In this episode, we're joined by multifamily syndicator, entrepreneur, and host of the Commit to Wealth Podcast Juan Vargas.
Today we will discuss Juan’s journey from single family to multifamily investing, why he invests in Texas, multifamily performance metrics, and individual and multifamily tax strategies.
Juan's journey to multifamily investing began as he was looking for ways to generate passive income. His father had rental properties and managed every property directly, so Juan was well aware of the work required to manage and maintain a single family property.
With many different loans and insurance policies, single family investing presents some scalability challenges. When he had some extended vacancies and was getting killed on covering expenses on his rental properties, Juan realized that multifamily was a better path for achieving his end goals.
Multifamily is a different space than single family. There are many realtors and agents selling single family homes everywhere. With multifamily, it’s more of a specialty. There are brokers that specialize in multifamily and it can be very competitive to find your first deal. Juan ultimately went with a direct mail campaign to find his first deal.
Multifamily has been more advantageous from a tax standpoint, despite entering the space before some of the recent tax changes, such as 100% bonus depreciation. Juan now does a cost segregation and utilizes bonus depreciation for every property and often sees that most investors today won’t engage with a syndicate if these tax strategies aren’t being used. It's important to note that some of these tax strategies aren’t here to stay. 100% bonus depreciation will be phased out with a 20% reduction yearly for any property purchased after December 31, 2022.
Investing in Texas
Being from Houston, Juan is investing with familiarity in his backyard. There’s great job growth in Texas. This adds to population growth and ultimately rent growth. Texas is also a landlord friendly state, especially when dealing with failure to pay rent and eviction.
In multifamily, you can force appreciation by increasing rent and minimizing expenses. You can do this to an extent in single family, but it’s not as powerful of a consideration. You have the ability to treat multifamily investments as a true business.
If you allow your children to work in your business for wages, you're bettering your tax position and transferring wealth. You deduct those payments of wages and those wages become tax savings. The income of your child will usually be below the minimum filing threshold, so they don't have to file (unless you withheld taxes, then they could file and receive the entire amount).
Juan recommends the books Cash Flow Quadrant and Think and Grow Rich. His favorite technology is Dropbox and Google Drive for the ease of organization and sharing.
Learn more about Juan's work and find the Commit to Wealth podcast: thejuanvargas.com/