2 Secrets to Accelerating Wealth Creation Through Real Estate Investing

How Technology and Tax Deductions Improve Results, Part One


Property Manager with ResidentInvesting in multifamily real estate properties and apartment buildings is a fantastic opportunity to create wealth and financial stability. But if you aren’t careful, inflation and taxes can erode your returns.

Savvy investors know the secrets that accelerate wealth creation. I recently had an opportunity to sit down with Tom Wheelwright®, CPA, the best-selling author of Tax-Free Wealth and The Win-Win Wealth Strategy: 7 Investments the Government Will Pay You to Make, to learn more.


Wealth Creation Secret #1: Use Technology to Improve Net Operating Income

“It is absolutely possible to make more money and pay less tax,” says Wheelwright, CEO of Tempe, Arizona-based WealthAbility®. “You just need to understand how the tax law works. And, because real estate investors have access to more tax incentives than just about any other industry, they have a great opportunity to build tax-free wealth.” Net operating income, or NOI, is an important factor for both buying a property and setting its budget. Real estate investors also use the net operating income to figure out the property’s capitalization rate. This, in turn, gives the investor an estimated return on investment of their real estate property. A positive NOI helps a real estate investor get a preferred loan rate, possibly attracting other investors or even a new buyer.

There are two ways a property owner can improve their NOI on a rental property: increase revenue and decrease operating costs. To increase revenue, the owner can either increase the rent they charge, reduce their vacancy, or some combination of both. Decreasing operating costs always come down to improving efficiency.

Investing in technology is a great way to check these boxes. Smart video intercoms and companion cloud software, for example, make properties easier to manage and more appealing to renters.

Today’s Renters Value Security and the Convenience of Keyless Entry

Real estate investors who want to attract and keep today’s renters need to offer the digital amenities this generation expects. This includes mobile access credentials and smartphone apps for guest management and keyless entry.

61% of Gen Y respondents to Schlage’s Industry Insight Survey are more likely to rent a unit because of electronic access such as keyless entry. 63% of Gen Y would move out due to a lack of security.

And 1 in 4 residents would pay over $31.00 a month to get the high-tech apartment they want, according to the survey What Apartment Renters Actually Value.2 So, the relationship between the internet-enabled security and convenience that today’s renters want and the ability of property owners to keep high-value residents is aligned with improved NOI.

Wealth Creation Secret #2: Use Deductions to Reduce Your Taxes

NOI is a great benchmark for the profitability of each property in your portfolio, but it doesn’t directly translate into more wealth. Why? It doesn’t include some important expenses, including taxes, capital expenditures, and interest payments.

This is where Wheelwright and the WealthAbility® team come in. They are on a mission to educate the world about how to permanently reduce taxes — and do it in the way that the government wants it to be done.

“This isn’t about loopholes,” Wheelwright says. “The government wants enterprising individuals to invest in tangible, physical things like real estate. Why? The government needs its citizens to have housing and buildings for businesses, schools, health care facilities, and more, and it is far more efficient for the private market to supply these than for the government to try to do it on its own. So, the government gives tax incentives to encourage people to invest in these assets.”

One of the ways the government incentives real estate investments is by offering tax deductions for many of the expenses associated with running a rental property. In some cases, you can deduct the full cost of an investment you make in your rental units all at once rather than depreciating the asset over time. These are called Section 179 deductions and include purchases of equipment, vehicles, and software within certain price thresholds. Another way is to use bonus depreciation, which we will cover in more detail in part 2 of this article.

Let’s look at how this works with one of the technology systems discussed earlier. Real estate investors can buy a complete access control solution consisting of cloud software and hardware, like a smart video intercom for example, and deduct up to 100% of the cost in the year it is bought. You’ll want to work with your tax advisor to choose the best path for your financial situation and goals. The companion cloud technology is a monthly subscription, so you would record this as a monthly operating expense when calculating income.

“It’s like having the government pay you to upgrade your rental properties,” Wheelwright says. “The government gets better housing for its citizens. Your tenants enjoy the simplicity and security of an automated access control system. And you get to build wealth through your real estate investment more quickly. We call that a win-win investment.”


For more articles in our series about wealth creation through real estate investing, follow us on Linkedin.

About the author:

Himanshu Caplash is a Senior Product Manager of Access Controls at LiftMaster® with over 12 years of experience building real estate technology and consumer electronics across startups and big companies, such as Latch, Intel, and ARM. He holds a BS in Electrical Engineering and an MBA in Marketing & Strategy.

Source:  Schlage’s Industry Insight Survey.  What Apartment Renters Actually Value.




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