a ton from my clients and vice versa along the way so it’s a really good overlap to know tax and real estate.
Totally. And so why don’t we get into kind of like what your next deal looks like, that 2016, 2017 deal when you start investing in actual houses.
Yeah, so the next thing I bought was a primary home in the Huntersville, North Carolina, so just outside of Charlotte, and it took me, I think it was about 18 months of looking for something that had rent potential with a second unit and so I ended up finding like a unicorn. It’s in a perfect quiet neighborhood, it had a fully built-on mother-in-law suite that they had already furnished and been renting on Airbnb so it made it really easy because I knew, like they literally gave me the report, so I knew a minimum of what it could rent for, I knew exactly what the numbers were, I wasn’t trying to estimate it, made things really easy. So, I literally just paid three grand over ask and people at the time were like, “That’s crazy, Natalie,” and I was like worth it, 100 percent worth it, this is so hard to find, and I have not found one since in this market, that was just turnkey with an apartment, so, from day one, I got to live in a beautiful four-bedroom house for free with his mother-in-law apartment. And probably about a year ago, almost a year ago now, I converted that to a midterm rental actually so that’s actually where I first saw you was at BiggerPockets and I was like, yes, I knew I was doing a good thing. This is something.
That’s awesome to hear. So what made you want to do it as a midterm rental? Did the laws change in the town and you had to or is it just something that you found on your own?
For me, it just made more sense because it was an apartment, not like a whole house, I was pretty consistently booked on Airbnb but there would be weird little pockets where I was vacant and this and that. When I kind of ran the numbers, between the extra work of kind of having to keep track of that many more people in and out, the turnovers and having the scheduled cleaners and then, like I said, those weird little pockets of vacancy, I was like, “I’m gonna make the same amount of money, if not a little bit more, doing it as a midterm rental with a fraction of the headache,” and that was the biggest thing for me.
I’m busy, I run a business, and so anything that can be more simplified in my life, I’m all about. Share on XSo the idea of having four turnovers a year instead of 40, I was sold. So when I ran the numbers and it worked out, I was like, “Yeah, we’re gonna do this.” So it’s been going really well.
I agree. So how do you market that place? Are you just still using Airbnb or are you using some other websites?
Yeah, so I typically am on Furnished Finder, that’s sort of my meat and potatoes. I was so leery, I’m an accountant so I love following rules and like anything risky makes me nervous, so people were like, “Oh, you can also still have it on Airbnb, they do 30-day stays now,” and I’m like, “Well, but if someone wants to book through Airbnb and I have a lease with them, doesn’t one supersede the other? Doesn’t this cause problems?” and then after enough people were like, “Natalie, it’s fine. You can just put it on Airbnb, just get another place,” so I listed both places and then I’ve actually had really good luck with a lot of the travel professional Facebook groups, like where people are looking for properties and you can list yours, I’ve gotten really good leads from that and that’s actually where I picked, where I’m currently looking for like my next midterm purchase was based on those groups based on where in North Carolina I was seeing an influx of traveling professionals looking for housing versus — like there’s certain cities, you’ll see where someone asks and there’s like 50 responses, like everyone has a midterm rental in that city, and then their cities or someone posts and there’s nothing, crickets, and so I found the cricket city of North Carolina and that’s where I’m currently looking for a condo. Yeah.
How do you find these cricket cities?
I was just keeping an eye on the Facebook group, like I was just looking at — I had an alert set up for North Carolina just in general and so I was just kind of after a couple months of keeping an eye on, like I said, where there was a posting or someone was like, “I’m trying to find anything in this city at all and no one had available listings.”
And so, sorry, I may have missed this but did you buy this as a house hack, like with low percent down or did you go ahead and do 20 percent?
The first one I bought as a house hack. I did 5 so that I could refinance out of PMI because I knew that I was going to be able to pretty quickly, but, yeah, that was how I bought it was just 5 percent down on that first one with the mother-in-law apartment.
Super cool. Super cool. And so you liked the medium-term plan. It sounds like you kind of did that before it was like kind of mainstream, I feel like it’s getting to be a little bit mainstream these days, like —
It was like right when it happened.
Yeah, like you and Z here are trailblazers.
Sorry, I ruined it for everybody.
Yeah, yeah. And so I guess curious, both you guys, actually, I’ve been hearing like whisperings out there that both the medium term and the short term rentals are kind of like, you know, like they’re not as sexy as maybe they were six months ago, maybe it’s oversaturation, maybe it’s kind of a less supply and demand, maybe it’s just a time of the year, but are you guys seeing that at all or is it just kind of the rumblings that I’m hearing from certain people?
I know I thought a little bit with my last turnover but that was literally December I think 17th is when the last people moved out so it was right before Christmas too but it was sort of a trickling of applications versus the time before it was like 25 the day I put it up. So I don’t know what to attribute it to.
Yeah, I would say for me too, it’s the slowest winter I’ve probably seen. I mean, aside from just COVID times, that was really, really slow, but in 10 years or 11 years of doing this, it just feels really slow right now. But BiggerPockets put out an episode about short-term rentals recently and they had someone from AirDNA on there to do analytics and talk about just data and it was really interesting. It seems like travel is still ticking up and that there’s people still traveling. I thought it was like a recession thing. But we also have — China is not open right now, I don’t know when this podcast comes out, but China will be reopening to travel outside of the country and they formerly had been like 28 percent of US travelers, so people that traveled to the US, so I think there’s going to be a huge boom once China opens up of pent-up travel, because that’s basically what we had in 2021, it was just like a pent-up COVID travel boom. So I think there’s a big wave coming. So if we can ride out this cold winter, I think we’ll be okay.
Interesting. Yeah, yeah, it’s funny, it does seem to like kind of come and — that’s Airbnb though, right? It’s funny, I got a text today from like a past client of ours that’s like, “This is my first month of negative cash flow on my Airbnb. This feels like an emergency. We need to talk,” and I was like, “You signed up for this, man.”
You’re like, wait, how is that your problem?
Yeah. Well, no, no, I mean, I’m all about helping people so I’ll give him a call to kind of ease him a little bit. I’ll be like, “I talked to Zeona and this is what she said.”
Oh, good. Have him listen to that BiggerPockets episode, yeah.
Yeah, I will. And, so, yeah, that’s interesting, but that’s what you are, like when you sign up for Airbnb and when you sign up for the short-term stuff, it is a little bit more up and down but, overall, you’re coming out ahead and so you’re just signing up for that volatility.
Absolutely.
So, Natalie, I guess let’s fast forward a little bit into today, what does your portfolio look like today? What does your tax business look like today? How is all that looking?
Yeah, portfolio, I’m just now on the search for the next property, like we’re just now actively looking again. So that’s where I’m looking, it’s just like three hours east of me in Greenville, North Carolina, is where I’m currently looking for another midterm rental.
You just spilled the beans.
I know, I did —
She did spill the beans.
Hopefully, too many people don’t go there.
I’ve heard good things about that.
Yeah.
Now, it’s blowing up.
It’s okay. There’s a Greenville, South Carolina, and a Greenville, North Carolina, so people, I’ll let them get confused with that because everyone does. Exactly. And then the tax business is great. I keep a boutique firm basically, like a smaller client base. And then the big change for me this year is I’m doing a lot more on the education side, which I love, like you saw me get hyped up about talking about taxes and not everyone does that so someone should pay me for that excitement because it’s rare. So now what I do is a lot more of the teaching so presenting it tax conferences, teaching — like you have to take classes each year to keep your CPA or your EA license so I’m out here teaching more professionals how to do real estate tax stuff because there’s a gap in the industry so I’m really liking that part because it helps me bring a little bit of real estate into their world because I can’t tell you how often I see posts where CPAs are panicking online because they’re like, “My client told me they bought a rental but the mortgage, the 1098 is not in their name and this has to be a scam,” and they’re freaking out and I have to be like, “This is okay, it’s a subject to deal, this is a thing, people do it and you don’t have to panic, don’t send them to jail. This is fine. It’s totally normal.” But when an accountant doesn’t know real estate, they don’t know what’s happening. They don’t know what you’re doing.
So it’s really fun to be this sort of bridge and so I really like the education side so that’s kind of where I’m expanding to quite a bit in this upcoming year. Share on XSo you’re actually teaching accountants and you’re teaching CPAs, is that right?
Yep.
Very cool. Very cool. And so I guess I want to look up, maybe have a two-minute answer, okay, I’ve got like a two-part question for you. I mean, you may have mentioned this in the beginning but I just want it to be super clear, so why would somebody pick and go with an EA over a CPA like in terms of real estate?
I mean, for what it’s worth, I wouldn’t pick based on the credential at all, like at all. They’re both just a test, right? Like we all knew that kid in high school who was like really good at taking tests but they had no sense, like that exists in the real world too so like because someone passed a test doesn’t make them an expert at either thing. And I’m working on actually a real estate tax credential so that there can be a way to prove that but until that’s finalized, what I would say is don’t pick based on credential, pick based on who is most knowledgeable and best fits your need. So some accountants work fully virtual so if you travel a lot or you like online, that’s great. Some are in person. Some are really real estate specialized, some aren’t. And depending on if this is like what you’re going full bore into or if you’re like, “Oh, I do — like I own a restaurant, that’s my main business, but I have a couple rentals,”
...find someone who is really, really, really good at the thing that makes you the most money and that’s who you want to work with. Share on XI love that. Love that. Pick the person, not the credential. Z.
Yep. 100 percent.
And I think it’s important to be informed as the investor and as the person getting our taxes prepared so are there a couple of like tricks or tips that you would give someone to go to their CPA or to their EA and say, “Hey, are we doing X, Y and Z?”
Yes. So, shameless cross ploy, hopefully, this doesn’t get me in trouble but I just released a video with Mindy, it came out yesterday, that was like a year-end tax checklist of like what to bring to your accountant, what things will help save you money on your tax prep, so I would say like if you Google me, that should come up and you can watch that as a great starting point. But then, what was the second — what was the other part of your question? Like what to prepare and —
Just, yeah, what things to tell them? Like, I know when I learned about cost segregation, that like changed my whole world. I had a CPA the year before who maybe, I mean, she did all her tricks and I still had to pay like 50K and then the CPA the next year that I moved to, he was like, “Oh, you’re not gonna have to pay taxes for like three years because you have so many properties and we’re going to do cost segregation.” It’s just funny that that’s not obvious. So I think there’s some times good for people to be like armored with a little bit of knowledge on their own.
Yeah, absolutely. So I would say the first step is just knowing that there’s kind of a standard — there’s a difference between a tax preparer and a tax strategist or a tax planner and so your normal tax just like prep work, if you just see your person once a year, drop off some forms and talk to them for 20 minutes, they’re much less likely to come to you proactively with that stuff, like they’re not even thinking about it, they’re just cranking out returns, they’re going to take your rental information, put it on the form, and move on. If you’re working with a planner, someone you’re meeting with throughout the year, that’s when you sort of like, “Oh, look at this. This is all you do, you’re a real estate professional. We can do something with this,” so it’s sort of they have time to step back and breathe. Either way, I would say the biggest things to kind of bring up to your accountant to sort of see if you can spark a like aha moment and if they look at you like you have a third eye, like go — get your forms and just find someone else because if they have no idea about these things, like it’s one thing to be like, “Hey, I heard about this,” and to have them sort of go, “Oh, yeah,” it’s another if they’re like, “Never heard of that, sounds fake,” or like have no idea what you mean. So the biggest things what I would say asking them if you’re able to use your rental losses on short-term rentals and how. So there’s a tax loophole tied into short-term rentals where if the average stay is under seven days and you materially participate, typically, we can use the loss regardless of your income level, there’s no limits. I don’t want to say it’s new but short-term rentals are pretty new in the big picture so tax people who haven’t really taken education in the last five years probably haven’t heard of this so that’s always sort of one of my big like ask them about this and if they have no idea or say no way, like doesn’t count, you should probably look for a different option.
Okay, so that’s like a pretty big tip, especially with a lot of people going into short-term rental space, right? And if you do make over, I don’t know if the threshold is $150,000, like the other, I think, but what are some other, like maybe give us like two of your favorite tips to see, like the lowest hanging fruit of, “Oh, you’re a real estate investor? Are you doing this or this because you could be saving a ton of taxes?”
Yeah, so the short-term rental tips, the big one, if you have a short-term rental and your average stay is under seven days, ask about this. The flip side to that is if you have a short-term rental and it’s reported on Schedule C of your taxes, which is where you report a business, Schedule E is for rentals, C is for businesses, there’s a good chance it’s wrong. They only go on Schedule C if you’re also providing substantial services, which is more like a hotel. like if you’re cleaning daily, if you’re offering meals, then you’re over there. And if you’re on Schedule C, it’s going to pay self-employment tax, it’s an extra 15 percent tax, but if you just have a run-of-the-mill Airbnb and you just only clean it in between guests, it should still be on Schedule E.
So look at your tax returns right now, if you have an Airbnb and it’s on Schedule C, circle back and ask about that because it could have caused you to pay extra tax. Share on XSo that’s kind of another, those two things tied into short-term rentals are always worth looking at. And then probably the other big low-hanging fruit that I see missed a lot is if you’re doing renovations at all, if on your depreciation schedule, which is where you write off the value of your house across multiple years, anything big, anything that’s going to have a use for several years, you get to write off only a little bit of its cost each year, you have to like spread it out. So your tax return should have a depreciation schedule. It’s a horizontal sheet. So you always want to look at this. And one of the things is if you do a renovation, if you see it as a big lump sum number, like if you spent $100,000 updating a house and you just see $100,000 listed as renovation and it’s written off across 27 years, there’s often parts of a renovation that are items that could be written off over a shorter life which would give you a much bigger write-off. This is what a cost segregation does, basically, but a cost segregation applies it to your starting point, what you paid for the whole unit, but if you then swap out pieces, like if you put in new appliances or you put in new flooring, like that stuff you can write off over five or seven years instead of 27 so the annual write-off is much bigger and anything with a life of under 20 years qualifies for bonus depreciation, which means, potentially, you can just write it all off at once. So if you ever see a big lump sum item for a renovation, ask your accountant about it. Ask if there’s any parts of the renovation you can separate out and potentially write off over a shorter life.
Natalie, this is gold. I love it.
It is such gold —
I love it, yeah, this is like Silver Valley, yeah.
And, at the same time, it’s like it’s taxes so there’s a little bit of that like Charlie Brown’s teacher where it’s, “Mwah wah wah wah mwah.” I don’t know, it’s so intense. I just can’t stay on task with the taxes but that’s okay. Somebody got a lot out of that and I was listening.
If you have to rewind it, rewind it again because there were three really big golden nuggets that Natalie just said in there that could literally save you tens, if not hundreds of thousands of dollars, depending on what your income numbers are.
100 percent.
And so definitely this episode itself could be worth lots of money for you. Z, go ahead.
So, I’m curious, looking forward, what kind of plans do you have for your portfolio? Because usually people have goals around it. Are you thinking — it looks like you’re looking again for another midterm rental. Did you end up buying one in this mystery town and then you’re looking again in that town?
I just started looking there so I just found it probably two months ago and so that’s where I’m currently looking to buy as soon as something that kind of fits perfectly comes up or something that I think —the past two months had been a little weird with interest rates and everything else so I wanted to kind of give it a sec to see what happened, but that’s my goal for this year is to acquire at least one other midterm rental. And then kind of bigger goals are on the real estate and education side but acquiring at least one more property this year is sort of the plan.
Great, and then what kind of size are you looking for? Because people talk about this all the time with midterm rentals is debating should I get multi-unit, should I have one or two bedrooms, should I get single-family home, make it really big, so what are your plans for this one?
So what I am currently looking at is small. I like small, it’s what I have now, and I feel like it’s affordable, I think it’s ideal for traveling professionals. And so what I’m looking for is either little houses that a lot of people ignore and the price per square foot is kind of high but I think and I’ve seen this on Airbnb too because it’s what I would rent is like if I’m traveling, I will always rent a super cute, well-done 800-square-foot house if it’s just like I’m going with my partner versus I don’t need a 1,500-, 2000-square-foot house with two extra bedrooms you’re not going to use. So like a two-bedroom house that I think a lot of investors just ignore because it’s only a two one, or even condos, depending on the condos.
Condos are always sort of a hit or miss topic for people. Share on XI’ve had some clients who are like, “I love condos, they’re my best investments,” but I think the key is like looking over their bylaws, looking over their financials, making sure you’re not going to have a crazy assessment in the next year or two. So that’s kind of what I’m looking at is one- or two-bedroom condos or just like under 1,000-square-foot single-family homes.
Love it. I own all of those things. Yeah, it’s interesting —
Do you have a preference?
For me now, I’m looking for big homes because I think there’s just less competition in the space but, you know, to each their own, but I’ve owned over my history in real estate a few one-bedroom homes, which is funny, but they exist, just old homes and then one of them, we finished out the basement and that’s kind of a two-bedroom but it’s, yeah, interesting little guys. Yeah.
I love that.
Yeah, and, so, okay, one question that might be like — I feel like I’m not anti-short-term rental but I’m always a little bit more skeptical than everybody else, I think. And so what happens if — like my only concern about two ones, because we were looking at a two one up here in Coeur d’Alene that, Grace, my wife, really liked and we were going to short-term or medium-term rent it, but why I kept having reserves but it was that if for some reason short-term rentals or medium-term rentals don’t work, like this thing is not cash flowing and it’s not renting out as a two one and like going to make us any money, it’s going to be a money suck. And so are you able to buy something that is a two one that would also work as a long term? Like there’s a plan B for it?
So, for me, I think there is, but, for me, where I see this having an appeal is for younger renters, like I think a lot of people out of college aren’t buying their own homes right now or aren’t able to and a lot of people are sort of aging out of wanting roommates and so like I know a lot of friends or have a lot of friends who would rather rent something small and have it be just them than something with roommates, even if it’s bigger or more affordable, like that’s sort of the — so I think there still is a demand, especially if you’re near like tech jobs or like a finance industry or somewhere where there’s kind of people right out of college, I think they’ll pay a premium for like a really nicely done small dwelling. And some people get burned out on apartments. Some people are tired of neighbors and stomping so I think if you have a two-bedroom house but it’s really cute and it’s in a good location, I think there’s still going to be a demand for it, that’s sort of been my plan.
I agree. And I will say that furnishing a four-bedroom house, because I’m doing it right now, is a beast. It is so much work. It’s just so much furniture. So, yeah.
Yep.
All right. Z, I think it’s about that time to head into the final part of our show, which is the…
The Final Four.
Before we get there, Natalie, do you have any parting words of wisdom for the listeners?
My parting words of wisdom would be start gathering, I don’t know when this will come out, but it’s well — like at any time, start gathering your tax information now. Please do not call on April 13th. They will not be happy.
Getting started in April, you’re already late. Just do something, do something today to get your taxes in order. Share on XSounds good. ‘
All right, Z, kick us off.
All right, Natalie, what are you reading right now?
You know, shameless ploy, but I’ve got two things I’m reading right now, 30-Day Stay and then Published, which is —
Nice. Are you going to write a book?
— which is about publishing your first book. I’m hoping to, so that’s another one of the goals for the upcoming year.
Yeah.
That’s exciting. Yeah, I read that book too.
It’s not as hard as you think.
She’s like a little easy.
Yeah.
Yeah. Well, Craig also told me it was easy and then it was. Thanks, Craig.
You’re welcome. It is pretty easy. You just got to be consistent with it.
Yeah.
Natalie, question number two, what is the best piece of advice you’ve ever received?
I think the best advice I’ve ever received is make sure you’re never the smartest person you know. I think that goes severely underrated. I think people get really complacent easily and it feels good for your ego to be the person everyone asks questions to but you should have questions. There should be someone bigger than you to learn from at all times.
Absolutely.
Yeah. I like that too. It’s making me think. All right, question number three, what is your why?
For me, my why is really just having my time back and having the freedom, and I think a ton of people say that and it’s pretty vague but getting into tax, this is an industry where you’ll see people work themselves crazy hours and work themselves into the ground and I knew really early on that I didn’t want that. So the why for me was getting to work in a career I love in an industry I love without that lifestyle. So that’s sort of where the passive income in real estate came in for me.
So how long do you plan to have your tax arm open for? You’re going to retire at like 45 or…?
It’ll be a while. I never want to be like, “Oh, I’m on the hard path to fire,” because my clients will be like, “What the hell, Natalie? We just got here.” So it probably won’t be that quick but that’s why I don’t have a firm with like a thousand clients. I never wanted the kind of job that was going to require me to work 40 hours a week, like it’s so hard to manage that scale of things so a small client base that I really like working with and where it’s virtual so I can be traveling, I can be in another country and still work with my clients so there’s not a hard retirement date in sight.
Love it. Okay, last question. What would be the funniest name for an accounting firm?
Ooh, you know, so my last name, as we obviously came across, is pretty tricky, and then one of my good friends, his last name is [inaudible] and it’s like 40 syllables, like 40 letters when you see it written out and we joke that we should merge and just call it like Two Accountants You Can’t Pronounce Firm or like Two Tax Pros Whose Names You Don’t Know LLC pretty much because we both run into that where people just call us and like mumble our last name, like I get, “Oh, is this Natalie Kvovo?” like they just sort of take a general K sound and mumble off.
I love that. Two Accountants Where You Don’t Know the Name, that’s the name — I’ll be looking out for that.
Bad Names Good Accountants, yeah, exactly.
Yeah, Bad Names Good Accountants, Okay, Natalie, where can people find out more about you?
Yeah, so you can find me and find information on me on the website, I’m just at kolotax.com or you can find me on Instagram, that’s probably where I’m most active, at @re_tax_strategist, there’s just underscores between them, but I’m at @re_tax_strategist or Real Estate Tax Strategist on most social.
Awesome.
Love it.
Definitely go follow Natalie for your tax tips. This time of year is a good time of year. It’s coming up, the deadline is coming up. Natalie, thank you so much for coming on and sharing everything, sharing your story and sharing some really good gold nuggets and, yeah, we really value your time here so thank you so much.
Thank you guys for having me. It was fun.
Yay. Okay, we’ll talk to you soon.
And that was Natalie Kolodij, Natalie Kolodij. Z, what did you think Natalie?
Yeah. So one thing I learned, which I really loved, is how she found her mystery market but it was really cool that she said, “You know, I was talking to different nurses, I was looking on the little nurse forums and on Facebook,” and she was saying, “It just seemed like this one market kept coming up and coming up and nobody could find places there.” I thought that was just really smart because everyone is trying to find the next place, the next big thing, the next opportunity, and there’s so many people in the short- and mid-term rental game that sometimes the competition just feels overwhelming. So I thought that was really, really smart.
You know what’s interesting? I feel like a lot of people what their mind goes to is that when you’re looking for a mid-term rental, you want to go and see that there are other mid-term rentals there on the market because that means that like something’s working if there’s a lot of mid-term rentals there, right? But no one kind of thinks about it from the opposite perspective of, well, maybe there’s too many mid-term rentals and none of them are actually getting booked. And so I think Natalie, it’s kind of like, Z, you’re kind of this way too where it kind of takes some cojones to be a trailblazer but it certainly pays, like there’s some risk to it but it pays and like you with the short-term space and now the medium-term space, there’s something to that to being this thing, like, “Oh, hey, this is gonna work. This is going to be big. I wanna be the first one to do it.” I think I’m a little more conservative. And so, yeah.
That’s okay, Craig. We’ll bring you along
Yeah, bring me along for the ride. I’ll talk about getting into it and get really excited about it and right when it’s about time to pull the trigger, I’ll just decide to go back to my own ways.
Yeah, you’ll just buy another long-term rental. That’s basically what happened this last time, but that’s okay.
Yeah, all the time. But, yeah, so, Z, anything else you want to add about Natalie or anything like that?
Well, I think there were some great tips there and, sometimes, tax stuff is just hard to digest so go back and listen to this podcast a couple of times or just write down some notes around those three things that she said to go talk to your CPA about. And if you need a good recommendation for a CPA, we both have people that we can recommend so just reach out to us on Instagram. I’m @zeonamcintyre and you are…
@thefiguy.
Yeah. And we would love to chat with you. And then, last thing, if we can ask for a favor, we ask for this all the time but if you’re finally listening to the end then maybe this is new for you, if you could leave us a rating and review, and iTunes is a great place but anywhere that you listen to your podcasts, that would help us a lot. So please do that and share our show with your friends.
Awesome.
And we will see you next week.
See you, guys.
—
And that was Big Time Cammie Whammie, Cammie Cooper. Z, what did you think about Cam?
I really love Cam. So this is probably one of his first podcasts and maybe he was nervous but Cam is so fun and warm and sweet so if you guys do end up in Atlanta, go to the REI Meetup and meet Cam and Vince because they are really changing the way that Atlanta invests. I don’t know, it’s really exciting to be over there in the cutting edge and helping people get into house hacks and especially in a market that is so affordable, it just seems like there’s a lot of possibility. I think it’s a great market.
Yeah, I’ve got a good buddy, actually, who buys houses in Atlanta and just doesn’t rent by the room. I think he’s got like probably 12, 13, or 14 of them and he just like cash flows like crazy there. It’s one of those few markets where prices are still relatively low but rents are actually kind of high and you definitely can make some good numbers work, you’ve got the appreciation, like Atlanta is a great market.
Yep. Well, guys, I hope you learned a lot and I hope that you reach out to Cam and to us if you have any questions. If you don’t know, we can connect you with an agent anywhere in the US and so not only do we have our own agents on our team in other markets but we vet a lot of agents and we love to give referrals so please let us know if you need help. And with that, we would love a rating and review. This time, I’m actually not going to ask for it for our podcast, you guys already know we want those, but if you have read The House Hacking Strategy or 30-Day Stay, leave us a review on that, because those are really, really important to get them in the hands of the right investors that are looking for our information. So, yeah, we would love that. Thank you so much.
All right. See you guys all next week.
Important Links
- biggerpockets.com/30daystay – Use code ZEONA for a 10% off
- BiggerPockets
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- Craigslist
- MLS
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- Kolodij Tax & Consulting
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