Mastering Tax Strategies: David Spencer’s Secrets for Real Estate Investors

Dylan Silver (01:31)
Hey folks, welcome back to the show. Today’s guest is a seasoned CPA who helps real estate investors, business owners navigate financial worlds based out of beautiful Fort Lauderdale. Please welcome David Spencer, CPA. David, welcome to the show.

David Spencer CPA (01:32)
folks to have a conversation with. So today’s guest.

Hello Dylan, it’s pleasure to be with you. We’ve got some exciting stuff to discuss quickly.

Dylan Silver (01:52)
I am a little jealous. Fort Lauderdale. I tell people I don’t know where I’m moving in Florida, but probably Fort Lauderdale would be my number one destination. How long have you been out there?

David Spencer CPA (02:05)
I’ve been out here a little less than a year and I think you’ve got good taste. It’s just close enough to Miami so that way if you want to have a party night you can get there but far enough away to get away from the madness.

Dylan Silver (02:16)
Where are you from originally?

David Spencer CPA (02:18)
Originally I’m from the West Coast. I’m an Oregon duck. Let’s go ducks. ⁓ But I got tired of the cold weather and so that’s what brought me out

Dylan Silver (02:25)
Yeah.

I guess it’s a it’s how common is it? I don’t know if you know for snowbirds to go from Oregon to Florida. It’s very common in the East Coast. Is that a common thing in Oregon?

David Spencer CPA (02:37)
Not so much, they’re scared of driving across the country and know, it’s a long drive.

Dylan Silver (02:43)
It seems like a long flight. don’t know. I don’t know how it would be. But yeah, the drive for sure seems impossible. You know, I always like to start off at the top by asking folks how they got into real estate or tangent spaces. How did you get into working with real estate investors?

David Spencer CPA (02:59)
So I got into real estate very early on in my career as a public accountant when I was very first cutting my teeth. I’m a master at Excel spreadsheets and I’m sure our real estate investors know that Excel helps a lot of people stay focused and make sure that all the numbers add up so that they can make a buck. ⁓ Because I had that skill, I was put on a number of different real estate projects where I was managing the accounting and taxation for two and 300 unit apartment complexes. And so in doing that, I learned all the rules and cut my teeth there.

And I moved on and I was serving business owners and a lot of times business owners after they made a buck, of the things they want to do is invest in real estate. It’s good business.

Dylan Silver (03:38)
That’s exactly right. think of all the things that people can do to build wealth, probably real estate is number one. I want to get a little bit granular, David, and ask you about some of the, I guess, avenues people can go when they’re exploring who to entrust with their finances in the real estate space. And I don’t mean from an investment standpoint. I mean from maybe a tax strategy and an accounting standpoint.

David Spencer CPA (03:40)
Thank you.

Bye.

Dylan Silver (04:05)
Now I’m kind of green in this area, so help maybe guide me and ⁓ excuse my ignorance a little bit, but I’ve had ⁓ tax strategists, I’ve had tax attorneys, I’ve had CPAs, I’ve had enrolled agents on this podcast, and everyone has kind of a different gist, a different story. And I’ve heard a lot of people who say, you know, CPAs, they might not eliminate your tax burden. And then I’ve heard other people say, well, you really need, if you have other elements or other areas of concern, I’m curious.

David Spencer CPA (04:19)
Thank you.

Dylan Silver (04:35)
because you’re involved in so many. were talking about tax strategy before hopping on here a little bit. What’s your perspective on all the different people that folks can reach out to for some of these concerns?

David Spencer CPA (04:40)
That’s it.

I may be biased, but I think you need a CPA and if you’re running a serious business, you need a CPA and you need an attorney, right? And the reason is because you need someone who has the ability to be on your side in case something goes wrong. Your attorney, your CPA, they can represent you in front of the IRS. So if IRS sends you a letter and they might be using an AI generated letter, that might not even make sense, right? That’s a thing now, the IRS is generating letters using AI.

⁓ You need somebody who can call the IRS and speak for you on your behalf. So that’s a big difference between some of these paraprofessionals and a CPA, a tax accountant, or even an EA. EA is licensed to represent you before the IRS. ⁓ Now, outside of that, you have the task of tax strategy.

A CPA may do that or may not. Some CPAs…

They have a really simple life. They want to keep things real simple. They’re not going to do a tax plan for you automatically. If you ask for it, maybe they do or do not have that skill. Some of us, hold ourselves to a higher level and we enjoy that tax planning piece of the puzzle. So if you’re an investor who’s got a couple different nuanced pieces that interact on your tax return, having someone and letting them know ahead of time, know, a lot of times we’ll see clients that

in January and they want us to help tax plan. It’s too late. We need to talk to you middle of the year. We need to talk to you September. Then we can make a plan. ⁓ if you are interested in reducing your tax burden, like most people are, A, you need to think ahead and B, you need to find someone who’s providing that services. Not every

is going to do tax planning.

Dylan Silver (07:22)
Thank you for that explanation because I think I recently came across someone to do my own taxes personally in my business and I realized one of the biggest benefits of real estate is all the different tax strategies that you can get involved into and I think even if

just as an aside like when I was had a W-2 job ⁓ I probably could have saved so much on my taxes from my W-2 job had I had a real estate based business or even

David Spencer CPA (07:46)
Yeah.

Dylan Silver (07:48)
some awareness of the

the tax strategy involved and we were talking about like mini cost segs before hopping on here and I’ve had people who do this even for like the

family home level.

David Spencer CPA (08:00)
Yeah, cost segregation, especially when you’re in commercial real estate, can be huge. They can be huge savings. As we all know, depreciation is one of the biggest pieces of the savings that we can see as a real estate investor. And if you’ve got a W-2 job and you’re building your real estate portfolio, you’re definitely going to be able to offset some of those gains. having that loss flow through to your personal tax return is definitely something that people look forward to. ⁓ The whole goal, we think about holistically minimizing tax.

end of the day it’s the person that’s got to pay tax. So we want to make that at the end of the day how do we minimize the overall number of dollars that you have to send to the government. So it takes a little planning but you you can get as you very rarely can get to zero. If you can get to zero please let me know you might be towing the line a little too close right. If you make money you usually have to pay tax but you can often make it very comfortable.

Dylan Silver (08:59)
That’s exactly right. mean, I think ⁓ it’s

thing to not have any plan, but it’s another thing to expect you to have no burden whatsoever, right? I think there’s a balance in between there. I want to pivot, David, and ask you about tech in the accounting world. So I’m in the wholesale space, and it feels like in the real estate space, tech is just…

at another level. mean, I’m also a software engineering student and it seems like even more, I know this sounds hard to believe, even more tech in real estate than there is funneling towards the software engineering space. I said, hold on here. So you mentioned that you’re really utilizing a lot of these cutting edge tools. How does that look in your business?

David Spencer CPA (09:43)
to us.

A, as we serve clients, we utilize ⁓ artificial intelligence and we utilize automation to make things as streamlined as possible, right? The purpose of financial statements is so that owners can make decisions, right? If they’ve noticed that payroll is going up, is there a reason? Maybe I’ve hired more people, am I paying the market rate? So the information included on financial statements is designed to help business owners make decisions. And you can’t…

make decisions timely if that information takes too long, right? If it takes 30 days to get your financial statements, yeah, that’s not timely information, right? So automation as well as artificial intelligence help us classify and ⁓ correctly classify information that comes in from a bank feed. So that’s one piece. As it connects to real estate and accounting too, is that we have the genius bill, which has given us a framework for stable coins.

When we think about real estate and technology, one of the things that was all the craze a few years ago was tokenization of real estate and selling real estate on the blockchain. ⁓ But the problem with that is that you have this ⁓ overpayment, underpayment problem. Let’s say you buy a piece of real estate and then the value of the token that you’ve used goes through the roof. Now you have massively overpaid for that real estate. Okay? The other option could also happen. You could pay for a piece of real estate using crypto.

Dylan Silver (10:52)
Yeah.

David Spencer CPA (11:14)
and then that crypto goes to zero. Now the person who sold you the real estate, they’ve got a whole bag full of worthless tokens, right? And so that put a pretty big floor, mean a ceiling rather, on the number of people that wanted to get involved in real estate on the blockchain. And you couldn’t use the bank because the banks weren’t allowed to deal in digital assets. But now that we have the genius bill and we have a framework for banks and financial institutions,

Dylan Silver (11:21)
Right.

David Spencer CPA (11:43)
to hold stable coins, now I think that we may have the infrastructure necessary to do real estate transactions on the blockchain.

Dylan Silver (12:28)
I think it’s going to be interesting, right? Because, you know, one of the things, and I’m really green in this area, but stable coins, right? Why would someone go stable coin versus just paying cash?

David Spencer CPA (12:37)
Thank you.

The ability to transfer, right? So I can move a stable coin anywhere in the world in a matter of a fraction of a second. Moving cash takes longer. That’s kind of the biggest advantage there. Also, often my transaction fee is gonna be less. If you move a big amount of money across overseas, especially if you’re going overseas, you’ve got wire fees as well as other things, well there’s a lot of risk in the time that it’s gonna take for that stuff to get there.

That’s the general reason, plus people like ⁓ utilizing the newest and latest technology. So there is that market.

Dylan Silver (13:16)
You know, when you mentioned that, I’m thinking, because my brain was going to like Cash App Venmo and you know, people could use that in kind of a minute. It’s not crypto, right? But it’s a digital way to send money very quickly. And then extrapolating that worldwide though, these aren’t available in every country and in a lot of places, right? So if I was to try to do this to other side of the world, different country, not going to work. Stablecoin.

David Spencer CPA (13:21)
And, okay, you can.

Dylan Silver (13:44)
You could take like a USDT, a US dollar tether in, you know, Lagos, Nigeria, and it’ll be here in seconds, right?

David Spencer CPA (13:53)
Seconds and you know, we’re even gonna so I mean, know us ET those are all issued by independent organizations What we’re gonna have soon is a real federally issued stable coin and that’s gonna be really exciting not only because it’s gonna really open up the ability of financial institutions to ⁓ To utilize stable coins and digital assets, but it’s also gonna be a big psychological fact

so that people have a whole lot more confidence in digital assets more broadly.

Dylan Silver (14:28)
Yeah, that is going to be amazing.

that down the, do you have some information for us? Is that, is that happening now? Is that down the pike?

David Spencer CPA (14:35)
That’s the reason why they’ve created this framework. So they’ve actually been working on the US dollar ⁓ token for quite some time. They’ve been having pilots and the central banks all over the world have been running sandbox ⁓ testing on digital assets. You famously China is much further

You know, they’ve got a central planning government there that can just do what they want. So they can move pretty quickly. United States can take a, Jerome Powell has said it very actively.

We’re the biggest, so we don’t need to be the first, we just need to be the best. And so they’ve

taken a much more kind of tortoise tactic that the slow one wins the race. But we are gonna have a digital.

Dylan Silver (15:16)
It’s, it’s July.

We will, right? It’s July 11th when we’re talking here today. And I want to say today or yesterday, like Bitcoin hit all time highs. seemed like all of the crypto was really ⁓ bullish. And so you think any of that has to do with some of these topics that we’re talking about here of maybe a stable coin that’s going to be on the federal level. And is any of that influencing things or is this just kind of the ebbs and flows maybe of investing?

David Spencer CPA (15:29)
So it’s really…

Thank

You know, some of it is the ebbs and flows for sure, right? You know, there’s a there’s all kinds of reasons to be excited about digital assets and that does have its own kind of rhythm to the wave. However, the genius bill did in fact lay a good framework for us. It’s going to give a lot of people a lot of confidence. We also recently had the strategic Bitcoin reserve where we are in fact under we are living in exciting times because we are watching a shift.

If our president is right, who knows if it’s going to work?

his goal is to shift where the money comes in to pay for government. Will it work? Nobody knows. We’ve never tried it before, but it’s definitely exciting times and the changes in technology are going to be ⁓ very instrumental in that process of change.

Dylan Silver (17:16)
I want to pivot a bit here, David, and ask you about ⁓ real estate investing strategies as they relate to ⁓ tax strategy and maybe some accounting as well. I think a lot of people who are starting out in the real estate space, like myself, will start out in wholesale. And as a wholesaler,

can kind of do, I would call it maybe a mom and pop or a ragtag operation. And you’re kind of just grabbing the boot by the horns and figuring it out, kind of winging it.

But as you go,

David Spencer CPA (17:45)
Yeah.

Dylan Silver (17:46)
as you scale, you go from maybe wholesale to fix and flip, fix and flip maybe to long term, mid term, corporate housing. From there, I’ve seen people start buying notes and then lending money.

And I don’t know if there’s a one size fits all, but at what point in time do you think is it advisable for someone? Is there a dollar amount? Is there a certain number of flips per year? Is there a certain number of deals per year? Where you think, hey, they should really…

have a CPA that they’re working with, or they should really have these people in part of their network and their team.

David Spencer CPA (18:22)
You know, when you think

about it, it’s a cost benefit analysis, right? Just broad strokes. When you’re at the point where you are paying more in self-employment tax than you would pay in payroll tax, it’s probably time to think about the S-corp conversion, right? So if you start an LLC with a lot of business owners, that’s where they start out, the LLC. Eventually, sometimes we need to get to the S-corp to help save on self-employment versus payroll tax.

So once you get to that point, that’s a good point to think about the S-Corp conversion. Maybe

slightly before that is when you want to think about the CPA or having a tax strategy or laid out. If your plan is to do residential real estate and do something pretty straightforward, definitely get someone to take a peek because there are things that you can miss that may seem simple but that you do need to think about. ⁓

from a compliance standpoint also, right? There’s always different taxes to pay. Now, if you are planning a more longer term endeavor and you want to really grow your empire, definitely have a CPA look at it. Give them your vision. Sit down, spend the time, right? Most CPAs, they really like businesses. So they want to learn about your business.

Dylan Silver (19:41)
I think that’s an interesting perspective, right? Like who wants to hear about my startup business? But actually it’s no, we want to hear about it. We’re excited to hear about it. I think that’s a trap that a lot of you probably hear this a lot. There’s a lot of people who think, well, I don’t need to do it right now or who wants to listen. But actually there’s a lot of people probably you relate to this. I think, no, this is actually the great time. If it’s not necessarily go get started now, let’s put a plan together and I’ll be here in 18 months. You’ll be here in 18 months or six months or wherever it is. And we can.

David Spencer CPA (19:49)
Yeah!

Dylan Silver (20:10)
rehash then. David, we are actually coming up on time here. Where can folks go if they’d like to get in contact with you or maybe learn a little bit more about your business or just get in touch with you?

David Spencer CPA (20:23)
You can go to www.finovate.com. Think finance, innovation, compliance. ⁓ We help people do everything from get lending, can help you ⁓ increase your accounting department, help you with implementations, and at the end of the day, we can help you with tax and accounting as well. So finance, innovation, compliance, happy to be of service.

Dylan Silver (20:51)
David, thank you so much for coming on the show here today.

David Spencer CPA (20:54)
My pleasure, Dylan. Thank you for having me.