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Tax Smart Real Estate Investors Podcast
346. From Cockpit to Capital: Tax Strategies High W-2 Earners Need to Know with Tait Duryea
00:55:42
From the cockpit to commercial real estate, Tate’…
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Host 1 (Podcast Announcer)
You're now listening to the Tax Smart REI Podcast, the number one tax podcast.
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Host 2 (Co-Host, possibly a CPA or tax expert)
For real estate investors.
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Tate Doria (Guest, Founder and CEO of Turbine Capital)
Your source for.
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Podcast Outro Announcer
All things real estate, accounting and tax. Here we reveal our secrets that can save you thousands in taxes, streamline your accounting process and help grow your business. Stay tuned to hear insightful interviews with industry experts, successful real estate investors and current clients on what strategies they use to grow their business and how they steer clear of Uncle Sam.
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Host 1 (Podcast Announcer)
Thanks for tuning into this week's episode of the Tax Smart REI Podcast. Today we're joined with Tate Doria live at the 2025 tax and legal Summit. Tate is founder and CEO of Turbine Capital. As an experienced airline captain and third generation aviator, Tate combines deep industry knowledge with more than a decade of real estate experience across single family, multi family self storage, industrial mobile home parks and short term rentals. In 2020, he launched Turbine Capital to provide pilots with access to institutional quality real estate and alternative investments traditionally reserved for ultra high income investors. He later expanded with the launch of the Passive Income Pilots podcast in 2023, which has quickly become one of the fastest growing financial podcasts on Apple and Spotify. We're going to be diving into all of that good stuff in just one minute. After talking with clients and fellow real estate investors, one thing was clear. There wasn't a newsletter that delivered real market insights, concise decision making info and relevant tax strategy all in one place. So we created it. REI Daily delivers real estate news that won't put you to sleep, real and concise market insights that aid in your decision making, legislative updates that actually impact your investments, and tax strategies sprinkled in because the IRS does not need a tip. If you're a real estate investor who wants to stay sharp without sifting through all of the clickbait or fluff, this is for you. And to celebrate the launch, you'll have a chance to win a free one on one tax strategy call with one of our top real estate experts. No pitch, just strategy. Subscribe now by visiting www.therealcpa.com.
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Tate Doria (Guest, Founder and CEO of Turbine Capital)
Subscribe again.
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Host 1 (Podcast Announcer)
You could subscribe now by visiting www.therealcpa dot com. Subscribe. We'll see you in the inbox. But now, right back to the show. Tate, could you just give us kind.
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Host 2 (Co-Host, possibly a CPA or tax expert)
Of an overview of how you kind of got involved in real estate?
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Tate Doria (Guest, Founder and CEO of Turbine Capital)
I'm an airline pilot by trade actually, but the real estate bug caught me very early in life. You know, I had some great mentors when I was growing up, namely two of my uncles who were both Pilots. One of them I was really close to because he didn't have kids. And he was sort of the cool, the Funkle, right? And he was very financially savvy, but he was a stock market guy. And you know, he was the one that gave me the rich dad, poor dad book when I was really young. And he also gave me some real estate books. And something didn't connect between what I was reading in these books and what was possible. If you invested in real estate heavily, you leveraged the tax code and what he was doing in his life because he was doing well. You know, airline pilots make very good money and he invested a lot of it, but he wasn't killing it. And that, that set the groundwork for, you know, me going down the rabbit hole of high net worth strategies, alternative investments. So I didn't know what I didn't know, of course. And I started when I was young. I bought my first property when I was 25 years old. It was a three bedroom house in Las Vegas. Timed it pretty well, it was in 2012. So I was able to buy below replacement cost, rent it out to a nice family and that was my foyer into real estate. That was the absolute earliest that I could possibly do it because back in that era, pilots when you were coming through the ranks, you didn't make much money. So I was scraping together pennies and that was the first real estate asset that I was able to buy. And I went from single family to multifamily to LP positions and syndications. And I've invested all over the map and I'm just really passionate about the alternative investment space. And we can talk about why, but you know, stocks have a place in everyone's portfolio, of course, but it's not the whole picture and that's what we educate pilots specifically and other professionals about on the podcast, is that there's this whole other world world that, you know, deca millionaires, centimillionaires are familiar with that typical middle to upper middle class people just aren't.
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Host 2 (Co-Host, possibly a CPA or tax expert)
That's awesome. And I, you know, a lot of people do come from that traditional financial background of everything in, in the, you know, in the public market, stocks, ETFs, things like that. There definitely is some room for diversification in there and you know, investing in limited partnership interests and syndicates and funds, certainly a way to do that. I know I certainly have exposure there. You know, out of all the different investment strategies out there, there's burr, there's.
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Tate Doria (Guest, Founder and CEO of Turbine Capital)
There'S like done by, what is it? Buy Renovate, rent, refinance, repeat.
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Host 2 (Co-Host, possibly a CPA or tax expert)
Right, right. There's that, then there's just traditional. Just like I'm going to buy and hold, you know, just the turnkey property. There's short term rental investing, which of course is on fire right now across the U.S. you know, why dive into the route you specifically went into?
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Tate Doria (Guest, Founder and CEO of Turbine Capital)
You know, I didn't have a plan. And I think that's what we help our investors to do is we illuminate. You know, both my co host and I illuminate the path for people. Because when I was coming up in the early 2000s, early 2010s, there was not nearly the amount of financial education out there on YouTube and podcasts, and you really had to go digging for it. And so what we try to do is illuminate that path for people. I was really shooting in the dark, so it was like I didn't know anything other than to just go and buy a single family home. And then you read some more books, you're like, oh, multifamily sounds good. And so you'd make that jump. And there's a whole learning curve, especially in the debt markets, when you jump from residential to commercial. And then you realize, gosh, I'm just picking up scraps because all the really good deals have been picked over by professionals. And that's when you say, well, maybe I should just invest with these professionals. And so made that jump and had varying degrees of success. The successful deals were very successful. And so really I got to where I am by making all the mistakes myself, which in aviation we always say, you don't live long enough to, to make all the mistakes yourself. So you got to make sure that you learn from other people. So we've tried to do that along the way as well. But yeah, I've really taken a roundabout way to where I am today.
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Host 2 (Co-Host, possibly a CPA or tax expert)
Yeah, no, for sure. And, you know, before we kind of get into some of the tax side of things, what were some of the key mistakes that you learned along the way? Kind of investing in this type of space yourself, that some other people who might be tuning in, who are interested in investing as a limited partner, what advice would you have for them? What mistakes could you maybe help them avoid?
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Tate Doria (Guest, Founder and CEO of Turbine Capital)
Well, boy, I don't want to take up the next hour, so I'll have to pick a few. So I'd say the first one is, if you're going to buy commercial property, if you're going to buy anything that's over four units, buckle up, because it's going to be a Much different experience than what you're used to. Make sure that you get some education, you find some mentors, and you get ready for what that experience is going to be like. Trying to find debt on that property. Maybe before you go identify that five plus unit property, start talking to some debt brokers and line that piece of the puzzle up. Because it can be very difficult, especially if you're out of state, to line up financing on a commercial property when you're, when you're jumping from residential to commercial. That's one tip. I also would say that if you're investing passively, newer investors tend to look at target returns. And instead what you should be looking at is the people. And I love. There was a quote from the CEO of BlackRock the other day, and someone was saying, finance is all about numbers. And Steve, you're not really good, you're not a mathematician, you're not particularly good with math. How did you become so successful in finance? And he said, well, you know, finance isn't really about the numbers. It's about, you know, there's all these models and the models create an output, but really what matters is the inputs. So what are the assumptions? What are the assumptions that are feeding into the underwriting, into the model that produce those outputs? So the output is going to be the target irr, the equity multiple the whole time. All those sort of things. There have to be accurate or robust assumptions, reasonable, robust and intelligent assumptions that go into that model in order to produce those target returns. And that's what people miss when they're newer to alternative investing, is they say, well, this deal has a 20% IRR. This one has a 24. I'm going to go to 24. It just doesn't work like that. And those, those estimates are going to be wrong the moment you take a property down. I mean, we know we're buying. I mean, we have tons of deals with, with our firm, but one of the deals we have is a 56 unit in Tempe, Arizona. We know that the moment we close on that property, all of our assumptions, all of our models go out the window and we switch from a forecasting position to a, an operating position. Now we are asset managing and we're property managing and, and all, you know, the whole thing comes to life. So you really need to evaluate opportunities by reading between the lines. Investing in people first, then the deal, then the market, then the deal. But really you're investing in people and you need to be paying attention to those inputs. What's driving those target Returns, what's driving the model.
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Ryan (Co-Host or Panelist)
That's great. I love that. I think that's absolutely true. As, as far as, like, where we're at, from your opinion, Tate, like within the market, you know, interest rates are where they're at. We're at with, with where we're at with the Fed and just things like that, prices of homes, commercial properties, things like that. Where do you kind of think that we're at as far as where the market's heading, interest rates are heading, things with tariffs that we're seeing that have, I don't know, kind of been lagged a little bit now as far as, like, importance of what we see in the news. But what do you kind of think we're at within the market right now?
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Tate Doria (Guest, Founder and CEO of Turbine Capital)
Of course. Great question. So I think that you can really bifurcate the market into residential and commercial. I think that, you know, my, my mother, my wife are both Realtors, so very familiar residential space as well as the commercial space. And when we talk about real estate, we're typically talking about commercial because it's what we do with my firm and, and we're all investors and typically we're talking about commercial real estate. But I think it's important to stop quickly on residential. You know, years ago when interest rates shot up, everybody thought, oh my God, home prices are going to crash. And I was one of those people saying, no, they're not, they're, they're not going to come down because the rate lock effect. So just a couple minutes on residential and then we'll pivot to commercial, which I think is more relevant. But on residential, we've had this rate lock effect where, you know, I have a 2 1/2% mortgage on 1 of my properties from COVID era. I never want to sell that property because I'm putting the majority of my payment every month is going to principal. It just doesn't make sense. And so, and when a homeowner has to sell a property at a 3% mortgage and they relinquish that and they have to buy into a 7% market, their monthly payment, their buying power is significantly diminished. So you have no supply. At the same time, inventory has been very tight. Now, you know, it's been build, baby, build over the last few years and it's catching up. So for the first time in, I think in history, but I could be corrected on that. New construction is trading at lower prices in the residential space than existing homes. So that means you can go out and buy a home, a brand new home that was Built by Lennar for cheaper because they've got, now they've got a supply glut. So we are finally seeing high interest rates start to affect buyers. You know, really just giving up and pulling back from the market. But at the same time, sellers don't have to sell. We're at record highs of equity in people's homes. This is one of the highest equity position periods in history where just, everyone just has a ton of equity in their homes. So most people don't have to sell. So it's creating a market that is very supportive of residential home prices. On the commercial side, of course, debt is your largest single line item expense in any commercial real estate project typically. And that affects cap rates. So cap rates have been fairly resilient through this debt market increase. Obviously anything you bought in 21 or 22, whether it's in a syndication deal or you personally went out and bought a commercial property, it's probably not doing all that great. Commercial real estate as a whole saw a decrease in valuation anywhere from 10 to 50% across the board. I think the bulk of like the multifamily stock nationwide has come down 30 to 40% from its highs. I mean, the asset that we're buying in a killer location in tempe right now, 38% below what a exactly similar asset right across the street traded for in 2022. So we're, we're, I, I think that we are in a, in a fantastic cyclical low. So not to, not to go on a monologue here, but when you talk about where we are in the cycle in the commercial real estate space, we saw this run up after Covid. You know, we've got 100% bonus depreciation. The Fed prints all this money. You know, everybody's looking for where to put that cash. Asset values increase because institutional capital as well as retail capital is flowing into commercial real estate. We see this big run up. Fed cranks rates five and a half percent in 14 months. This was not the biggest, but the fastest rate increase in U.S. history. So we have never seen the fed funds rate go from zero to a 5.5% rate as fast as it did. And that was like running commercial real estate into a brick wall that caused transaction volume to fall off a cliff. At the same time, builders were going nuts. Because when you saw during COVID rents increasing by 10, 20% year over year. And this massive gold rush in real estate, developers went crazy and debt was cheap. And so they started a bunch of multifamily construction projects. We saw and this is true in industrial multifamily, a bunch of different asset classes. But we saw this big wave of supply and that was this one, two punch for real estate that was purchased in 2022 was you've got all this competition from a bunch of new buildings, new multifamily, that's dumping into the market in 2324, starting to wane in 2025, as well as your cost of capital. If you were on floating rate debt, if you were using a bridge product went through the roof, I mean, talking about your debt doubling, the cost of your monthly payment doubling in six months, I mean that's, it's catastrophic. You cannot operate a property well enough to outrun that. So, you know, we've seen deals that we have a few that we bought in 2022. We are exceeding the pro forma performance in every single metric, yet we're negatively cash flowing because we got caught off guard with some bridge debt products. So when you look at where we are in the cycle, we've seen this massive drawdown in valuations, increase in debt costs, increase in vacancy, negative organic rent growth, and we're really in the trough now and looking forward. That supply, that new supply, all of those builders going nuts. Well, now the opposite is true. Because debt's expensive, it's hard to get deals to pencil. You know, this doesn't get talked a whole lot about, but with the ICE raids and the deportations, a huge percentage of construction workforce in this country is immigrants. You've also got tariffs, so material costs are more expensive. So all of a sudden you went from a, an environment where it was very easy to build and a lot of projects penciled to. It's difficult to build. Entitlement costs are up, labor material costs are up, and you've got 10% vacancy in a lot of markets. And so a lot of these developers have lost money on deals or gone bust. And so developers have pulled back massively. And now that is against the backdrop of a very healthy market foundationally, where you've got really strong absorption, strong rent growth, or well, I shouldn't say strong yet, but a reversal in that trend where we've come from negative rent growth to now we're bottoming out and it's going positive again. So we think that we are in this perfect cyclical low where it's just a really, really great time to be picking up commercial real estate assets and we're backing the truck up and getting our hands on as much as we can possibly get. So I'd love to I talked a long time there, so I'd love to kick it back to your court and get your perspective on that and I don't know, sort of open it up for discussion.
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Host 2 (Co-Host, possibly a CPA or tax expert)
Ryan, you have any questions there?
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Ryan (Co-Host or Panelist)
No, that's great. I hope that we're kind of seeing a trend, you know, going back up because I have friends who are in commercial real estate, as you are, Tate, and our listeners and our clients and so forth. So we'd love to see that be the case. And I hope that is.
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Tate Doria (Guest, Founder and CEO of Turbine Capital)
I think that you're just seeing that you can tell where you are in a market cycle by the kind of debt that's being put on projects. Because in a frothy market, it's really competitive, everybody's trying to buy and the only way to win a bid, someone's selling 100 unit apartment complex. The only way to win that bid is to go out and get bridge debt. But right now you're able to get fixed rate financing at five and a half percent. I mean, very healthy conservative leverage. And it's also very difficult to buy because nobody wants to sell, because everybody sees the same data that we do. But we just think it's a fantastic time in the market cycle because you don't have to depend on valuations climbing back up, cap rates compressing, rents rising. We're able to buy with positive leverage. And when you can buy at a six or six and a half percent cap rate with five and a half percent interest debt, that's a good deal. I mean, I don't care where you, where you are, what the asset is. If you can buy with positive leverage at a 5 and a half percent interest rate, it's a good deal. And we're just in a great time in the market cycle. Much more healthy than it was a few years ago.
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Ryan (Co-Host or Panelist)
Yeah, it's also very interesting as my last comment, then you guys can kind of take back. But just as we've seen kind of, you know, the last few months, I don't know how long this has been going now, so don't quote me on this anyone. But just as kind of the market, the stock market continues to kind of go up and we've hit like new highs like for the next last few months. And we've kind of potentially, like you said, in the commercial space, kind of hitting these lows. As we kind of see like, oh, this starts to, you know, perform better. I wonder if we'll start to see like, oh, this has hit a peak and now kind of prices maybe start to Drop here people move capital from the stocks into commercial real estate, something like that.
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Tate Doria (Guest, Founder and CEO of Turbine Capital)
Absolutely. And I want to be, you know, we've mentioned this on our podcast, we've mentioned it on some webinars ours recently and we're very cautious with this because we don't want to come off as providing financial advice. But you are spot on. I mean the stock market is, is soaring and I'd love to talk about that and the recent executive order about the alternative investments in 401ks. But it can be difficult because everyone has recency bias. Right. And if you invested in multifamily in let's say 2022 or really anything in 2022 in real estate, it's probably not doing very well. And you're like, ooh, I don't know, my stock portfolio is doing great, I'm going to do more of that. But you really have to think about the fact that these trends don't draw themselves out in the same direction into perpetuity. And so it could be a fantastic opportunity. And you know, it's very difficult to time the market. So who knows if it's exactly the right time. But what I'm looking at is, hey, stock market is at all time highs. Real estate's at what looks like to be like a cyclical low. It might be a great time to rotate. And with 100% bonus depreciation, you know you can offset a lot of those. The stock market gains.
- [20:59]
Host 1 (Podcast Announcer)
What real asset exists that 95% of real estate investors know virtually nothing about? It's right under your feet and can perform just as well or better than traditional real estate. We're talking about oil and gas. Mineral rights are unique. It's a deeded real asset that qualifies for 1031 exchanges and can be held in a self directed IRA and generates monthly royalty income without the headaches of 10 or property management. And for high income earners, working interests offer something rare. 100% first year tax deductions against W2 or 1099 income. Eckerd Enterprises has helped accredited investors build wealth in US energy for over 40 years. Their assets are deeded, titled and directly owned in perpetuity. Many are passed down for generations. To learn more about how oil and gas can support your tax strategy and long term income goals, visit www.ecker enterprises.com tax smart rei Again, that's www.eckert enterprises tax smartrei. That's it for now. We'll dive right back into today's episode.
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Host 2 (Co-Host, possibly a CPA or tax expert)
That's good insights. There we Definitely can't be giving financial advice on here, but for sure. But we'll circle back to some tax things in a second here, but kind of my question is, I'm a limited partner. I invest in a lot of deals. I'm fortunate to have stopped my investments in multifamily in 2021 because I saw what was coming up the pipeline and I got, I didn't get washed out in the bloodbath of all these capital calls, but there's a lot of syndicators out there and someone like, just for myself, for example, I'm very fortunate to be able to generate very good deal flow in that space. So if someone is considering, if they're looking at a lot of syndicators, what are the top things you want to look for in that person you're investing with? What are the top things you want to screen for? Because as limited partner. Should limited partners be going and doing the underwriting on the properties and verifying the metrics that the syndicator has or the sponsors put together, or should they just be trusting the sponsor to have put together that information in a good way?
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Tate Doria (Guest, Founder and CEO of Turbine Capital)
I think that it's sort of like dating. If you live in a small town, you don't really know what's out there. And it's the same thing for a lot of newer LPs is they have a very narrow scope of their network. We talk about this all the time, which is one of the things that we try to do on our podcast is give our listeners an expanded network, is expand their scope so that, you know, as you build your network and your knowledge and your, your just, just the people you know. In the alternative investment space, your vision goes from sort of tunnel to more wide. And oftentimes people jump into the first deal that they see with the first person they get introduced to. And it's very difficult to tell whether that's a good deal or not so good deal, because you have no context. You know, if I tell you the number is 67, is that high or low? It's like, I don't. It does. It depends on the number set. I have no clue. So I think the, the key for LPs is to, you know, don't jump into the first deal you see, meet some people, go to some real estate conferences. You know, you're already on the right track by being in attendance of a summit like this. But learn, grow your network, look at a lot of deals, and no, you don't need to go and redo homework and you don't need to learn how to underwrite, but you should definitely know how to ask some more intelligent questions like, okay, hey, what's driving the underwriting assumptions? And get the numbers set right. Because if they say, well, we're expecting to exit at a 5.5 cap rate, does that make sense to you or do you have no idea whether that's high or low? That's where I think the education needs to come in, is to build context and build some just perspective and context within the space so that you can get a reading, a gut feel on whether this sounds reasonable or not. That's the best thing I could offer for that.
- [24:59]
Host 2 (Co-Host, possibly a CPA or tax expert)
No, that's good advice. That's good advice. Before we kind of pivot into the tax and accounting side of the equation here. If investors are tuning in here to the Tax and Legal Summit or Tax Legal Wealth Summit, excuse me, today, or perhaps on the podcast. And they want to learn more about Turbine, they want to learn more about you, what you have going on. What would be the best way for them to do that?
- [25:20]
Tate Doria (Guest, Founder and CEO of Turbine Capital)
Thanks. So we primarily cater to airline pilots, but we are open to everyone. Of course. We don't discriminate. We do help some other professionals as well. You know, if you're a high W2 earner, it really doesn't matter whether you fly airplanes or you're, you know, an orthopedic surgeon. You've got the same problems that, that any high income W2 earner has and that's high taxes and, you know, less than ideal exposure to alternative assets usually. So you can find us@turbinecap.com we are a fund structure. We're not a vertically integrated firm. So we work with a number of partners throughout the U.S. we try to aggregate the absolute best partnerships that we can across multifamily industrial self storage, some oil and gas and debt. So a very, very diversified menu of offerings. So turbine cap.com check us out. You can also reach out to myself directly at Tate T I t@turbinecap.com all right, cool.
- [26:12]
Host 2 (Co-Host, possibly a CPA or tax expert)
So for everybody who is tuning into the podcast version of this, we'll have that, of course, in the show notes and I'm sure this information will be distributed if you're here live at the Tax Legal Wealth Summit this Friday. You know, I wanted to pivot a little bit. I know you do work very closely with our team, Nathan.
- [26:27]
Tate Doria (Guest, Founder and CEO of Turbine Capital)
Yeah.
- [26:28]
Host 2 (Co-Host, possibly a CPA or tax expert)
Regarding tax strategy and tax planning and like that type of kind of want to get your take on what are the biggest tax takeaways or biggest items that had the biggest impact for you.
- [26:38]
Tate Doria (Guest, Founder and CEO of Turbine Capital)
Yeah. So first of all, Nathan is fantastic. My tax strategist personally. We actually just co authored an ebook. It's 30 pages long. It's about the tax benefits of oil and gas investing, which can be very risky. But if you do it right and over the long term, and you're long term focused, it can be a fantastic addition to your portfolio. So in any case, maybe we can link that in the show notes. Nathan's got a beautiful headshot in the back of it and, and it links to your services as well. But in any case, that's one. Oil and gas. If you are investing in drilling, you can write off usually 80 to 90% of your investment amount in the year that you invest. So if you invested in 2025, you'd be able to take, you know, $100,000, you'd be able to, to show a K1 that's 80 to 90% negative. Now the key and the differentiator between real estate and oil and gas, as most people on this webinar probably already know, real estate is passive. Now, 1986, the IRS put up a wall between active and passive and they grouped real estate into the passive activity. Right. So it doesn't matter how involved you are, unless you're claiming rep status, real estate, professional status, all of those real estate losses are going to be passive. And if you're investing as an lp, then of course they're going to be passive. So it's not going to be able to go and offset your W2, unless of course, you're an avid follower of the Hall CPA team and you've got your rep status locked up, then maybe your situation is different. But for most people, real estate losses are passive. Oil and gas is non passive. And there are some caveats. You have to come in as GP with some additional liability during the year that you invest and then we can flip. Everybody flips to an LP in the subsequent year. But that is a really powerful tax strategy that I've personally used and a lot of our investors use to mitigate their W2 income. The other one is short term rentals, which we can dive into.
- [28:41]
Host 2 (Co-Host, possibly a CPA or tax expert)
Yeah, I was going to say short term rentals. I don't know. Ryan, what do you think? Do you think we should dive into short term rentals here?
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Ryan (Co-Host or Panelist)
We could, I mean we have spoken about that a lot. If, if you think Tate, like that's also something that you have used or you've seen your, you know, pilots in general, and we've worked with a lot of them, we've seen that very much used along with oil and gas. Very common for. Right. Airline pilots who you mostly work with being W2 employees. Not these kind of business owners or, or whatnot. That's something very common. So, yeah, I mean we can talk about that a little bit just for maybe some of you here. Like homemade. Holy cow. Don't, don't keep talking about that here. We've talked about that a lot. Otherwise for some of you, you're like, hey, I don't know. Right, Tell me about that. So I could see us going either way. Up to you. Yes.
- [29:24]
Host 2 (Co-Host, possibly a CPA or tax expert)
Yeah.
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Tate Doria (Guest, Founder and CEO of Turbine Capital)
You know, I can provide some, some additional color on it that I think will be useful. So just for a quick recap, you know, real estate, you can bonus depreciate real estate, right? And you can, so you can generate really healthy losses through real estate. And in some very low risk deals, you can generate K1s that show losses. It's just the problem for most W2 professionals. They don'. Have a huge appetite for that loss. We give you a K1 that shows a $50,000 loss. You don't have any passive income. There's nothing you can do with it. You make 600 grand a year. You're still paying taxes on 600 grand. So the short term rental loophole, and I'd love to get your opinions on how much longer this will exist because everybody's complaining that, oh, it's contributing to the housing crisis and yada, yada, yada, and, and also I think a lot of people buy short term rentals for the wrong reason. They say, oh, I'm going to buy it for the, for the tax write off and then they end up hating running an Airbnb. And although you, you really only need to do it now that we have 100 bonus depreciation for the first year and then you can flip it to a long term rental the subsequent year. But all you got to do is, is buy it, manage it for 100 hours and more than everyone else, correct me, you know, you guys, the tax professional, sir, you're right.
- [30:40]
Host 2 (Co-Host, possibly a CPA or tax expert)
Now you're right, you got it. You got it.
- [30:42]
Tate Doria (Guest, Founder and CEO of Turbine Capital)
So 100 hours and more than everyone else and then put it into service before the end of the year. So it's what, September right now this is the perfect time to start looking for your short term rental because there's a 30 day escrow period, right. So if you, if you find a great property. I don't know when this is going to air, but you know, in, in late September, early October, that takes you into late October, early November. You close on it now. You've got, you know, six to eight weeks to buy the furniture and set it up on, on Airbnb and do all the things. There's a great book by Dan. No, let's see. Dan Templin was on our podcast. He's got some great stuff. Shoot. We'll link to it in the show notes. It's called Optimize youe bnb and I'm, I'm drawing a blank on the author's name right now, but it's a really great book. I would say get your spouse involved if you're looking at a short term rental. There is no way that I would. Well, I'm not going to say I wouldn't have bought if, if I wasn't married and my wife wasn't incredible at managing this stuff. But it's just so much we said multiple times when we were, you know, furnishing this thing and running around to furniture stores and, you know, we went to the UPS store one day and we had like, like 67 boxes that they were holding for us. And that would just be miserable by yourself. So do it with a friend, do it with a spouse. Make it fun. But if you're just buying it for the tax benefit and you're trying to do it like across state lines and by yourself, you're probably going to be miserable. So make it fun. But if you find a property, you've got six to eight weeks to furnish it and do all those things, log it. You've got plenty of time to get that 100 hours in before the end of the year and you just have to get in service before January 1st. Now, it's my understanding that you don't even have to get it rented as long as you take screenshots and it's in service. On Airbnb, we always tell, you know, our friends and listeners and investors it's probably a little cleaner during an audit if there's actually a booking.
- [32:51]
Host 1 (Podcast Announcer)
Hey, real quick, if you've been a long time listen to the show, then.
- [32:53]
Host 2 (Co-Host, possibly a CPA or tax expert)
You know, we give everything away for.
- [32:55]
Host 1 (Podcast Announcer)
Free from how to use the real estate, professional status and the short term rental loophole to save tens of thousands of dollars on taxes to upcoming tax changes, including the potential return of 100% bonus depreciation. We don't hold anything back. And the only way we're able to help more real estate investors is if you rate, review and share the show. It just takes 15 seconds to leave a quick rating review or share with a friend who may find this information useful on their real estate journey. That's all for now. We'll dive right back into today's episode.
- [33:21]
Host 2 (Co-Host, possibly a CPA or tax expert)
Well, I'll comment on that, Ryan, then I'll let you answer questions. I do have an opinion how long this will last and I'm happy to share that episode. So, yeah, regarding the short term rentals, you do need to have at least one customer stay, at least one guest period of customer use, if not two. So they can't argue that there's not an average.
- [33:39]
Tate Doria (Guest, Founder and CEO of Turbine Capital)
There was a task.
- [33:40]
Host 2 (Co-Host, possibly a CPA or tax expert)
There was a task for case.
- [33:41]
Tate Doria (Guest, Founder and CEO of Turbine Capital)
This is good.
- [33:42]
Host 2 (Co-Host, possibly a CPA or tax expert)
There's a task for case that Justin, I believe, found Justin Shore on our team. And I forgot the exact case off the top of my head, but it had to do with a yacht. And although the yacht was being rented for seven days or less or that was the intention of the yacht owner and what ended up happening was in that case, the tax court had determined, the judge had determined that without any periods of customer use, it's impossible to determine the average period of customer use.
- [34:05]
Tate Doria (Guest, Founder and CEO of Turbine Capital)
So therefore a really good tidbit. So I'm taking that away from this.
- [34:09]
Host 2 (Co-Host, possibly a CPA or tax expert)
So, yeah, so you do need to have. We recommend too, because if you look at some definitions of average, the average is sometimes they'll define it as, you know, the, the average of two numbers.
- [34:17]
Host 1 (Podcast Announcer)
Right.
- [34:18]
Host 2 (Co-Host, possibly a CPA or tax expert)
And whatever the arithmetic definition of that would be. But they say two numbers, right. So if you only have one stay, then some may argue you can't have it. We've not seen that yet, to be very clear in an IRS audit. But that task court case does make it relatively clear that you do need to have at least one person. But having said that, Ryan, I'll let you go with your opinion there.
- [34:38]
Ryan (Co-Host or Panelist)
Yeah, definitely have to have a stay. Would agree. But to go to your question, the first one, which I always find most fascinating because you go on social media these days and you go to Instagram, LinkedIn, X whatever it is, you've got these people talking about short term rentals, short term rentals, kind of like us for sure. And a lot of people are going to reply into that, say that's risky, that's going to go away soon, blah, blah, blah. I don't know if I buy that Today. I think, yes, we've seen new regulations with cities saying, hey, we're going to crack down on this. HOAs are cracking down on these things and so forth. So there's a little bit of like yes kind of regulations coming in. But you do have pockets of all states here in the US where they have been vacation rental markets for 100 years, 50 years, like decades. Right. And so those places have already been kind of the economy that is supported in that area is all around vacation rentals. It's all around the tourists that come in every summer, every winter or wherever you're in, you know, the Rocky Mountains, the ski people come in and the whole economy is supported by that. So I don't think there's as much risk for that. And because this, you know, strategy, this regulation specifically that kind of carves out rentals with an average day less than seven, that's also been around for what since the 90s, the 80s, something like that. So also been around for decades. I also think about when I hear politicians over the years, they're trying to get rid of things like step up in basis and 1031 exchange. They're like, oh, these are the ultra wealthy, like you know, loopholes. Right. Never have I seen at least or heard that they're going to try to get rid of the short term rental loophole. And maybe that's something in 10 years from now where that's realistic. But now that we've brought back 100% bonus depreciation, there's all these things. I just find that in Today's World in 2025, September, I don't foresee anything to me that would say, oh, it's on the horizon that it's going to go away. So that's my own opinion around that.
- [36:29]
Tate Doria (Guest, Founder and CEO of Turbine Capital)
Yeah, no, I was just going to say with 100% bonus depreciation as well, I don't care as much.
- [36:36]
Host 2 (Co-Host, possibly a CPA or tax expert)
Right.
- [36:36]
Tate Doria (Guest, Founder and CEO of Turbine Capital)
If I'm in the prime earning years of my life, I don't really care because I'm going to get most of the depreciation on that property in the first year.
- [36:45]
Ryan (Co-Host or Panelist)
Right.
- [36:45]
Tate Doria (Guest, Founder and CEO of Turbine Capital)
And so if they take it away next year, it's like, okay, well bummer, but I got it.
- [36:49]
Ryan (Co-Host or Panelist)
Oil and gas.
- [36:50]
Tate Doria (Guest, Founder and CEO of Turbine Capital)
Oil and gas. Thomas.
- [36:52]
Host 2 (Co-Host, possibly a CPA or tax expert)
Yeah, yeah, no, I appreciate you bringing up oil and gas too because that is another strategy that's effective. But short term rental wise, like you know, like Ryan mentioned, we don't see anything any talk about removing or changing the legislation around what makes this tick. My opinion on it was before 100% bonus depreciation return was this is largely going to be settled at the local and state levels who are regulation the hoas, like Ryan's saying. I think that's going to make it restrictive enough over time. And then I also said that with 100% bonus depreciation or bonus depreciation in general phasing out, that would take care of itself. But now 100% bonus depreciation is back. What I think is the bigger question is it's a shame to see all the money that people are pouring into short term rentals because they're able to get the tax benefits with short term rentals specifically rather than maybe pouring it into affordable housing or solving the overall housing shortage. And it's just the Same that for 69 in general is blocking that. And look, I'm not a politician or nor have I looked at the federal budget to see what impact Section 469 is having on the budget or what types of revenues are being generated as a result of that. But it's just a really shame to see that we have a housing crisis instead of people going to build new housing or gentrifying areas, which we do have the Qualified Opportunity Zone Fund act or whatever, you know, fund program. But just a shame that you don't see more money pouring into other areas because of section four signs being restricted. So that's just something to think about. But yeah, I don't foresee short term rentals going anywhere.
- [38:18]
Tate Doria (Guest, Founder and CEO of Turbine Capital)
Yeah, in the short term I think that it's getting a lot of attention. And you know, in another five, 10 years, if there's attention put on, how are high income W2 earners getting out of their tax bills? You know, just like in 1986 when the, when the passive activity rules came in. You know, it's my understanding that that was because it was a bunch of high income earners using real estate to write off and they weren't paying, you know, a bunch of high earning doctors weren't, were paying taxes. I could be wrong on that. But I think that because of the, the dynamic within the housing market and you know, when you look at how can high income W2 earners offset their taxes? Really it's, there's three bullets. 1 short term rentals, 2 oil and gas, 3 start a side hustle, start a business on the side and so that you can run expenses through it. That's really it. And so if Congress moves to start closing some of those loopholes for high income W2 professionals, there's a whole other can of worms with ultra high net worth because I mean there's dozens of different strategies, the step up in basis and the 1031 exchanges and there's being able to borrow against your equity instead of sell. There's all sorts of stuff. But for I Think for the upper middle class people, it's pretty straightforward. I don't know. Do you guys have any more than those three that, that are kind of those silver bullets?
- [39:45]
Ryan (Co-Host or Panelist)
Tom, you're on mute if you want to jump in. I think I know what Tom's going to say, but I'm curious what he says.
- [39:51]
Host 2 (Co-Host, possibly a CPA or tax expert)
Yeah, so. So those are the biggest ones. There are charitable giving strategies that you could or that can take assets A, out of your state and then B, allow you to get a deduction now and still benefit from those assets. They're called CRUTS and Krat and things like that. I don't want to go too far into that. That's more in the financial planning space. But that is an option. The issue with that is most people in their prime earning years. Right. Who are in asset accumulation or wealth accumulation stage don't want to be giving away their assets. And I mean, that's different. This tends to be the case. Right, sure. Maybe somebody came into a huge boon of tens of millions of dollars. The number could be different for everybody and maybe they don't mind doing that. But usually when you start talking about charitable giving in any significant way, that's going to take assets out of your estate or out of your control during those prime years of asset accumulation, it tends to be a conversation that kind of sounds good in the beginning, but that really never goes anywhere, at least in my experience. But there are no other ones. The other one is to fundamentally shift if you're a W2, fundamentally shift how you look at earning and go more the business route. Now with that comes more risk, more responsibility, more things you have to watch out for. But then that way you do open up your, your path, like Tate kind of mentioned before, you can do a side hustle. One of my friends who I just spoke to yesterday, he owns a vending machine business and he's able to write off all of the vending machines because they're five year property and, and cell phone and his.
- [41:12]
Tate Doria (Guest, Founder and CEO of Turbine Capital)
You know, it's like you can start running things through the business that you were going to spend money on anyway.
- [41:17]
Host 2 (Co-Host, possibly a CPA or tax expert)
Right, right. And that, that becomes a shift in the way you look at earning because the W2, you are capped at the benefits that you can even get when you do execute these strategies. 626,000. So obviously the max loss you can take. So it's kind of rough. But Ryan, what's your take?
- [41:32]
Ryan (Co-Host or Panelist)
Well, I just wanted to add one more thing that Tay, you had kind of said earlier, which is like, hey, if you're thinking about this, like it's short term rentals and that is super common. But you kind of said earlier, which I appreciate, which is like, don't just get into this for the tax savings. And I would agree. Because what's so. Yeah, because what happens. And I've seen this actually with just a few, it's rare, but with a few clients, as you get into this looking for tax savings and it's 12 months, 18 months in, and you're like, holy cow, this is not going well. I'm losing money hand over fist. I didn't, I didn't have enough reserves in place to actually afford these things or when I have like these off peaks, you know, because vacation rental markets, that's really common. And so you get into this and you've sold a bunch of stock saying, hey, I'm going to afford the down payment by selling a bunch of stock that I've got and push it in here. Now you've got a taxable event, right? So now you got to pay that tax and then you've got potentially issues with reserves. So I've seen people in 18 months when they got the property to sell and I was like, ah, why did I do this? Okay, so, but the other thing too, if you are someone who can get through that first year and it's okay, and you get that kind of dopamine hit of like, hey, I got the tax savings, cool. If everything's going okay, you're probably going to keep going. And that's, that's really, I think, kind of who this is for. And for some of you it's going to be just a learning opportunity where you say, hey, I messed up, but I want to keep going. I see the tax benefits, I see that I made a mistake on this one investment because it's my first time, but I want to keep buying this asset class. I like the idea that it's in a good market that is probably going to appreciate long term over time. It's in a place where I can earn a higher revenue kind of per person. And it's probably a good high quality property. Just in general, the location, the property and the cash flow and the people that you're getting is all high quality. So I think some people really are just attracted to like kind of the perception of the quality of just that home, right. The land that it sets under, it's in a good. All those things I just said compared to like, hey, I'm going to go buy. I'm in Minneapolis, Minnesota. Tate, if you're like, where are you? So it's like you go buy something in like middle of Minnesota and it's a 20 unit, you know, thing and it's like, okay, like where is this? And yep, I got this cool property. Maybe you're just out there for the cash flow and that's great. But some people, I think, like the idea that the quality of their property is almost like a, hey, this is really cool. And you're probably not going to go stay at your 20 unit to say, hey, I'm just going to come visit there for a weekend. Right? You're probably going to go though. If you've got a property in Miami, Tom's in Miami, you might be actually going there to like stay in vacation and take care of some things. That's cool. That's an added benefit.
- [43:57]
Tate Doria (Guest, Founder and CEO of Turbine Capital)
You could get a few tips here that I think are really important. One, do not buy a short term rental somewhere where you don't want to go. I've made, you know, don't, honestly don't buy any property somewhere you don't want to go. I've made this mistake and you know, I bought a property that was a lot of time zones away from me in a market that I didn't really particularly care to visit. And so it, like it was, it's a, it's a multifamily with a property manager. But like they, a property manager is not going to take care of it. Like you're going to take care of it. And I don't want to take, even I fly for free and I still don't want to spend two days out of my life to go to a market where I don't know anybody. I got to stay in a hotel. I got to, you know, it's just a pain. And you know, we have a short term rental. It's in Reno where we live a little more than half the time. And so it's down the street. It's where, where we stay when, when we're there. I don't know, it's, it's very convenient and every time we go, we furnished it really nicely and the artwork is great. And you know, I mean, we've got, we got really good reviews. It's the highest reviewed Airbnb in, in Reno, Nevada. And you'd be surprised what people go to Reno for. Horse shows, weddings, college graduations, car shows, all sorts of stuff. And even some people that stay in Reno when they're skiing. But every time we go, there's issues. There's like, there's stuff out of place or something's broken or and it's something the cleaners don't catch. So don't expect to buy a short term rental in some faraway market and expect your cleaners to take care of it for 12 months without you putting eyes on it. This is active. There's a reason it's an active tax benefit. It's not something that you can just set and forget. So it's fun. But make sure that it's somewhere that you actually want to go. Stay in a market that you actually want to visit and then the next thing I'll say is be careful with regulation. You mentioned, you know, there's a lot of places in the Rocky Mountains that people go to ski that the short term rental is sort of embedded in the community. Right. Because it's right at the base lodge. Yeah, that's great. But if you buy five minutes away in a suburb, be really careful and make sure that, you know, if the regulation changes and you get your permit pulled or they bring in permits and you don't get one, that it doesn't completely crush your business plan and you're going to be negative cash flowing. You're going to have to settle at a loss. Don't buy a property that you're going to be screwed if you can't short term rent it tomorrow.
- [46:34]
Ryan (Co-Host or Panelist)
Yep. And I think we've had other people on the podcast who kind of do short term rentals, like really just focused and dialed in on that. Basically look for that vacation rental market that already has been established with those regulations. Not like, hey, we have no regulations. That's an issue. Because it could go either way. Really positive, like, hey, this is fine. Or like really negative, like this is absolutely nothing we can do. So if you can at least find a market where there's already regulations and it's kind of tight, then you can walk in to say, I either take this or I leave this. I'm not going into change. There's nothing that's probably going to change because these have been the regulations for a long time. So you can reduce risk. I think that's really ultimately what's going on here is you go to a suburban, you know, Denver market close to the ski areas. If there's nothing there, you just have a risk that it could go either way. It could be positive, that would be great. But you also have the option that it could go negative. So if you can go to something that's established, you just reduce a lot of that risk.
- [47:26]
Tate Doria (Guest, Founder and CEO of Turbine Capital)
I said suburb. I Kind of meant neighborhood, you know. Yeah, no neighborhood that's like adjacent to the ski hill, you know, that's dangerous.
- [47:34]
Ryan (Co-Host or Panelist)
Right.
- [47:34]
Tate Doria (Guest, Founder and CEO of Turbine Capital)
Because the community could get together and say, you know what, we want to ban all the short term rentals. Just. And that's fine if that happens three years down the road as long as you can sell it for more than you bought it for or as much or you can long term rent it and it's not going to completely destroy your, your, your business model.
- [47:54]
Host 2 (Co-Host, possibly a CPA or tax expert)
Right, right. That's good advice. So I think we have one question here. We'll take this question, then we'll wrap it up because we're coming up on time here. So we're going to appreciate everybody for tuning in with us, whether you're here live or on the podcast. This question's from Anna. With the new changes to bonus depreciation, is it correct? That basically means that you could purchase a new property and could only has to be a short term rental for the first year. That could be a long term or short term rental going forward. So yeah, bonus depreciation hasn't really changed that. The implementation or the renewal of 100% bonus appreciation or extension, however you want to look at that hasn't really changed that. It's always been the case with short term rentals. Now there are some opinions out there that make flipping it directly into a long term rental too shortly after making a short term rental could be risky. We don't have any evidence of the, of that at the moment but I just did want to throw it out there. So long story short, short term rental year one, long term rental year two certainly possible. Just make sure you're, you know, you're getting what your tax professional understanding how all of that works. Make sure you're, you're walking on the right side of that line. But Tate, want to leave you with the parting words here. Anything else that you know, investors should be aware of. Anything else that's pricing right now you think you'd want to leave us with?
- [48:59]
Tate Doria (Guest, Founder and CEO of Turbine Capital)
Yeah, I just wanted to leave people with some thoughts on alternatives versus the stock market. And first I'm going to quote tiger21 which is a membership organization for high net worth individuals. And there's an asset allocation report that comes out every year and they survey individuals with net worths exceeding $100 million. And their typical portfolio is 18% public equities, 31% private equity, 27% real estate, 10% fixed income, 10% cash and equivalents, 2% hedge fund, 2% crypto art commodities, et cetera. So that's the first point that I want to make, is that ultra wealthy people, typical, you know, high W2 employees, high income W2 employees, have a big stock portfolio, equity in their home, and some various other, you know, maybe some rentals. That is completely different, fundamentally different than how the ultra wealthy invest. The next thing that I want to point to is this new executive order that was signed on August 7th, I believe, August 12th. And it's called Democratizing access to Alternative investments in defined contribution plans. What does that mean? It means alternative assets in your 401k for pilots. Pilots used to have pensions. Everybody used to remember the Pan Am days. You retired, you got a pension. Well, that after all these rounds of bankruptcies, all the pensions went away for pilots. And it's been the case for a lot of other people too, where pensions have gone away and they've been replaced. Buy 401k plans, defined contribution plans. So we've gone from DB to DC defined benefit plans, pension plans, on average, invest 30% of their investable assets into alternatives, whereas defined contribution plans, 401 s, it's 0.1%. And typically, because if you're with Schwab or Fidelity or whoever, they only allow you to invest in public market securities. There's another problem with this. In the late 1980s, there were about 8,800 publicly traded companies. Today there's 4,300. So why do you think the stock market is so overvalued? At the same time, five times as much money in defined contribution plans. So you got trillions of dollars of retirement funds. And that's money that's coming in like clockwork every two weeks as all of these W2 employees in the entire United States are getting paid. There's more money being pumped in defined contribution plans, and there's 4300 places for it to go. That's it. And so why do you think Apple and Tesla and Nvidia are at these screaming high valuations? Is because there's trillions of dollars that are all chasing this basket of 4300 companies. So I think that there is a shift coming. There's a structural shift in the capital markets coming, and it's already here where people are recognizing that, hey, this is not how the ultra wealthy invest. Yes, it's a portion of their portfolio, but it's not the whole thing. And there's definitely a shift coming in terms of how people invest their retirement funds. And also a recognition that this isn't fringe risky stuff, this is core real oftentimes very low risk stuff that people should have access to within their defined contribution plan. So happy to see that that's not a political statement whatsoever. This is just a fact. And the fact that it's getting some attention. It'll take a decade for this executive order to work its way through the system, but I'm certainly happy to see that access to these types of opportunities are more widely available to people.
- [52:54]
Host 2 (Co-Host, possibly a CPA or tax expert)
Yeah, that's a good, good parting take on that. I know that there are some other things, I think with the accredited investor rules that they were exploring other ways to kind of loosen that as well. I don't have the specifics offhand, but yeah, I would generally agree that people should be able to make the decisions that they want to make with how they want to allocate their portfolio and there should be, you know, less regulations. But it all goes back to kind of what you said before, Tate. Got to make sure you're investing with the right person because there are, there are bad actors out there. There's been some scandals and Ponzi schemes that have for sure went around the space. So just got to be careful.
- [53:27]
Tate Doria (Guest, Founder and CEO of Turbine Capital)
But I think that's where, and I'm, I know we're almost at time here, but I think that's how it will manifest itself is there will be actively managed private portfolios that are, that are now accessible within a dc. I don't think it's going to be like you can self direct your 401k into any want because there's, there's definitely the risk of people making some, you know, questionable choices and you know, you know, you obviously don't want a bunch of people losing money in their retirement accounts. But yeah, I'll leave it there.
- [54:02]
Host 2 (Co-Host, possibly a CPA or tax expert)
All right, well, thank you everybody for tuning in to this week's episode of Tax Smart REI Podcast. Whether you're here live or listening to the recording, it's been a pleasure, Tate. Thank you so much for joining us.
- [54:11]
Host 1 (Podcast Announcer)
The TechSmart Real Estate Investors Podcast is for general information purposes only and is not intended to provide and should not be relied upon for tax, legal or accounting advice. Information on the podcast may not constitute the most up to date legal or other information. No reader, user or listener of this podcast should act or refrain from acting on the basis of the information on this podcast without first seeking legal and tax advice from counsel in the relevant jurisdiction. Use of an access to this podcast or any of the links or resources contained or mentioned within the podcast show or show Notes. Do not create a relationship between the reader, user or listener of the podcast and the host, contributors or guests. Any mention of third party vendors, products or services does not constitute an endorsement or recommendation. You should conduct your own due diligence before engaging any vendor. For more information, reference the show notes or description of this episode.
- [54:59]
Podcast Outro Announcer
Thanks for listening to today's show. If you enjoyed the show, please find us on itunes and leave us a review. You can also email us at. Contact therealestatecpa.com with any feedback or topic suggestions. We are always taking on new clients and with the new tax laws in play, you really don't want to navigate this alone. Let us help you save money on taxes with your accounting and CFO needs to become a client. Navigate to our client page@therealestatecpa.com and fill out a web form with as much detail about your situation as possible. Thanks so much for listening. Have a great rest of your week.