Introduction and Audio Check
00:00:00
Karmi Gutman: Just before we get into today’s presentation, I just want to make sure everyone can hear me. If you can hear me, give me a thumbs up or type into the chat box. I see one thumbs up. That is a good sign. Let’s see another. Excellent. Great.
So, it is officially 12:01, so we’ll get rolling. To quickly introduce myself, my name is Karmi Gutman. I am the financial planner here at Lifestyle Planning and Keystone Law Firm. Today will be a little bit shorter presentation than usual, but we’re going to be talking about hopefully making sure we can get the maximum value out of our rentals.
This will actually be something that will be a new service offered to Keystone Law Firm members as part of your TrustCare, as well as if you’re part of the Retirement Management Office with Lifestyle Planning. It is a new service that we’re going to be offering out, and we wanted to see if it would be a benefit to anyone.
00:04:01
Karmi Gutman: So, we will go through what are the things that we can figure out together when it comes to rentals because, when it comes to specific situations, we’ll have different recommendations across the board. It’s not helpful to give generals, but we are hoping that with today’s presentation over the next 30 minutes or so, we can talk through—Yeah, I saw it. Yep, I saw it.
Try that again. Sorry about that, everyone. Lost connection there for a second. Can everyone still hear me? One thumbs up… see another. Okay, sorry about that. What’s the saying? Technology gives you two steps forward, three steps back sometimes. So, we will just move forward from that.
But like I was saying, what we’re going to be sharing today will take about 30 minutes or so. I’ll leave a couple of minutes at the end for questions. But the goal is just to see if you’re currently a Keystone TrustCare member, or if you’re part of the Retirement Management Office with Lifestyle Planning, to see if maybe we can add some value to you.
Legal Disclosures and Housekeeping
00:05:40
Karmi Gutman: Okay. But before we do that, there are a couple of things I just need to let you know. When it comes to anything that is discussed in any type of the videos that are done by myself, Michelle, or Francisco, all of these do not constitute any type of specific advice in any form or capacity. This is just purely educational as well as just informative, to put it more bluntly. So please don’t act on anything that we do or discuss at this time because, again, this is just purely educational.
The last point here is if you happen to work with us on the Retirement Management Office side with Lifestyle Planning: we have a couple of notes that no matter how strong the investment thesis is or the portfolios that we build for our clients, they always involve risk, right? So, it’s always best, no matter what’s discussed, if there are any questions, don’t hesitate to reach out. But please don’t act on anything that we discuss because this is just purely educational.
00:06:54
Karmi Gutman: Since we got through the legal disclosures, let’s get through today’s presentation. I am fighting through a cold, so I apologize if I’m a little hoarse. I will do my best to be as clear and as concise as possible.
Last thing to point out: this video is being recorded. So, if you’re not comfortable with the recording, you do have the capability to leave at any time. You can just hit the little red button on the bottom where it looks like a little phone being face down. If you’re not comfortable being recorded, please leave at your convenience by just clicking on that red button.
Case Study: Dr. Pepper and Mrs. Pib
Karmi Gutman: Today, let’s go through the presentation. I thought it would be helpful if we go through a sample situation that maybe we can help partner with. The property that we’re going to be demonstrating—I did get permission from this specific couple to utilize it. They just asked me to not utilize their real names and such, but they like to go by the pseudonyms of Dr. Pepper and Mrs. Pib.
00:08:08
Karmi Gutman: They’re both Dr. Pepper and Dr. Pib fans, so I just thought it was suitable. So, let’s go through this case. They are Dr. Pepper and Mrs. Pib. They recently retired. They filed their taxes jointly. Age 65, so they just got on Medicare. Their adjusted gross income is about $100,000.
The reason why that’s important for those that are not aware: a lot of different benefits for Medicare, Social Security, and other types of benefits utilize adjusted gross income or modified adjusted gross income. So we utilize that as a point for tax purposes. They currently have a rental property in Sugarland, Texas, and they’re just looking to see if they’re getting the most out of their rental and to see if there are any opportunities where we can partner together.
Introducing ReWealth Planning Software
Karmi Gutman: We utilize a new software that’s called ReWealth, and we’re going to switch to that right now. This is called ReWealth. Essentially, what it is, is a planning software specifically designed for rental properties.
00:09:19
Karmi Gutman: It was created by Dylan Kensington. You can look it up on LinkedIn: ReWealth Properties or ReWealth Reports. They essentially found an opportunity where a lot of estate attorneys or financial advisers and planners shy away from having hard conversations when it comes to rentals because they are indeed just difficult to deal with. As a result, he created software to allow us to be able to answer those difficult questions and to at least make it so that we have a much easier opportunity to help our members make an informed decision when it comes to their rentals.
The property that we’re going to be talking about is, like I said, in Sugarland, Texas. There’s no limitation to this as long as it’s within the US. That is the only limitation; if it’s international, we’re not able to really give as much guidance on that.
Essentially, how we are able to pull in information regarding your rental property is we utilize your tax return.
00:10:33
Karmi Gutman: Because on your tax return, you usually have a specific tax document related to your rentals. There’s usually a depreciation schedule associated with that. Essentially, it pulls in the data from the tax returns as a starting point, and then we can make edits based off of any missing details.
This has been actually really helpful because one thing that we’ve been able to find for a specific member of ours is that they didn’t have a depreciation schedule on their rental. And that can be a “no-no” not to have, because what will happen is when you go to sell that rental down the line, if Uncle Sam does not see that you have been applying some sort of depreciation expense to your rental property, they will essentially make a way for you to have to retroactively calculate it so they can tax you on the difference. What I mean by that is that depreciation reduces your basis in the property. So, when you go to sell it, there will be some sort of recapture that happens at the end.
00:11:38
Karmi Gutman: So, it is very, very important that you have one. It is one of those things that is kind of helpful utilizing tax returns because if we don’t see one, it’s an easy fix with your CPA to get that rectified.
Analyzing the Property Value and Market Rent
Karmi Gutman: But the reason what we’re going to try and see today for Dr. Pepper and Mrs. Pib is to see: is their property that’s located in Stafford, Texas—are they getting the best value for it? So, we’ll jump into that property and let’s see what we can find out.
The address that we’re looking into is 3130 Asbury Court in Stafford, Texas. What we know is they originally bought this house for $250,000 back in 2000. They paid all cash for it and they’re looking to see what the value essentially is. Now, what happens is that in the software, it utilizes software like Zillow and Redfin to essentially see what is the current—I apologize for the coughing, I’ll do my best not to cough in everybody’s ear.
00:13:07
Karmi Gutman: But essentially, it gives us what is essentially the value. As we all know, whatever the estimated value is doesn’t necessarily mean that’s what someone’s willing to buy it at. However, it just gives a good basis.
At first glance, the first thing we can notice is it looks like it worked out really well for Dr. Pepper and Mrs. Pib. They spent $250,000; it’s probably worth somewhere around $400,000. Not a bad potential return for that.
For those that want to get into the nitty-gritty, we have the capability to do specific valuation metrics to see if it has been a worthwhile investment. If you’re looking to potentially see what was the cash-on-cash return, hypothetically speaking—what is the return you made year-over-year if you paid cash for it originally and are getting cash out—what is that return going to be? What is the cap rate? In real estate terms, what is that pure profit return you get every year based on the net operating income that you generate from the rental?
00:14:16
Karmi Gutman: As well as what is the return on equity? For us, not always, but sometimes the return on equity and cap rate are the same. But for those that want to get nitty-gritty, we are able to calculate those metrics based off what we’re able to see on your tax return.
The first question that Dr. Pepper and Mrs. Pib asked me is: “Am I getting the market equivalent rent?”
What we are able to do is create a report for them to see exactly what the market rent is that they are getting at this time relative to what they are collecting now versus the current market level rent. We can create a filter and say, “Okay, what is the actual rent that I’m getting for this specific property?”—excuse me—and see if we need to potentially increase the rent for this specific property relative to the market. We can run a report for you utilizing these inputs, and it can come out for you in a nice one-pager report.
00:15:40
Karmi Gutman: I’m kind of simplifying; I ran these reports in advance, but we can essentially create a report saying exactly how the property has done. For example, what they’re currently collecting on that 3130 property is around $8,500 in rent a year. Looking at the rental comps, maybe we can increase it a little bit. Instead of getting $8,500 a year, maybe we can get $11,000 for it utilizing current rental comps.
We are able to adjust it to see: the current property is a four-bedroom, three-bath, so let’s go and see what other properties have a similar structure and make sure that we’re getting the most rent for it. It gives us what the main comparisons are, where the median price is for that, and we’re able to give some information to anyone we partner with to make sure they are getting the maximum rent possible.
Ownership Structure and Area Analysis
00:17:04
Karmi Gutman: Other things we can look to see, usually when we get into more unique situations, is how it should be owned. Is it currently 100% owned by you? Is it owned in a trust or an LLC? We can get a little bit more unique with these in your situation.
But at the end of the day, we can run very direct projections as well as analysis for you just to make sure that from an estate planning perspective, it is being held in the appropriate structure to make sure that you’re maximizing the rent that you’re collecting for that property. So the first question we can help you answer is: “Are you getting the maximum rent that you want?”
The next question maybe Dr. Pepper and Mrs. Pib have is wanting to buy another rental in a similar area. So, we can run an area analysis for you. How has Sugarland, Texas been as a destination for other potential rental properties?
00:18:21
Karmi Gutman: How is the crime level? What percentage is violent crime? How much total crime is there? What’s the unemployment rate? How many people are actually moving in within that area? What is the average rent? What is the rent percentage to income? These are all metrics that you can utilize to make sure to see: one, do I want to buy another rental in this area? Or two, do I need to increase the rental?
We can also look to see if maybe you want to make a consideration to potentially sell this rental—how many are currently for sale, how many are for rent, etc. Because that can give very nuanced information that you’re looking for to make an informed decision.
Apologies for that. But what we’re trying to get at is whatever information that you’re looking for from an area analysis, we most likely have it so you can make that informed decision.
00:19:39
Karmi Gutman: What are the common heat sources? What is the distribution of rental properties available? How many bedrooms are they? What is the average square foot? What’s the estimated cap rate? A reminder with the cap rate for this area: remember, that is the pure profit return that you’re getting year-over-year. That’s what that cap rate means.
So we can partner together so that you can see if it makes sense to buy another rental, what exactly are the market rents, and kind of go from there. Also, maybe if you’re looking to relocate and you have a specific property in mind, you want to know what the potential risks are. We can go in and see for this area—Texas, specifically Sugarland—they’re known for floods, sometimes some hurricanes, maybe a tornado here and there. These are all risks that maybe you want to consider when you’re buying insurance for those rentals.
00:20:38
Karmi Gutman: So, these are all things that we want to make sure anyone who partners with us—from the TrustCare side or the Lifestyle Planning/Retirement Management side—is aware of. These are all downloadable PDFs that we can hand to you after we just make sure it’s exactly what you’re looking for.
Financing Improvements and Exit Strategies
Karmi Gutman: Some of the other nuanced things that we can do, which can sometimes be useful for certain individuals, is: “How do I go and tax-efficiently finance in order to improve my rental or to improve my home property?”
Let’s say you are considering adding a new bedroom or adding a pool. What is the best way to go and seek financing for that? Is it a line of credit? Is it getting a private loan? What will the value hypothetically be if I added this bedroom or I added this pool? These are all nuanced things that we can model and essentially run an analysis for you so that you can, again, make that informed decision.
00:21:47
Karmi Gutman: So at the end of the day, this ReWealth tool is something that we’re hoping will be a value-added resource to you. At the end of that meeting, we’re able to generate a report for you, print it out, and you can utilize it from there.
To quickly summarize, what are the questions that we can help you partner on if you’re a TrustCare member or part of the Retirement Management Office?
Am I getting the market level of rent?
What is the most tax-efficient way to raise funds for a home or rental improvement? Is it taking a loan? Is it a home equity line of credit? How does that impact my taxes?
Does it make sense to sell my rental?
00:22:47
Karmi Gutman: If you’re getting X amount of income from that rental, what will the tax situation be if I sell it? How do I replace the income if I’m looking to sell? And lastly: How does my property compare to others? Through that area analysis report, we can see your current rental relative to others from a safety perspective, a median rent perspective, etc.
Like I said, a pretty short presentation today, and it was done on purpose because it is unhelpful to give general guidance regarding rentals since it’s such a nuanced space. But we were just hoping to utilize this 20 or 30 minutes to see what the capabilities could be if this is something that you wanted to get some help on from us in the future.
How to Get Started
00:23:52
Karmi Gutman: If this is something that you’re interested in learning more about, and how you go about getting these scheduled—if you’re already part of TrustCare or the Retirement Management Office, you can call that number listed there. You can send me an email. If you’re not comfortable calling that line, you can call the Keystone line that you know already.
But it is something that we’re really, really excited to be offering out. The firm thinks as well it is a valuable resource that can help anyone who is looking for that second level of information that’s not going to be biased from your management company or sourced from Zillow. Or, let’s just put it bluntly: you don’t want to do the work. This is a nice way to essentially get those questions answered.
Q&A Session
Karmi Gutman: So, I’ll kind of open it up for questions at this time.
00:24:52
Karmi Gutman: If you’d like to ask a question, there is a chat box feature to the right of the red button. You’ll see there’ll be a “Chat with everyone” section. Feel free to type your questions in there. If not, you do have the capability to unmute and ask the question as well.
So, James, great question. If you’re looking to go and get ReWealth… well, let me rephrase that. It is available for everyone. If you’re looking to look it up online, it is specifically tailored to financial professionals. So, you will have to put in your CRD number or SEC number for that. Once you do that, there is also a monthly fee to get onto that. So, it is something that is available; however, you do have to be a “financial professional” because that’s who it was designed for.
00:26:08
Karmi Gutman: Again, to put it bluntly, it was designed as a tool to help estate attorneys as well as financial planners to be more informed on how to handle those rental conversations that many may choose to shy away from just with the specific nuance associated with them. But good question.
What other questions? I don’t see any coming in… a couple came in. Okay, we’ll go through it.
“Are there other tools that are similar to this that can compile information about rentals and the areas?”
In a concise manner like ReWealth does? I believe no. But can you piecemeal information together? Yes. Utilizing reports from Redfin, Zillow, Apartments.com, or any of those other third-party sites. Yes, you can generate what you’re getting here through them, but it will take a lot of piecemealing together. What ReWealth does really, really well is that they take the integrations from those websites to fill in blanks that your tax return does not have.
00:27:58
Karmi Gutman: And it utilizes that to put all the information in one place. So, ReWealth does a really nice way of putting it into one digestible place for you to see it all, which is why we think it can be valuable for a lot of our members to consider getting a second opinion on. But like I said, yes, you can get the information; it’s just going to take a lot of piecemealing based on the sites that I mentioned.
Another good question came in: “Can a tool be utilized to check management companies’ recommendations?”
At this time, the answer is no, because the software was designed specifically for financial professionals to handle those very nuanced questions. Well, let me put it this way: think of it as a way to help check what you’re getting from your management company to ensure that whatever you’re paying them, you’re getting the most out of. What you don’t want to see from your management company is them saying they can collect X, but then the report is saying Y.
00:29:08
Karmi Gutman: That might lead you to a question to ask the management company: “Why haven’t you adjusted my rents to this? This is what I’m seeing.” So, this can be a nice way to “gut check” your management companies and just to keep them honest. But can it be specifically utilized directly to check management companies? No. This is more of a gut check. But good question.
Final Wrap-Up
Karmi Gutman: One other question that wasn’t really answered… give it another minute or so. All right. If there isn’t anything else, please feel free—as questions arise after this presentation—to give us a call. You can call the Keystone line or the Lifestyle Planning line. You can email me directly.
“Will this webinar be available later?”
Great question.
00:30:40
Karmi Gutman: What will be happening is, just for compliance, we have to review it quickly to make sure there’s nothing that’s not supposed to go out. But once it’s gone through compliance review, this will be posted later on the Keystone Law Firm YouTube site for those that want to come back later to see some of the options available.
Again, this is already something that’s going to be included as part of your TrustCare if you’re a TrustCare member, or if you are part of us with RMO on the investment side with Lifestyle Planning. So, there is no cost for that. But short answer: yes, it’ll be on the Keystone YouTube site.
Any other questions? A short one this time around, but I felt it would be better to be short and sweet with this because this can be so nuanced. It’s just better to go through specific recommendations once we have all the details.
00:31:56
Karmi Gutman: That’s really what it comes down to. It was more just joined to express some excitement about a new capability that we can offer to our TrustCare members. So, we hope this was not a waste of 30 minutes. We hope you’re able to think through something or have a question for later. But again, thank you guys for the time. This will be posted later for those that want to come back to it.
Thank you guys so much.
Transcription ended at 00:34:45
