How To Skirt Taxes Like The Ultra Rich

If you read my previous post then you have the foundation for how the ultra rich use money to generate wealth and pay little to no taxes. You now know the "how" portion of but today we are going to add a step-by-step plan so you too can live like the ultra rich.

Start here.

The very first step should be no surprise. Make and save as much money as possible as early as possible. The largest hurdle to living like the ultra rich is increasing your earnings to a high level while saving as much as possible. The ultra rich did not become rich by spending frivolously. Money is earned, saved and invested before it is used on lavish living. If you can earn above 6 figures and increase your savings rate to 25-50% or more for 1-2 years this will give you a great core to create your wealth snowball.

Step 2

Once you have worked to increase your earnings and established a great savings routine it is time to put your money to work. If you read my previous post then you know wealthy families and individuals love to acquire appreciable assets. In my opinion the best, safest and easiest appreciable asset to start your wealth building journey is real property. Real property is a large overarching category but more specifically multifamily rental properties can be the best purchase of your life.

Why multifamily real estate?

Remember in the last post where I talk about depreciation and the ability for a property to bring in revenue but show little to no taxable income? Yeah, that is why. In this step you will use the money you saved as a down payment on a 2, 3 or 4 unit multifamily property and move into one of the units. I would not advise buying a property with more than 4 units and this is why.

Lending.

Multifamily real estate with 4 units or less can be purchased as your primary residence. Why is this important? Banks view rental properties with more than 4 units as a commercial property thus requiring you to get a commercial loan which has less favorable amortization period, interest rates and insurance cost. Basically, commercial property will cost you more money and in the beginning we want to leverage the value creation of your earnings and savings. Commercial properties are great but buy them down the road.

And another thing.

Buying a 2, 3 or 4 units is simply easier to manage. The maintenance cost will be lower and the renter headaches will be more manageable.

Sep 3

Move into the multifamily property and live in it for at least 2 years. By buying your fist multifamily rental property as a primary residence you gain low interest rates a 30 year amortization period and the flexibility of living in a unit as long as you want. If done right, you can have a place to live and have all the rental income cover your housing cost plus earn additional income.

The wealth snowball is building. Can you see it?

As you live in your rental property, the other renters will pay down your debt and cover the cost of capital expenditures and general maintenance with the monthly rental income. Oh yeah, and you likely will pay little to no taxes on the money paid to you for rent because of the favorable tax position depreciation will afford you. So why am I telling you to live there for at least 2 years?

Lending, again.

In order for you to buy the rental property as a primary residence and get favorable lending you are required to live in the property for at least 2 years. After that time period you can keep the property with the current loan and look for a second property to buy as a primary residence and start the process over again. This is the fastest way to build a rental portfolio that will generate monthly income and pay little or no taxes.

Buy, live, rent repeat.

Real estate, in my opinion, is the best foundation to wealth creation. Holding real estate for long periods of time will generate income that is tax free and your debt is paid down by the renter. In 15-30 year the properties can be paid off and instead of selling them off you can leverage them again and pull out the appreciated equity(not a taxable transaction) and have it paid down buy the renters, again.

Step 4

Buy more assets. As you put yourself in a stable financial position by owning cash flowing real estate that covers your living expenses continue to earn as much money as possible with your job or business. The next step to is decrease your taxable income even more.

But how?

Simply put, max out the contributions to your retirement account. Most jobs provide a IRA, 401K or other retirement account. Money contributed to your retirement account is done so before taxes are withheld so any contributions you make lowers the amount of taxable income you have. Since you have your living expenses covered by cash flowing real estate you can put the maximum amount possible into your retirement account. Two things happen when you do this. Your taxable income goes down(paying less in taxes) and you are building a new asset to use down the road. If you are self employed, be sure to look into a SEP plan or other retirement plans that can allow you to put large amounts of income into tax advantaged accounts. If possible, make sure your retirement account has the ability to loan money to you. This will allow you to take a loan against your retirement account if you ever need it. This is a nontaxable transaction that is required to be paid back. This isn't a must have but a nice feature if you can get it.

Step 5

By now, you have paved a road to become a member of the one percent and you have a couple of options. In my opinion, I would continue to earn as much as possible and invest in projects, businesses and assets that you enjoy. Since you have built a stable asset portfolio its not time to invest in assets with very high upside. Crypto, NFT's and small business investing are my favorite asset classes to invest in at the moment. The future is coming fast and I believe it is important to understand and adapt as quickly as possible. The best way to understand is to research and invest.

Conclusion

By following the steps mentions in this post you too will live a life of the ultra wealthy. I hope this deep dive into the process was helpful and I wish you the best on your wealth building journey.

Remember

Learn to earn and earn to learn.