Transform Your Wealth: Expert CPA Tips for Real Estate Tax Strategies

John Harcar (00:01.865)
All right. Hey guys, welcome back to our show. I’m your host, John Harcar here today with Jake Hanes. And what we’re going to talk about with Jake, besides his business and real journey in business and real estate, we’re going to talk about tax strategies for investors. Remember guys, at Investor Fuel, we help real estate investors, service providers. mean, really all real estate entrepreneurs, two to five X their business by providing tools and resources to grow.

the business they’ve always wanted in terms of a life they’ve always dreamed of. So Jake, man, welcome to our show.

Jake Hanes, CPA, CSP (00:36.866)
Thanks, I appreciate you having me on. It’s quite a pleasure to be with you.

John Harcar (00:38.877)
Yeah, good. And thank you for coming on. I’m excited to talk about tax strategies. Everybody wants to save money. But before we get into the weeds, all that, tell our audience a little bit about you, your background in business and real estate and what got you up till today.

Jake Hanes, CPA, CSP (00:57.044)
I’ve been a CPA, certified public accountant for about 25 years now and been doing real estate investing activities since about 2012-13 timeframe. so I started out just investing a little bit of real estate and then started doing more rental type activities and then went into flipping activities and then went into being a lend being the money for the lending.

John Harcar (01:26.045)
Mmm.

Jake Hanes, CPA, CSP (01:26.998)
things. So I’ve just kind been in all pieces in great detail, kind of in each one of them.

And so my firm, CPA firm, we work with hundreds and hundreds of real estate professionals of all kinds. You know, from the people who own real estate and doing renting to the people who are doing flips to the investors that are, you know, making money in different formats by being involved in real estate. And I’m just helping them save all the money they possibly can. It’s kind of a fun game.

John Harcar (02:01.88)
Awesome. And I, you know, I’m definitely looking forward to talking about tax strategies, but if you’ve watched any of my podcasts, I like to go backwards. Did you go to school to study to be a CPA or how did that, how did you fall into that?

Jake Hanes, CPA, CSP (02:14.19)
I actually did. I’ve always been an entrepreneur. As a kid, at 14 years old, I was making things and selling them. At 15, I had paper routes. By the time I was 16, I had a lawn business. I had a slogan, Jake the Snake Gardeners.

John Harcar (02:34.952)
Like Jake the Snake, the quarterback.

Jake Hanes, CPA, CSP (02:39.168)
Yeah, right. You know, and I just kind of went like that. I didn’t think I was going to go into school. I’m like, dude, I’ve got a business. I’m going to explode and grow. But this this girl, you know, brought me to, you know, go to school with her. And it was the best moves I ever made. You know, got my got my degree in accounting. And it’s not very common. But in my in my case, I stayed in accounting and and and just love it to death. And we now have one of the largest privately owned single member CPA firms in the United States.

John Harcar (02:57.895)
Okay.

Jake Hanes, CPA, CSP (03:09.072)
Thanks.

John Harcar (03:09.668)
Awesome. So you are a serial entrepreneur that liked numbers. Where did real estate come in?

Jake Hanes, CPA, CSP (03:18.284)
Yeah, right. The numbers tell the entire story. When you’re talking real estate, it is numbers. And a lot of real estate agents are not number focused. They’re people people, right? And other kinds of people involved in real estate, it’s not their forte. And so it has been something I’ve been able to really specialize in and really serve the clients well, giving them what they need to move on.

John Harcar (03:32.701)
Mm-hmm.

John Harcar (03:46.109)
Was there a influence, someone in your life that was a realtor, a builder, an investor? Where did the whole seed come from? was it just like, mean, you saw an ad and like, hey, real estate.

Jake Hanes, CPA, CSP (04:00.974)
You know, I actually in 2006 I started working with a business coach and I was initially kind of of the opinion that I don’t need a business coach. I know how to run a business, right?

But it was the smartest thing I ever did. And in a matter of a couple few years, I had a business that was a profitable enterprise that runs itself without you, an investment. And once I had that running, you know, for the most part without me and all the day to day stuff being done, I basically kind of got bored.

And I realized, okay, now I’ve got to find ways to invest and grow and develop different areas. know, start working on my vision for life. That’s what brought me into real estate.

John Harcar (04:50.022)
Yeah.

Okay, a lot of people say like, you know, little rich dad, poor dad type, but you know, read that book saw or about real estate. So as you’re getting into, let’s talk about your real estate part, or you make it be relatable to this to the CPA business. What were some of the struggles when you got started? You know, on the the on the real estate side, you know, I mean, how did you find properties on the CPA side? How did you find customers?

Jake Hanes, CPA, CSP (05:14.926)
Yeah, you know, I had some serious woozy, some really bad experiences early on. I lost my way.

John Harcar (05:23.528)
Tell us one of them at least. Come on. can’t can’t leave us hanging right there

Jake Hanes, CPA, CSP (05:27.982)
Right, yes, I had a property that I invested in. thinking this is going to be great. It’s a lakefront property, you know, and it’s going to sell for all this money. And we ended up being upside down about $75,000, $80,000 after we found him.

John Harcar (05:44.552)
Why?

Jake Hanes, CPA, CSP (05:46.574)
We had to go back to the studs and we had to rip stuff off and off of the house here and we had to let the septic tank was cracked, you know? So we’re talking on a lakefront putting a new septic tank in was a monumental league, not legal, but you know, government mess, you know, it just went on and on and on. It never quit, you know? And I was upside down so much money. I was going to make like a lot of money. I figured I was going to make 300

and I lost 75.

John Harcar (06:18.472)
So this is kind of like the Money Pit movie house type of thing. You got on there, just start sucking it all the way.

Jake Hanes, CPA, CSP (06:26.216)
yeah, and I had the contractor who shafted me and left and left with my massive down payment. I had one of the guys that was helping to do the project, finds out he’s got a death in the family gone for weeks, no nothing. Here I am being busy with other things and saying, okay, can you do this for me? And I ended up having to go in there and dig ditches. And yeah.

John Harcar (06:50.748)
So for our audience out there, here’s a learning point. In hindsight, what would you have done differently prior to making that deal?

Jake Hanes, CPA, CSP (07:02.274)
Yes, the first thing is it is all in the buy.

100 % it is all in the buy. You know you you have to buy at the right price at the right time the right property right and so you work with people who know what they’re doing you know when you’re when you’re in the process of getting a property you when you find the the property everyone’s all excited oh we’re gonna buy we’re gonna buy we’re gonna buy no even me not even I’m like let’s let’s go through the checklist as it got every single component there that said that we’re buying at the right

John Harcar (07:30.6)
You

Jake Hanes, CPA, CSP (07:39.712)
And then it’s the money deal. It’s what do do with the, how is the money going to be acquired? Is it hard money? Is it regular loan? Is it investor money? Is it a cash acquisition? And knowing your cost of money. And it goes on. It’s all of the details about if you’re doing the financing. What are the fees and the interest rates? And what is the cash required to close? And what is the monthly payment? And can you handle all of these cash flow situations in the carry?

John Harcar (07:55.922)
Yes.

Jake Hanes, CPA, CSP (08:09.736)
costs associated with the loan and are there lines on loans that you need to worry about you know there’s just there’s just a host of things that are involved with getting it right and that’s just in the beginning that’s just getting started

John Harcar (08:11.783)
Right.

John Harcar (08:23.68)
Right, right. And your CPA knowledge helped you with the numbers side of it, right? I’m sure. But what about the tactical side of the flipping and all that type of stuff? I mean, where did you learn that? Did you seek out a mentor like you did a business coach?

Jake Hanes, CPA, CSP (08:37.262)
So I had a little bit of experience, you know, I had run a landscape company and I had a little bit of experience about how hard the contracting world is. It is a vicious world, know. Contractors and the people that you work with can be very hard and challenging to work with. So I had kind of a background in that already and I was ready for that and I took my time to find

you know work with connect with a lot of different contractors and weed through them Quickly make a decision fast to let go and make a decision slow to bring someone in Exactly, yeah same thing with the contractor right and and so we you know we looked very carefully at those processes and now what we have is we have a team that’s that is working on

John Harcar (09:21.372)
Hire slowly, fire quickly.

Right.

Jake Hanes, CPA, CSP (09:37.637)
It’s kind of like one plus one equals not just three, but four and five and six. So, have process that I use now where basically I’ve got about 40 to 50 people at any given time that are involved in a process whereby we say we find a property and there’s people that are involved in that process. Then we team of investors and we team of contractors and we pick a team of people that are gonna help us to close like the real estate agent and others that will help us in that close process. And we create a pool and we call it

John Harcar (09:41.643)
Mm-hmm.

Jake Hanes, CPA, CSP (10:06.402)
an LLC and I set up this LLC with a specific operating agreement and there’s specific agreements and everyone gets a piece of the game not just like me buying the property but I share the game with all parties so we create an entity and we create an operating agreement on it and someone will bring in this and someone will bring in this and they’ll get their stuff back but then we share in that game and that invested everyone with an incredible

John Harcar (10:32.498)
Mm-hmm.

Jake Hanes, CPA, CSP (10:36.362)
interest to work fast, to get it done right, to make it look beautiful, to close timely fast, to energetically find the close and find the people who are going to both buy and sell. The whole picture, I’ve got people who are invested with an interest in its success and this team of investors has now been perfected and run again and again and again again and it happens real quick and fast.

John Harcar (10:43.058)
Yeah.

Jake Hanes, CPA, CSP (11:05.922)
great process.

John Harcar (11:07.528)
Before we talk about tax strategies, what do you think are some of your keys to success? mean, you’ve been through the markets, you’ve been through ups and downs, changes and pivots, I’m sure. What do you think are your biggest keys to success?

Jake Hanes, CPA, CSP (11:09.39)
Okay.

Jake Hanes, CPA, CSP (11:20.462)
Number one, as I said, it’s in the buy. The buy is always where it starts. And so getting all of the information upfront about the house and knowing exactly where the gain is, right? You got to account for, you you have to account for every single cost associated with the project. You can’t just say, oh, it’s a good sales price and you know, you can buy it for 400 and sell it for 600. There’s so much to the buy process that, you know,

that I detail it out and when we find a property, then it is about acting fast, right? So we go in with a cash buy and close in just a few days. our, yeah, and by the time we actually get to get the title and are closing, going through escrow and closing the deal, we have already got the entire construction project outlined.

John Harcar (12:01.318)
Yeah, speed is everything.

Jake Hanes, CPA, CSP (12:17.166)
And when this person is in charge of that, they know what’s happening when. And we are careful about things like permits, and timing for product to come in, and timing for contractors to get in and do the project. We are looking at these things immediately and efficiently to work it out. Time is money, and we make sure that money, that time create money for us.

John Harcar (12:19.409)
awesome.

John Harcar (12:40.338)
Yeah.

John Harcar (12:44.956)
Well, it sounds like you have incredible systems and processes and just things in place to keep that flowing and running smoothly, right? And that’s awesome. Sounds like you a great business role. And so let’s talk about our topic a bit, what we mentioned earlier. Before we talk about the tax strategies you would recommend to investors, let’s talk about mistakes people make, investors make, entrepreneurs make when doing or filing taxes, types

Jake Hanes, CPA, CSP (12:52.94)
Yes.

Jake Hanes, CPA, CSP (13:13.004)
I would say the number one mistake would be not reporting. Not reporting to the IRS. That is where people get audited. Arroneous reporting. is where people get in trouble.

The IRS is quote unquote, do what they’re going to get. They’re going to just got to figure they’re going to get it one way or another. So let’s see that they get it and timely that they get it. But let’s see that they get only what they absolutely are due to get, right? Not one dime more. And we have some processes for our investor clients and our flippers and our real estate agents and different things for these different parties.

that help them to get the very best out of their, you know, least taxable income kind of thing.

John Harcar (14:06.376)
So let’s talk about some tax strategies. What are some things that you’d recommend, whether it’s a flipper, whether it’s a real buy and hold, a landlord?

Jake Hanes, CPA, CSP (14:16.546)
Yeah.

Yeah, purchasing real estate is a great strategy. I have a five-tiered approach about how I educate people on how to build wealth. a business is one, an occupation is one, and real estate is a big picture, and it takes up the final three categories. There is a key to doing it successfully. And if you follow the turnkey process, you can

really build great wealth in the real estate world.

it kind of balances out like the stock market goes up and down like this, and the real estate market can also go up and down like this, and they can have their ups and downs and not always in tandem with each other. So that’s actually a good thing, right? So you balance that with your investment activities, your profession and building activities, potentially income from business activities, and income and wealth building from real estate activities, and you create ultimately a good, strong, more balanced portfolio.

We educate people on doing that and then how to avoid taxes in that process.

John Harcar (15:28.072)
Okay, let’s talk about some of that. How do they avoid taxes in the process?

Jake Hanes, CPA, CSP (15:32.014)
Yeah, okay. So like doing 1031 exchanges, right? 1031 exchanges are an excellent way to go from one property like a rental property to another rental property, right? Without, you know, selling one and buying the other and incurring no capital gain. You exchange into the other property and you have no capital gains tax that’s incurred. So that’s just, you know, just one thing. And there, and there’s some specific rules, you know, some ways in which you, you do it to, or you’re,

allowed to do it and if you’re allowed to do it and you can do it then you should positively do a 1031 exchange. It the best way to avoid taxes on that kind of transaction. The biggest thing about that is you have to hold it for more than a year and it has to be a like-kind exchange. In other words a rental property for a rental property. know an investment property for an investment property right. You can’t convert a primary residence, sell it and into a rental property and not incur capital

John Harcar (16:21.192)
Mm-hmm.

John Harcar (16:24.594)
Right.

Jake Hanes, CPA, CSP (16:31.898)
gains if there’s going to be a capital gains incur and vice versa. You can’t take a rental property and exchange it into a primary residence. So there’s lots of rules, right? On my website I have a whole list of questions and answers relating to 1031 exchanges that are good for just understanding the basics. From there you can contact an expert and we’ve got some on our website.

John Harcar (16:56.006)
Awesome. Do you have any type of coaching course or any type of other programs where people can learn, like reach out to you and learn?

Jake Hanes, CPA, CSP (17:03.57)
Yes, I do. We have an investor coaching course that we hold and we have right now about 20 people that are in the investing program and this is more, it’s more like a one-on-one thing that we have chosen to do now. We used to do it in a bigger picture where it was like a classroom setting, but we haven’t done that now for a few years. We have a one-on-one coaching. So what we do is we basically, we just take a few of these people under our arm and say,

I’m going to give you some resources and some contacts that are going to help you with this, this, this, this and this. I’m going give you some processes to just follow as you do the transaction. And then we’re going to coach you as you go through it. It’s a great tool and we got a handful of people that are going through it.

John Harcar (17:49.306)
And this only in a city or in Washington, is this only in your area? Is this like, anybody nationwide?

Jake Hanes, CPA, CSP (17:54.894)
This could be this wide we in the area we have some specific Contacts that are that are better, you know for the local area So if you’re doing, know a flip in like Florida, know as compared to where we are in Washington I don’t have some of those contacts, but I have the format for how to find them quickly

John Harcar (18:08.85)
Got it.

Jake Hanes, CPA, CSP (18:18.51)
And it’s all about time, right? And if you can speed up your process, what is your time worth per hour? I mean, I’m worth in the neighborhood of $1,000 an hour. And if you’re not making that money, ultimately, by the time you put in, there’s a learning curve. But ultimately, you should be efficient in that machine and making money. And I am very careful to not only use your time wisely, but to do things that do make

money in a timely fashion. So some other ideas? tax strategies? You want some other tax strategies?

John Harcar (18:51.634)
it.

John Harcar (18:56.52)
What’s that? Yeah, yeah, I mean, we’ve still got some time here. Yeah, go ahead. Let’s hear them.

Jake Hanes, CPA, CSP (19:01.154)
All right, all right, so there’s a, yeah, all right, I’m kinda losing track of time. You’ll tell me when to shut up, Okay, great. So there’s a thing called a Delaware Stash Story Trust, DST.

John Harcar (19:09.753)
I will.

Jake Hanes, CPA, CSP (19:16.91)
What a debt-layer statutory trust does is it says, have sold a house and let’s say I’ve made a two or three or $400,000 capital gain, but I don’t want to have to pay the taxes on it. And I don’t want to do a 1031 or an investment into another property. And I don’t need the money. I I sold the rental.

So when you put it into a DST, what the DST does is it basically, it’s an organization, process whereby they take tons of money from all these individuals and they go and buy like a property at Disneyland and they cash out for it. And it’s a cash cow of a property, right? And they don’t have…

John Harcar (19:58.194)
Hmm.

Jake Hanes, CPA, CSP (19:59.17)
dead on it now. And so they’re making amazing cash flow. So yours and a whole bunch of other people’s goes and pays cash for this property. And every year you’re getting rental income from this process. And then after a period of time, which you determine how long that’s going to be based on the investment you enter in on, they say, okay, we’re going to sell this in seven years. So in seven years.

they will sell the property. You, let’s say you put in 200,000, you will probably walk away with like 400 or 500,000 because they’ll sell this at a capital gain and you’ll get a piece of that. And during the interim, you got rental income, net income from the process and potentially some tax write-offs. So at the end of it, they then sell. And now you recognize a gain that’s going to be bigger, almost definitely bigger, right? After seven years of holding a commercial property listing. And when they sell, you have the option.

You can then pay the taxes. So you postpone the taxes or roll it into another. And you roll it and you roll it and you roll it and you roll it. And eventually it goes to your heirs potentially almost or entirely tax free. Right. So if you’re just looking for a way to not hide some money, but put some money into an effective tool, that’s it. There’s a lot of other rules. We won’t go into it, but, that is definitely one. There’s another way to do it. And that is to create a DAF, D A F.

John Harcar (20:56.87)
Roll it in.

John Harcar (21:07.612)
Awesome.

Jake Hanes, CPA, CSP (21:21.592)
Donor Advised Funds are funds that basically you say, made $100,000 profit and I don’t want to pay taxes on it. So I’m going to put it into a charitable DAF. And in this DAF, the money goes in here in a tax sheltered instrument. You are able then to make charitable contributions.

for a period of time. While the money’s in there, it’s gaining interest or whatever growth. it starts out at 100 and just kind of grows in value. At the same time, you’re distributing out money and you’re making charitable contributions to all kinds of causes that you might already do. And what happens is you don’t pay taxes on 100,000, you distribute out as a charitable contribution. So it works for people.

John Harcar (22:06.332)
You don’t pay taxes on that, yeah. Man, that’s some good stuff. Good way to save money, guys. If anybody’s listening to this and they wanna talk to you more about it, obviously we only have a limited amount of time, but how do they reach out to you? How do they get in touch?

Jake Hanes, CPA, CSP (22:12.93)
Yeah.

Jake Hanes, CPA, CSP (22:24.718)
ActionTaxTeam.com is our website. I’m also on social media as Jake Haynes in different formats. But that’s the primary way. You can see some of these resources on our Action Tax Team website. Yeah.

John Harcar (22:42.223)
Awesome guys, we’ll put all that information in the show notes. know, hope everybody enjoyed the show. You know, thank you so much, Jake, for coming on here and sharing that information. know, tax strategy is not my ball of wax, but it sounds like you know the way to save some money. So guys, reach out to him. You know, hope you enjoyed the show. We’ll see you on the next one. Cheers.

Jake Hanes, CPA, CSP (23:02.734)
Thank you.