Musing by a layman about how commercial real estate professionals can set themselves up for financial success

1. The Business of You:
Personal Finance for Real Estate Pros
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2. Disclaimer
As you all know, I am not an accountant, insurance agent or
financial planner or advisor. Any information shared at or in
connection with this event is for educational/entertainment
purposes only and does not constitute financial, accounting,
or legal advice. You should consult your own advisors before
many any financial or business decision. By participating in
this group, you agree to hold me harmless from any
ramifications, financial or otherwise, that you experience due
to acting on the information provided at the event.
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Copyright 2018 Law Office of Zachary Martin, PLLC

3. Why are we even talking about personal finance?
I signed up to talk about real estate, man!
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4. Because….
... going out on your own
... sponsoring your first side deal
... taking advantage of the next market reset
... building a track record as an LP investor
Are all much easier with a solid personal balance sheet
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5. You can’t delegate planning your future
Nobody cares as much about your life and your money as you
The world is not out to make you rich
Your future takes effort and creative thinking
Don’t do what everyone else is doing
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6. Think about it this way…
You would never invest in a real estate deal with a
sponsor that randomly knocked on his door and said he
was compensated solely from fees….
... so why would you trust your future to the first
financial advisor who crossed your path without
educating yourself first?
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7. Ignore the Noise
Complicated options
Boring budgets
Endless opinions
Hopelessly time-consuming
Vague dreams
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8. So what should you do?
Concrete Goals
Clear Strategy
Data Driven Execution
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9. GOALS
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10. Why do you need a goal?
• You have a thesis for each investment at work  have a plan for how
your time at your desk is going to pay off for you
• A clear mission statement reduces money tension from ambiguous
goals or competing wants
But – standard Retirement Wisdom is not a goal
Standard wisdom about financial planning is like paying list price for the
first property a broker brings you and expecting outsized returns
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11. Some Bad Goals
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More money
Not having to work
Keeping up with ____________
Sponsoring deals of your own
Unless you define it, enough is never enough
Unless you control your spending, no amount of
income will be enough
There will always be someone with more
There are plenty of broke sponsors
Some Non-Goals The Reality

12. Financial Independence – The Meta Goal
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Investment Income
Living Expenses

13. Key Takeaways
• The math is simple - Save more and spend less, and you lop off
(many) working years
• Saving more, not outsized returns, is THE key
• Saving more in your 20s and 30s will pay off later in life
• Lifestyle inflation will keep you stuck at your day job
A good cartoon is sometimes worth a million words
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14. Sample Goals
• Meta Goals
• Eliminate personal debt by age 38
• Start own real estate company by age 40
• Reach financial independence by age 45, target savings of $3m
• Spend a gap year between 2023 and 2026 with family traveling South America
• Real Estate Sub-goals
• By 2021, invest as LP in five multifamily deals to build “real estate owned”
resume for lenders
• By 2025, sponsor one multifamily deal to build track record with investors
• By 2028, have 300 multifamily long-term hold units generating at least $X in
monthly cash flow
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15. Special Considerations for RE Pros
Liquidity v Asset Protection
• Lenders like to see big taxable accounts and usually don’t underwrite retirement accounts and
home equity
• BUT retirement accounts and home are largely safe from bankruptcy, giving your family a safety
cushion if you lose your real estate bets
• Paying down debt reduces your near-term liquidity but increases your net worth and monthly
cash flow
• Don’t assume your personal real estate goals will build directly on your existing skills - maybe you
work as a lender that only does construction loans but long-term buy and hold industrial assets
(for depreciation and capital gains benefits) fit your personal needs best
Develop relationship with good bankers today, talk through your personal balance sheet
with them in detail and incorporate their feedback in writing your goals
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16. Write it Down!!!
Start here for a basic framework of what your plan should cover
Write it down to make it real
Remember: Your goals naturally change with marriage, kids, and other
big life  having a financial buffer gives you the flexibility to adapt
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17. STRATEGY
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18. Pick an Investment Platform that Fits You
• Traditional Financial Adviser
• Pros: low stress, infinite customization, integrated estate planning
• Cons: higher fees and potentially more complicated strategies
• Robo Advisor plus (Betterment, Personal Capital)
• Pros: access to live financial advisor plus benefits of regular Robo Advisers
• Cons: higher cost than Robo Advisors and DYI approach
• Robo Advisor (Betterment, Wise Banyan, Schwab)
• Pros: very hands off, lower cost, tax loss harvesting, tax optimization
• Cons: no control over underlying investments
• DYI Portfolio (Bogleheads, Simple Path to Wealth)
• Pros: incredibly cheap fees, infinite control, simplicity
• Cons: education time, management tasks and no estate planning support
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19. Considerations
• Advisors (and roboadvisors) levy fees on top of the underlying
investments’ fees
• Switching between advisors and platforms can be very time
consuming and have negative tax implications
• Tax efficiency is important regardless of what platform you use
• Minimizing fees on your portfolio, regardless of asset class, has a huge
impact
• Carefully consider how your estate planning, insurance and other
needs fit into your overall financial plan
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20. March Madness Challenge:
read one financial article a day in March
• Bogleheads.org, an incredible resource on investing, retirement and other
financial matters. Start here or watch their intro video series to get started.
• Our Next Life, a great blog by two married former professionals that talks a
lot about balancing work, life and your values
• Big Law Investor, written by a Big Law NYC attorney, this blog offers in-
depth articles and perspective for high-income wage earners
• Corporate Monkey CPA, great blog written by a Silicon Valley CPA who has
taken a year off to live in Bolivia, has lots of technical depth
• Mad Fientist, a technically-heavy blog by an early retiree
• The Simple Path to Wealth, a easy to read book that explains why you need
F* You Money and how anyone can achieve it
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21. EXECUTION
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22. an 80% perfect plan that you actually carry out
will do more for you than a perfect plan you
don’t get around to implementing
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23. Measurable Results
It’s financial reporting, on you
With clear goals, you can celebrate when you achieve them
Hard data helps you stay the course and know if you are on track
to reach your goals
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24. Two Key Analytic Tools
Personal Capital, to track your net worth, income and spending
FI Tracker Tool, to calculate your savings rate and FI date
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25. Resources
some tools to help you pursue your goals
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26. Health Savings Accounts
What: Those with high deductible health plans can put up to $6,900/yr
in pre-tax money in a Health Savings Account, which functions like a
401(k) for health expenses
Why: Avoid taxes on contributions and gains that you use to pay for
qualifying healthcare costs, and roll forward and roll extra funds
forward indefinitely
Get the details here and here.
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27. Donor Advised Funds
What: A donor advised fund is a 501(c)(3) vehicle that you control
Why: Having a DAF makes donating appreciated securities (a big tax
boon) much easier. Plus, it lets you batch your donations from several
years into one year (so you can qualify for the new, higher itemized
limit) but then spend the money over several years.
This is a great overview article with specifics on picking a DAF provider
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28. Back Door Roth
What: Allows each adult to contribute up to $5,500/yr ($11,000/yr for
married couples) to a Roth IRA. Can be combined with a Self-Directed IRA to
allow you to use retirement funds to invest in real estate.
Why: Gains are tax free, so high returns from a good LP investment or hard
money loan are untaxed when combined with a Self-Directed IRA. Plus you
can use the funds to pay for your or your kid’s qualified educational
expenses.
Easy, step-by-step instructions here
And you can still make contributions for 2017
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29. Self-Directed IRA
What: Use an IRA for hard money loans, LP investments in other
sponsor’s deals and similar “passive”
Why: Ideal way to use retirement dollars to invest in real estate and
other alternative assets
The Self Directed IRA Handbook is an excellent resource
Quest IRA, a popular Self-Directed IRA custodian, holds regular
educational events in Dallas and webinars
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30. Mega Backdoor Roth
What: Some 401(k) plans allow employees to contribute up to $36k
after tax dollars on top of the standard $18k contribution limit
Why: If your 401(k) plan offers this benefit, you can put extra dollars in
a tax advantaged, protected retirement plan
Get more details on why and how here
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31. 529 Education Savings Plans
Why: Profits can be withdrawn tax free for qualifying education
expenses
Why: Investing early and avoiding tax on gains allows you to save more.
And thanks to Trump’s tax bill, you can withdraw funds for some K-12
expenses.
Find a good plan, like Utah’s, that offers low fees on solid investments
Get smart about how college tuition is calculated and build this into
your financial plans
Invest (or have grandparents invest) when your kids are young using
the power of “superfunding” to maximize the tax benefits
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