Overcoming Limitations: An Unconventional Path to Success with Kimberly Lochridge

Speaker1: [00:00:00] I think so many things have gone poorly in my life that. It doesn't scare me to do something wrong now. And I think that that's that's I think that's the one thing that people rob themselves of. The fear from taking a step forward is what is preventing us from making mistakes, that we actually learn faster from mistakes than we do from somebody teaching it to us.

Speaker2: [00:00:27] This podcast is sponsored by Engineered Tax Services, a subsidiary of Engineered Advisory, whose goal is to support CPAs and their clients to achieve the highest and best use of time and resources. Ets offers specialty tax services and incentives which help expand your capabilities and ensure that your clients are paying only what is required in taxes and nothing more. To learn more about Engineered tax services, go to Engineered Tax services.com and mention the healthy, Wealthy and Wise podcast to receive project discounts and a free CPA partnership book. Hi, everyone. This is Heidi Henderson and you are listening to the Healthy, Wealthy and Wise podcast for accountants. I am really passionate about people and the industry, and I truly believe that the accounting industry can do better for both our clients and it's professionals. So I'm going to share insights from people who have found professional success and who have managed to balance that with their physical, mental and personal health. So I hope you enjoy and I hope you get inspired. Accountants can earn free CPE from listening to this episode, just visit earmark cpe.com. Download the app, take a short quiz and get your CPE certificate. And now on to the episode. Welcome to today's podcast. Today is pretty cool. It just happens to be the day we're recording is International Women's Day and I happen to be recording with Kimberly Lockridge, who is managing director, executive Vice President of Engineered Tax Services, among many other hats that she wears. So off to dive into that. But Kim has always been a huge inspiration to me and a really cool thing about this podcast and having her here is that Kim is not only an amazing, successful female doing some incredible things in not only the accounting industry, but real estate and many other areas. Kim happens to be my sister and she's also my business partner. And so I'm so excited that she is joining us today. And I think we're going to have some fun kind of talking through some background and a little bit about how Kim has gotten to where she's at. So with that, Kim, thank you so much for joining us today.

Speaker1: [00:03:00] Thank you, Heidi. It's good to talk to you.

Speaker2: [00:03:04] Okay. So let's start way back at the beginning. So share your background.

Speaker1: [00:03:12] Um, well, thank you. Um, so the background, like, where do you want to start.

Speaker2: [00:03:18] For way from the beginning. Where are you originally from? Where did you start out? Where did you grow up? A little background on Kim personally. Well, okay.

Speaker1: [00:03:27] Well, I was born in Seattle, lived a little bit in California for most of my adolescence or growing young adolescents, and then as an early teen, moved to Oregon, spent some time in Portland and then, you know, kind of bounced around a little bit until we found a place raised my kids in Salt Lake. I lived there for about 25 years and then moved back to Portland for a little bit. And now I'm in Arizona as an empty nester and enjoying the sunshine. So yeah, it's kind of a history of bouncing around of, of where where we came from.

Speaker2: [00:04:05] Exactly. So that's also my background.

Speaker1: [00:04:10] For the most part, right? Yeah.

Speaker2: [00:04:12] So thanks for that, Kim. We're sharing our mutual backgrounds. Kim actually just celebrated her 50th birthday last fall. We had the incredible pleasure of going to Europe and doing an amazing trip. So we have definitely been celebrating her 50th birthday and, you know, just celebrating life. So with that said, and to that point, what do you do for fun? What is the thing you love to do the most?

Speaker1: [00:04:44] Well, it's funny because I usually tell people, you know, your passion is horses. And I always tell people it's like a lot of people have hobbies, you know, they have, you know, golf or horses or whatever. But I think my passion is real estate. I think it's really geeky. That's my hobby. That's what we do on our time off. I say we, my husband and I, because we manage a lot of real estate. But, you know, if I really came down to it, I love to travel. So I'm actually doing, I think, five different countries this year, just not even trying. So we love to travel. We're going to travel any time we get the opportunity. We're in that stage where we have grown children out of the house, but we don't have grandkids yet. So it's it's it's really kind of fun to be able to just live our lives, you know, and just be where we want to be when we want to be there for the most part.

Speaker2: [00:05:43] And you you mentioned that you manage a lot of real estate in addition to being one of the absolute top performers in a large national company and having truly risen to the top, you know, the essence of rising to the top, which we're going to get into because I want to talk about that. But how do you feel like you've managed all of that with still taking the time to travel to see the world? You've got five countries you're going to. Is it this year? How do you feel like the changes with COVID and remote working and all of these things has made that either easier for you or maybe maybe it's also been a shift you've been able to build into your success by being able to manage all of those things. So how have you. How have you done? How have you sort of fit in this travel in the midst of your busy work life?

Speaker1: [00:06:36] Eating the elephant one bite at a time. It seems, you know, when you look at the whole big picture, it seems really overwhelming. But somehow, some way I just keep managing. You know, I, I do a lot of self care. I think that is important. Um, I love the sunshine. I mentioned that. So, you know, today's a nice 75 to 80 degree day and we're beginning of March and a lot of places are still snow on the ground and, you know, have the ability to go outside and just absorb that sunshine for a little while, even if it's just for five minutes. But, you know, it really is just taking and dissecting what needs to be done, organization tools, you know, whether it's outlook and really utilizing some of the organization for emails and that kind of stuff. But you know, with my W-2 job, I have four dedicated assistants that that work specifically for me. So I delegate a lot, but there's just a tremendous amount of of work that flows through and have to be constantly available to them if they have questions or to clients. And you know, I'm primarily in sales, you know, so that's a big part of it is, is being available. So yeah, I mean again, just the managing the property and all that that we have going on, managing, you know, our parents and their health. Obviously that's a component at, at our age.

Speaker1: [00:08:10] And you know, Heidi will be 15 next year since she told me my age. That's right. Disclose that she's right behind me which is fun. We're 18 months apart. So we've always been kind of like twins. You know, we've had that telepathic. But anyways, going back to it, yeah, it's really just eating the elephant one bite at a time and making sure that I'm organized. Another big part of it is, you know, we made a family decision that my husband retired after his 29 year tenure at a at a big worldwide company. And that's helped a lot because, you know, he manages a lot of the know day to day household and also took on all of the management of our properties, which, you know, mostly was falling on my head, you know, along with my job. So now that we have him kind of freed up to do a lot of the running around and, you know, due diligence and closing deals and and whatnot, it's freed us up a little bit there. But it seems like it just keeps getting busier because we just have one more stuff to do. But, you know, but it's what we enjoy. You know, we talk about, you know, when we we won't enjoy this anymore what we're going to do. But right now, it's like, you know, we're kind of having fun.

Speaker2: [00:09:25] Well, that's the key, I think, is to enjoy what you're doing and to have fun with it. You know, Kim mentioned a minute ago that what does she love to do? She loves real estate. Well, I'll expound on that a little bit. If anybody ever wants to talk about spreadsheets, you don't have anybody to talk to. You can call Ken because I don't know if I've ever known anybody who loves her spreadsheets as much as Kim loves her spreadsheets. I'm pretty sure like in the evening, like while she's watching TV or the weekends when they're hanging out by the pool, she's probably playing with spreadsheets, analyzing numbers, going through all of the data. So, you know, we laugh about it, but I bring that up because your drive, I think, certainly would have to contribute to your success. And, you know, one question I have is what do you contribute? What do you think is the number one contributing factor to your success? Because it's not just that you're highly successful, it's that you have managed to rise above hundreds and thousands of other people who have maybe taken a stab at trying to do what you've done or to be successful in a particular industry and specialty tax or in the tax world, in accounting and consulting and some of these areas. And you have achieved success at the highest level in this industry, truly. And so what would you what would you contribute that to as one of the number one factors?

Speaker1: [00:10:50] Man, these are really good questions, Heidi.

Speaker2: [00:10:54] No pressure. You're not in the hot seat or anything.

Speaker1: [00:10:57] No. Just mean off the cuff. I you know, I think when we were growing up, one thing that I'm always very appreciative is that it was instilled to us that we can do anything, anything that we put our mind to. It didn't matter what our limitations were. It didn't matter where, you know, anything that came up. It was just that you're capable of anything you want to do. And I'll be honest with you, I think that that is the huge contributing factor because I have no limits. There's nothing in my mind that says, Oh, I can't do that because. Like if I have a desire to do it, I'm going to find a way to do it. And if I see myself in a specific place, you know, I have this ability to just make it happen. And that's, I think, because I don't feel like there's any limitations except for my own brain. So as we're growing up and mom is telling us this and you know, Dad, to to a certain point, you know, it was always told you can do whatever you want to. Can't never did anything that was a household term that oh, I can't do that, can't never did anything. And it was just it was brainwashed into our brains, you know, it was just embedded into into us. And, you know, I actually took that and raised my kids the same way. And I feel like it. I feel like that, you know, that mentality is a huge part of of what the basis to what we made what what made me successful. You know, you can bring in organization, you can bring in, you know, whatever else, you know, dedication, motivation, any of that stuff. But I really think it was a lack of limitation. There's no limits to what I feel like I'm capable of doing, and I've been able to prove that to myself and people around me.

Speaker2: [00:12:53] I would agree that that you are one of the most driven people. You know, that that doesn't view failure the same or or I think even have some of the same fears. I tend to be more conservative and and look at or overanalyze things to the fear extent which can hold people back. So so then as you've continued sort of this rise, you know, you're successful in your W-2 job, you know, engineer tech services, you're consulting with clients all over the country, being incredibly successful. You then begin to branch out into other areas and other businesses and then into real estate. And I do want to get into the real estate stuff in a few minutes, but. But what do you think? Continues to push once you reach a certain level. Where is the drive that keeps pushing you for more? I'm curious.

Speaker1: [00:13:47] Well, I think. That's a great question, too. Where does it drive? What keeps me motivated? Yeah, because, I mean, I could quit tomorrow. You know that. But I think. I think it's because I love what I do. And so it's like the. The cash flow and the finances. That's all just a side benefit because I'm doing what I love. And, you know, everybody says that it's so cliche. You know, it's like, do what you love and you never work another day in your life. But I'm living it, you know, And I think that that's what motivates me to do better. And if I get to a point where I feel like I'm dropping the ball or dropping a ball and I can't stay on top of of it, or I get to the point where I'm too stressed out or something like that, I figure out ways to get around that. I don't want that to stop me. That's not a block in my path. I will either get up over the block or I'll go around the block or I'll pick up and move the block. But I don't just sit down on the block and say, you know, Oh, I'm done because there's a block in my way. So I think that what continues to drive me is the fact that what I'm doing is what I love to do. Honestly, I love to do it. I've been talking to Dave, my husband, you know, last little while, he's like, When will I want to retire? And I he's like, I don't think you're ever going to retire because you just have so much fun and what you're doing.

Speaker1: [00:15:24] And the people that I get to talk to, I get to I get to talk to my clients about what I love, which is real estate and coach them and help them. And it feels like I'm giving back, you know, it really does. It's not coming just from a sales perspective, but it comes from an education standpoint which just turns around and gives me more clients, more referrals. But it I get to talk to more people and so I think everything that I do has stemmed from my my position and my job where I'm at right now. And I have ties in, you know, this area and I'm and working now internationally and, you know, going to Barcelona for work and and then, you know, we're going to Africa for fun later and you know, doing these things where I get to, you know, travel the world, you know, Victoria BC is in June. That's another conference that I get to go to for work. So these things that I get, I get to work worldwide is just right where I've expected. I've always wanted to be. So it doesn't it doesn't surprise me. It's like, oh, yeah, I would I would see myself doing that, you know? And some people could only dream of going to those places and I'm going to all three of those places. And this year alone, you know, so those are the kinds of things that continue to drive me because because of what I'm doing and where I'm at, it gives me more opportunities to be able to do things that I love to do.

Speaker2: [00:16:53] Absolutely. So, Kim, one thing I want to share with people that I think is one of the most inspiring things I think it can be helpful to so many people listening to is, is you got here in a really unconventional way. You didn't follow the conventional path that a lot of people are told they need to take or they feel like they have to take in order to achieve success. You did it your own way, which for anybody who doesn't know Kim, I can tell you Kim has kind of done everything her own way, but that's what's been so inspiring. So tell us about your background and how you got here unconventionally from, you know, coming out of high school. What did you do and not do that we typically see? And how did you overcome some of the trials maybe that you you went through?

Speaker1: [00:17:47] Well, you know, I've really struggled with this question in my lifetime because I think that. It's been something that I felt was a detriment to my background. But then I had so I guess I'll fill in the blanks for everyone first. Um, you know, in high school, I was just. I was the black sheep of the family. I was the troublemaker. I was rebellious. I was a terrible kid. I got into drugs. I mean, just name it, you know, came from a great family. But, you know, I had to touch the fire. I got to a point, I think really early on in like seventh, eighth grade where I there was a turning point for me. And we don't really have to show the story. But yeah, I guess we can. I don't know if you want me to.

Speaker2: [00:18:44] If you share, you share as much as you want to share because I, I wanted to, to broach this topic because in an industry where we deal with a lot of CPAs or investors, there's still a big premise that, you know, well, if you didn't, if you didn't follow the path and go to the right school and have all the right papers, then you can't do certain things. And I think it's huge. I think it's huge for people in every industry to realize that if we look at the individual and we look at the skills and mindset that maybe we should reconsider some of those things. So. So sharing your story I think is huge. And for people who didn't follow all of the perfect little path and and that process, they needed to, I think that it can be incredibly inspiring for those people, too.

Speaker1: [00:19:34] Okay. Well, so I'll go into it. I'll share because I agree. I think it is a good story. So when I was we moved to Oregon and went to school and I started junior high and it was like seventh grade and everything was fine and it was like new kid and I was really popular. And you get all the kids, you know, I was seventh grade, but, you know, and there was this one kid in sixth grade that just. Made fun of me relentlessly. And they would call it bullying today. But it's just it's making fun, right? So call it whatever you want to. But this kid, he was younger than me. He was shorter than me. But what happened was actually he was two grades below me. So I went to we had the summer after the seventh grade year and I, I literally grew about 12in in the summer between my seventh and eighth grade year. And I went to eighth grade as a six foot two adolescent, basically in eighth grade. And what is that, 13, 12, 13, 14 years old, somewhere in there. But anyways, um, and so grew quickly. And when I went back to school in eighth grade, like nobody even knew who I was, it was like I was starting as a new kid all over again. And this little eighth grader at the very beginning of the eighth grade year, you know, he was just relentless. And I would go home every night and I would just cry on my pillow.

Speaker1: [00:20:59] Mom would lay there and rub my back and, you know, just he would make fun of me. He'd call me stupid names, Jolly Green Giant and just ridiculous and get everybody else in on this. And it was just it was terrible as a as a kid. Yeah. Everybody gets, I think, teased or bullied at some point. I think it's just kids are cruel. But it was it was very detrimental. I went home and this would happen all year round, all year long. He just was relentless. And it was every day and it was brutal. And, you know, I'd go home and my mom would be like, you know, you know, just turn the other cheek in all the great things that moms say and they rub your back and they hold you and and tell you everything's going to be okay. And that, you know, she would always say, you're going to be this, you know, ugly duckling that grows up to be this beautiful swan and, you know, all these things. You know, you're going to love it when you're older, that you're tall and just all these things that you should be telling your kids when you're a mother. And, you know, And it was just like, Oh, I just want to punch him. I just want, you know, this. And she's like, No, just turn the other cheek and everything will be okay.

Speaker1: [00:22:01] And, you know, God will be there with you and, you know, yadda yadda. So it was a long time. And and there was this one day I went to school and it was early in the morning and he was at the bottom of these this long staircase. And he was clear across the cafeteria. And I was walking through where they had like breakfast and stuff. And, you know, he saw me coming from clear across the cafeteria and he just screams like Jolly Green Giant. And that moment, something in me broke, literally just broke. I threw my backpack off my shoulder and I went into a complete and utter sprint as fast as I could, as fast as I've ever ran in my entire life. And by the time I got across the cafeteria and up this huge flight of stairs, he was at the top of the stairs. That's how fast it was. And he saw me coming. He saw me drop my backpack and. And I got to the top of the stairs and I grabbed him by the back of his sweatshirt, and I flipped him around and I threw him up against the wall, and I punched him and his nose just blew up. I mean, blood was just streaming off of his face, and I was mortified like, oh, my God, I just hurt somebody. Right? But I it was like it just broke.

Speaker1: [00:23:15] It literally broke me. And I was standing there and then I was like, didn't know what to do. So I just walked away. I literally just shattered his face and walked away. And he had blood all over his clothes. And he didn't say anything to anybody. He just went to class. And of course, he's covered in blood. And so everybody's asking him. But he didn't want to tell anybody that he had been hit by a girl. So he's basically hiding in the corner until people start talking. And of course, news travels very fast and I'm in homeroom and he's in a different homeroom. And of course, we get called to the office and they're asking what happened? And I just told them I was like, I'm done. I'm done with him, you know? Well, he got three days of detention and I got one day of detention and they called our parents and whatnot, and I kind of got in trouble. But it was it was very interesting because that was my turning point. And the reason it was my turning point is because at that moment I realized, you know, first of all, after that happened, he never said another word to me again, ever. And, um, and it was never spoken. We never had a conversation about it. It wasn't like, yeah, later we became friends. No, we never spoke about this again. Like, people would hear about it and. No, but what was interesting is I learned at that moment, right, wrong or indifferent, that my mother didn't know anything.

Speaker1: [00:24:36] God doesn't have anything to do with it. And I'm taking matters into my own hands. And as soon as I do, things actually change. And so, you know, I became a very rebellious person because whatever my mom said to me, I didn't believe her, unfortunately, you know, And I just I was like, screw you. You don't know what you're talking about. I'm going to live my own life. I'm going to figure it out on my own. I don't care how much it hurts. I'm going to touch the fire to figure out what you're saying is either true or not true. And that began my, you know, adolescence. 14, 15, 16, 17, 18, 19 years old. I've just struggling through life because my parents didn't know anything. Um, and so, yeah, it's like, go to college, don't go to college, you know, Wasn't sure what I wanted to do. I really, really struggled with school in its traditional way. I have somewhat of a photographic memory when it comes to numbers, and so I could memorize everybody in the whole family would call me for phone numbers because I would just rattle them off. I would rattle off, you know, credit card numbers, Social Security numbers, calculations. And I've always been that way. And so I felt like, you know, I always really was good at math, but I hated it.

Speaker1: [00:25:58] So I really didn't know what I wanted to do. And as soon as they put a dollar sign in front of those numbers, it was like the whole world opened up and I found my calling like, This is it. I got to do something with with dollars, with money. And so accounting and finance and I went to a PCC, you know, because I was so rebellious and I actually moved out when I was 15 years old, got myself into some trouble there with a boyfriend who who kind of beat me up for about 3 or 4 years. And that was a whole different life. But, you know, ultimately, I didn't really have the finances, the means, the knowledge of of how to how to go about going to college. And I didn't want to go to college. I was like, I am so sick of school. And I just learned I learned everything I could potentially learn as quickly as I could learn it in my own way. And that was before the Internet. So I was just devouring whatever I could. I went to school fast. I went through education, I guess fast in the sense of, you know, university of hard knocks. And then I did some classes at Portland Community College in Finance and Accounting, and that helped me pretty much whatever I wanted to do. And I started up with a multi-level marketing company when I was 17 years old and and started selling.

Speaker1: [00:27:29] And from there, really, I started figuring out how to track everything. I started using QuickBooks way back then and tracking my inventory, and I became one of the biggest salespeople in that organization. And then, you know, obviously multi-level wasn't the place to be. But but I did well, and it taught me a lot. And then, you know, got married at 21 and had my first baby. And just life kind of just took hold. And I just didn't really have, you know, the desire or the means to A to go to college. And so that was from that business on. My husband and I at the time had started another business in the lumber industry. And then we also wanted to diversify a little bit. So we started, you know, another company that just kind of came to us. So we did some stuff in the custom car business and window tinting and a car stereo store, and we just started being entrepreneurs. And from there it just kind of progressed. And when you when you understand and learn how to manage finances in a business, essentially you can take that knowledge and do anything. It doesn't matter really what it is because you have this base knowledge and that's kind of how I looked at it. So that's kind of my untraditional way of coming about, you know, upbringing and kind of bringing me to where I am now.

Speaker2: [00:29:00] I know that's not the easiest thing in the world to share, and I know how that can be a vulnerable position. And the reason that I asked you to share that is because, again, I think it really is so inspiring. I think it's so tied to how hard you've worked and how much you've fought and how strong you are to have achieved the level of success that you have. And, you know, to to boast a little bit about Kim. You know, as I said, Kim is, you know, the if not, you know, at the top or the top producer of Engineered Tech Services or Engineered Advisory. She is consulting with CPA firms across the entire country and thousands of real estate investors to consult with real estate investing and how to grow their portfolios and how to give them advice on continuing to expand that as she has become very successful in that space. And one of the most knowledgeable people you could ever talk to on tax incentives that relate to real estate research and development credits, all of these incentives. And truly understanding these areas of the code.

Speaker2: [00:30:05] I would say to the extent of the top experts with any of the firms you could possibly work with and and more successful in that sense. And and I share that because it is so inspiring. And you have been a huge inspiration to me in my life. And you have always been someone that I've looked up to because I've followed a more traditional role and went to college. But you are way more successful than I am. I sit back here going, Oh, I don't know about buying my own real estate. You know, I take the safe road. And so it is it is it really is profound what you've been able to accomplish, the knowledge that you've gained, the value that you bring to your clients and to the industry as a whole. And it truly is incredible and really the epitome of who you are as a person. That strength and that willpower. What do you think holds people back from reaching their potential? Fear. Yeah, yeah, yeah. I would have to agree with that. It's fear.

Speaker1: [00:31:07] I think it's fair. I think it's fear of failure. I think it's fear of doing something wrong. I mean, it's fear of so many different, many things. I think it could be self sabotage. You know, there's a lot of things that, you know, have to be moved out of the way that that hold people back. And it's it's rampant. I mean, it's the norm, you know, for people to be non movers. And so when there is somebody that is a mover in in your world or in your circle, I think that those people really, really stand out. And, you know, I met this woman on a plane once, and actually we're still friends. But it was very interesting because she we we met on the plane and then we went to lunch and we've stayed in contact. She lives here in Tucson. And and she said, I just every time I talk to you, I just love your energy and the way your brain thinks is different than what I'm used to. You know, she's a 69 year old woman, and I just. I fell in love with her. I just adore her. And, um, you know, and I just thought it kind of took me back because I. I mean, I know I have a positive energy. I have this energy about me, and that just kind of comes with, you know, call it the butterfly syndrome, call it whatever you want to, you know? But it was very interesting to hear somebody say that, you know, because I think that I think that contributes to that being a mover and a shaker and somebody who's, you know, constantly looking for for different things or keeping their eyes open. I think it does initiate a type of energy, and that's what gets the attention of of other people. So I would I would say that, you know, to to your question, I think fear is what holds us back and it actually diminishes some of our energy when we're scared. Yeah.

Speaker2: [00:33:02] That that makes sense. So when you bought your first property, I mean, I feel like that that jump, that leap, that's a big leap, you know, for someone who you've got some people who own property and they begin to build their portfolio. But the very, very first step. How difficult was that very first step for you in buying your very first investment property?

Speaker1: [00:33:26] I'm trying to think of. Of course, I brought my we bought our first home in 95, and then we bought our second home, which wasn't technically an investment property, but it was it was a second home and we bought that just a few years later, maybe 4 or 5 years later. And and the first house was scary enough. The second house was petrifying. And I and I kept thinking how, you know, what happens if we can't make the mortgage payment or what happens if this and you know, and in my mind, I in order for me to allow myself to make that that step, I have to make sure that I have a backup plan, educated risk and management, and then another backup plan. So I think I'm the queen of backup plans. Heidi, you laughed because I think you you know what I'm talking about, obviously.

Speaker2: [00:34:27] Well, and I was going to say, the spreadsheets, I think a lot of that has to do with your level of analysis and the time that you spend to truly look at every single potential outcome and consider the risks versus rewards.

Speaker1: [00:34:45] Yeah. And I think I think so many things have gone poorly in my life that. It doesn't scare me to do something wrong now. And I think that that's that's I think that's the one thing that people rob themselves of. The fear from taking a step forward is what is preventing us from making mistakes, that we actually learn faster from mistakes than we do from somebody teaching it to us. Mm. Maybe that's just me. Maybe that's human nature. But that's absolutely the case for me. I have proven to myself that I have learned way more than any school could ever teach me in making mistakes than to just sitting through and kind of reading and trying to absorb a book or a teacher. I have to experience it. Hence the touch in the fire, you know? Um, but I think that also that way of learning for me probably wouldn't have catapulted me the way that it has doing it the wrong way, call it, you know? So yeah, I think that making mistakes is, is a big is a big factor in learning. And so I would go through and even today is I'm going to start small. If this is a mistake, it won't be the end of me. Right? And so, like if this decision goes poorly, will it be the end of me or will I be able to stand back up and and move on, you know, and and then I, I weigh how bad will this set me back? Yeah. Whether it's financially or any other, it doesn't matter how bad. If this is a mistake, how bad will this really be? So I play out the worst case scenario. I play out the what ifs on the positive side and I play out the what ifs on the negative side, risk versus reward. And then, you know, then I make it a calculated risk decision based on that.

Speaker2: [00:36:48] We'll remember years ago you had told me you were reading a book called Feel the Fear and Do it anyway. And it reminds me of that, you know, where you know we're going to be fearful. Then we need to consider both sides, both the other side of failure as well as if it doesn't fail, we are successful. Then also consider the results of that which are not always as bad as maybe we think they might be. So with that, what is one of the biggest failures in your career or your past success that you faced, and how did you learn from that or overcome it?

Speaker1: [00:37:27] Biggest failures. Perceived failures or actual failures?

Speaker2: [00:37:33] Probably either one.

Speaker1: [00:37:37] Um. I a man? That's a really great question. Um, so I was married for about 15 years and had my my three daughters, which was never a mistake. And that will that will never be anything because I just adore my daughters. But, um, but their dad, I don't want to call him a mistake either. But, you know, there was there's question of whether that was the right decision or not. And now that it's over. Of course you can't go back. You can't change it. And it's all hindsight. But being married for that long and at the time that our divorce dissolved, my youngest daughter, you know, it started when I was six months pregnant with her. And then it went to, you know, a divorce when she was two and a half. And I think that that perceived failure was another turning point in my life to I can either lay down and die and go on welfare because we had no support or I can pull up my big girl poop, you know, pants and, you know, really get to work. And there were, you know, countless times that I was close to losing my house, you know, and difficulties, you know, with my businesses and really struggling. And it was a turning point. What came from that was, again, the perception of failure and saying, well, if I can do that and I can get through that, then I can get through anything and that motivation. And and then of course, where I'm at kind of just fell in my lap. It just happened. But again, it was one of those choices that I had made that do I go take this route or do I take that route? You know, if I take this route? And of course, you go back and forth between what you should do and what you shouldn't do, and you don't have a crystal ball.

Speaker1: [00:39:25] But I think out of that, again, in that stage of my life, after having, you know, three young children and, you know, a failed marriage after 15 years was another turning point for me that turned into something beautiful and positive. I think I blossomed into who I am today, more so because of that than really anything else in my life. And so again, I go back to the butterfly syndrome and the story, you know, for those of you that don't know, you know, you have a butterfly in a cocoon and somebody comes by and says, Oh, I'm seeing this butterfly is really struggling to get out of the cocoon. And they cut the cocoon open. And there's this, you know, butterfly that's basically paralyzed and not able to to fly away and no color and dead and just not doing well, you know? And that's because when you cut the cocoon open, you know, the colors and the strength of the butterfly to carry them through life comes from the struggle coming out of the cocoon. If you cut the cocoon open, they cannot progress. They can't they don't have the bright colors. They don't have the strength to actually carry them and they actually die. And so, you know, the butterfly syndrome, right? If that's true with insects and have a butterfly tattoo because of that, but because of because of that struggle, I think it is it is put me on a path to where I am today. And it just happens to be a very successful one.

Speaker2: [00:40:59] Absolutely. So now with managing other people, how are you able to kind of carry some of these lessons forward to people that you work with, people that you manage or lead? What are what are the, I think, tools that you feel like you've been able to bring and mentor others?

Speaker1: [00:41:23] I'll be honest, I think the managing people side of me, even though I've been an entrepreneur all these years, that's the one thing that I struggle with the most. I have in the past gotten frustrated. I didn't come through corporate America, right? So going into things that are traditional managing people and that kind of stuff, I kind of had to learn that on my own too, you know, I didn't come up from that and reading books on management and leadership and those types of things, you know, has helped a lot. But I think that through my successes, one thing about myself is that, you know, I'm very transparent and and I think I'm willing to share my experiences and how I got to where I was and not in a braggy way, but to help other people or make them realize that if you're feeling, you know, like you're lagging or you're feeling like you're not quite getting it, you know that there's hope. It's okay to be that way. It's just we need to make sure and tap into the resources and teach them, you know, help them tap into those resources instead of giving them, you know, it's teaching a man how to fish rather than handing him fish. So I'm kind of hard. Heard on the people that I manage, you know, I want to be available to them.

Speaker1: [00:42:43] But when they ask me a question and I've done this with my kids too, it's like they ask me a question. And, you know, most of the time my my answer to that is if I wasn't here or if I was unavailable, what would you how would you get the answer to this? Because I want them to tap into their resources. I want to I want to contribute to their not giving them the answer, but giving them the resources to find the answers, because that's what I did. You know, I didn't have anyone handing me the answers. And even if they did hand me the answers, I still had to go touch the fire to make sure that the fire was hot. So. So I'm going to go experience it by. Howdy. Um. So, you know, I think my management part of it now that I manage, you know, a lot of people, it it has helped my experience has helped them in the fact that I just kind of want to teach them how to fish rather than giving them fish. And sometimes people can't handle that. They want the answers, you know, I mean, you experience that and so yeah, yeah, yeah.

Speaker2: [00:43:48] I mean, being a manager and a leader certainly is a completely different dynamic and definitely changes that. What's the biggest thing you've learned from managing other people? What does it taught you?

Speaker1: [00:43:59] Patience.

Speaker2: [00:44:02] As if having kids and raising kids wasn't enough, huh?

Speaker1: [00:44:05] Yeah, that's right. Yeah. Patience. Patience is a good one. Um, you know, I can't react the way that I want to with. With people, you know, with your kids. You can react, and then they're going to know you love them anyways, and they're going to see.

Speaker2: [00:44:23] I find that I find that incredibly surprising. If I reacted.

Speaker1: [00:44:29] The way I.

Speaker2: [00:44:30] Wanted to with my kids, I don't know. I think we'd have issues.

Speaker1: [00:44:38] Yeah, well, I I've been over my life, I've been very a very emotional person. You know, I'm going to tell you like it is. And if that, you know, if the F-bomb comes out, then, you know, it's just part of me, you know, Um, and that's not tolerated so well in business. So I've had to I think it's interesting. It depends on who it is. Some people really appreciate the honesty, you know, and like, Oh yeah, it's very emotional. And other people are just like, You cannot say that. It's like, Well, I just did. So yeah, I think what I've learned the most is really to be able to balance my emotions and keep those in check and really take a step back and take a deep breath and just understand that, you know, they're trying and, you know, if they're not, then there's my answer. You know, I cut them loose. You know, if they're not going to give me the best, then I, I am not going to take the time that I'm investing with these people because it's an investment to train and to coach. And if I see somebody, you know, I had somebody that I was working with that, you know, it was just I would get all the right answers.

Speaker1: [00:45:53] I mean, she would answer every question and she would say all the right things. But nothing was matching up to her action. And it was like it was literally just being lied to every day. And I felt it was over a year. And it was terrible for me because I really struggled with what I should do because I really didn't have any proof. But I but I'm like, this isn't matching up. And I felt like it was just a complete waste of time, you know? And as soon as I put that person on a performance plan, they quit, which was while I was on vacation, which that was a huge eye opener to me. Yeah. Um, but those types of things, you know, it was, it taught me, it taught me patience and it taught me a little bit more of that. Also, if somebody doesn't quite work out, it's not my fault, you know, and putting the onus back on them. So that's probably what I've learned the most about myself is just to really have more more balance and emotions.

Speaker2: [00:46:53] Yeah, I think that's huge. So last question. What would you tell your 18 year old self?

Speaker1: [00:47:02] Hang on for the ride. Oh, that's the.

Speaker2: [00:47:06] Best response ever.

Speaker1: [00:47:10] Like, yeah, for real. Knowing what I know now and everything that that person has has gone through. Yeah. Hang on for the ride because it's, it's a wild ride out there and. Yeah. Don't, don't really have anything else you know it's just hang on. Yeah. You know because that's, that's what we're doing in many cases, you know just you never know where life's going to take you or us, you know, we've, we've both been through a lot in our lives and, you know, we've, we've been through, you know, very, very close times. And then sometimes not so close. And, you know, these last few years working with you, you get to brag on me all this time. But you know what people don't understand? And what I need to say is that Heidi is my mentor. She's she's the one I look up to.

Speaker2: [00:48:00] So love you. Oh, you're so sweet. Thank you. Well, thank you for being here. And, you know, this is a little bit of a different podcast. We're not diving into anything tax technical and we're you know, it's more about just being human. But, you know, I think it is important. I think it does make a difference. And if people. Listen, I think it's important, you know, to give people opportunities and not just look at a piece of paper, not just fits in the box, but really looking at people, really looking at individuals, understanding what makes them tick and taking the time to cultivate and to believe in people and to look at their drive and willingness and really what is what is that motivation underneath it all. Because, you know, I've seen so many incredible people in my life. And, you know, it's it has been inspiring to watch Kim overcome fears and be willing to fail forward, understanding the lessons that come from that to achieve such tremendous success. And it is an absolute blessing and it's a blessing that the people that work with you are able to work with, you are able to call you A, get advice and get feedback and get the consulting time that they get. Because the knowledge that you bring to the table is absolutely incredible. So with that, it has been an absolute pleasure. I'm so grateful that you took the time and we got to do this. I hope everyone enjoyed and we will talk to you next time.

Speaker2: [00:49:39] So we brought Kim Lockridge back again for kind of a second part or a subsequent episode to talk more about her expertise as it relates to real estate and how she's working with real estate investors and how she's been able to grow her personal real estate portfolio over the years, learning what she knows, learning how to implement and utilize the tax benefits relating to that and how her success has continued to grow. So kind of shifting from the personal aspect of our original first part. Here's part two. And we we're excited to have Kim back with us. So now we've gotten into all of the personal aspects. We got deep and and love that you were open to share that and to just be real. But I want to dive into really the real estate side because you have really managed to shift your career and working in consulting with real estate investors to help them grow their portfolios and strategize with how to structure those portfolios, how to implement tax benefits as those are related to their portfolios, the different properties that they own. But through that, you have continued to grow and learn yourself and you have an impressive portfolio. You own real estate, you manage real estate. I would love to get into that and kind of share how that all evolved. So let's start first. Like how would you describe how you are working with real estate investors and how that kind of experience or relationship is working?

Speaker1: [00:51:14] Yeah. It's an interesting question because that in itself has evolved as well through my my personal experiences, as I'm sure all the listeners can relate. You know, as I go through challenges in my own personal portfolio and learning, you know, I'm not afraid to dig in and jump into something that I have never done before. So the risk is something that's very real and sometimes scares my husband. But, um, but, you know, I make very calculated decisions and then how I translate that is after I go through certain situations or challenges or events or, you know, like, Hey, I've never done a 1031 exchange before and now I am, and now I have a little bit more experience to actually speak to my clients about that process and not just doing it from a supplier or a vendor standpoint, but actually doing it from experience of going through it myself and knowing what those challenges are. The same thing with, you know, whether we're owning long term rentals or short term rentals, it gives me such an understanding for my clients when they're talking about the challenges of, you know, getting it up and running as quickly as possible and challenges of construction. Because I'm I'm dealing with some of those same challenges, you know, with trying to get contractors in. And so anyways, it's really just more or less what I know from a tax perspective and then being able to translate that into my own portfolio and then turning around and using that experience for my own portfolio to counsel and help other people get to a place where it might be beneficial for them.

Speaker2: [00:53:04] And so who are you typically working with?

Speaker1: [00:53:08] Anyone who owns real estate for the most part, real estate or businesses. The the consulting work that I call it, consulting work. We do obviously cost segregation and and once every 90 studies energy research and development. So there's a lot of components to working with with clients but is specifically on the real estate side you know working with rates, you know, and larger GPUs and, you know, maybe a board position or a consulting position. I also work with, you know, people who own commercial buildings or family offices that have large real estate portfolios where we're talking to them about strategizing their taxes the most effective and appropriate way. I also work with a lot of doctors. I have, you know, probably 6 or 800 doctors that I work with and that are investing in real estate, whether it's their own medical office practice or maybe they're, you know, investing in a short term rental, you know, to to kind of help build their personal portfolio so that they can retire faster, have that passive income. There's, you know, every every one all the way down to people investing in single family homes, long term rentals, you know, smaller buildings, you know, so you go from one colleague, I'd be talking to somebody about a trophy building in downtown Atlanta, and then the next call, I'm talking to somebody who's bought their very first single family home, and they're just barely turning it into a short term rental. So it could run the gamut of who I'm working with.

Speaker2: [00:54:49] So you're working with 5 or 600 doctors in terms of looking at real estate? That's fascinating. What what is the reason? What's driving people to that space? And look at real estate versus, you know, other, you know, investing in a in a typical brokerage account or their diversified funds and things like that.

Speaker1: [00:55:09] Yeah, that's a fantastic question. I think I think historically it feels like we've all been trained to just do what we've always done, and that's the IRAs and the 401. S, and that's really where we're going to be at. And I think people are starting to realize with this volatility that we've had over the last 10 or 20 years with the market and how how how scary it is. I mean, yeah, overall, you know, investing in 401 (K) and those types of things are are fine, but it's it's it's traumatic to go through some of these these downturns for people and it really depends on where they're at in their life, you know, and what their risk tolerance is. But you just get people now it feels to me and I'm the same way that I encounter people that want something more. There's got to be something more. And when you have maybe somebody who's classified as a high income earner or a high income family and they have some expendable cash or some excess, you know, it doesn't feel right, especially there's limits on 401 (K) contributions and limits on IRAs. And, you know, the question is, what else can I do? So, you know, there's a statistic that 90 some odd percent of all billionaires own real estate. And I think that that starts to plus, we've had a run on real estate for the last ten years.

Speaker1: [00:56:43] You know, 13 years ever since the downturn, you know, has been really good. And so people are really starting to look at options and alternatives. And I think that with the Tax Cuts and Jobs Act in 2017, that brought about the extra bonus depreciation really incentivized a lot and people started realizing that there's definitely other things you can do. And as that information starts to spread like wildfire, you know, specifically in that short term rental market and how, you know, folks that, you know, to, you know, income earners and W-2s, that they can manage a short term rental and be able to qualify under the material participation rules and still be able to offset using bonus depreciation. It's a tactic. It's a strategy that has kind of hit mainstream, whereas before 2017, it was really just what some of the larger real estate owners and operators would be interested in or aware of. And now it's kind of hitting mainstream where you start seeing, you know, people that are just have a couple rentals, single family home rental properties, you know, doing these types of strategies. And I think there is something to be said for investing in alternative type things. And it real estate is scary for some people. Right. But I think it's getting it feels to me like it's getting less scary, you know, and more mainstream.

Speaker2: [00:58:18] Well, there's there's so much content out there. We have all these real estate gurus and there's these bigger pockets and there's these rich dad, poor dad followings and all these different groups that are really coaching people on how to jump into real estate, how to become a real estate investor. One thing that I find fascinating is, you know, if one particular client that always I always think about because I remember talking to him probably 8 or 9 years ago for the first time, we had a long conversation. We were talking about material participation, passive versus active active rules, bonus depreciation, a number of different things. And he was buying his very first rental property. And today he is very successful. He actually manages a number of different syndicated funds. I think he actually owns himself off thousands and thousands of units across the country. And he manages even more than that and some very large multifamily projects in a relatively short period of time. I mean, seven, eight years, he's gone from literally his very first venture in a single family rental house to owning thousands of units. It's been fascinating to watch that process. And I agree. I think there's been a big shift in seeing a lot of these individuals start to understand how they can deploy that and generate passive income and have that. When you're working with clients, how have you seen changes? I mean, it seems like there's a shift in material participation as it relates to short term versus long term rentals. And also now everybody's into buying short term rental properties. Why is that? What's the what's the benefit to having a short term rental versus long term and why we see such an increase in that activity?

Speaker1: [01:00:00] Yeah, I think it is like a perfect storm being in the market and and even kind of before short term rentals were popular, I started short term rental back in 2012 and that was kind of my first well, actually it was before that, but that was when I actually bought a property specifically for short term rental. And so I think it probably started in 2011 and that was quite a while ago before people ever even knew what Airbnb was, you know, or basically just getting acquainted with it and, you know, and then they've been an industry UPSETTER You know, our disruptor as a whole. I think over the years what we have seen is that, you know, the rules around it have changed. You know, tax rules have kind of caught up with, you know, the market and what's actually happening. And we have these rules, as mentioned before, where if you have a job, A, W-2 job, typically if you're investing in long term rentals, you're you have this separation between your active income and and passive income and long term rentals fall under that passive classification. What's interesting about short term rentals is if you are managing and yourself and there's a criteria to meet, you know, a material participation, but if you meet that material participation, not only do you, you know, shift that income to active income, but then you layer that on with a depreciation cost segregation and then bonus depreciation.

Speaker1: [01:01:39] It creates this massive tax planning strategy that people are just discovering. And it's it's hit the market like wildfire where people are, like you said, you know, consulting on these types of strategies and letting people know what what is out there and what's available to them. So what happened was a lot of the long term rentals, I think you've got a perfect storm in the fact that you have the tax changes, you have, you know, Airbnb and VRBO platforms coming in to make it very easy for one to manage their own property using those platforms. And then you have long term rentals that are passive. But even beyond that, you start having restrictions in certain areas where you have rent control and you have restrictions in being able to rent. And then these, you know, going through COVID, the favorable, you know, favor tenant favorable laws that, you know, leave the landlord completely hanging and people are like, screw that. I am not going to put myself in that position and get stuck with people that can't pay rent. And then it's my responsibility and I'm footing the bill.

Speaker1: [01:02:55] And so, you know, then you had that happen to where you had people shifting their long term rentals over to. Short term rentals. And then they blew up because there was not very many of them on the market. So then you take that one step further and you start realizing that as a whole, there are so many long term rentals that are being removed from the market because they're being turned into short term. And, you know, homeowners, landlords or short term rental owners are making way more money. You know, I'll give you an example. Just one of my properties. You know, I could, you know, easily rent it out for, you know, probably $2,200 a month. But in Airbnb, you know, my average is somewhere in the neighborhood of 4500 a month. Right? So when you start posing those numbers and yeah, I'd have to furnish it and yeah, I'd have to pay utilities where I don't in the long term there there are a lot of other things that that can be that can be done. So then you start to see this trend or these this macro across the country, call it a fad, call it a phase, call it whatever you want, but, you know, long term rentals being taken off the market, then there's a housing shortage.

Speaker1: [01:04:16] Right. Which is I think is a direct relation to how many properties are being put on short term rentals. And then from there you you have, you know, the restrictions. And so now we've got people going in and building mass amounts of multifamily, right? So now you start to see the trends when we're we're in the industry that we're in because we work nationwide and we start seeing this everywhere. So I think taxes are driving driving this. What's going to happen as these types of incentives start to diminish and bonus depreciation starts to sunset and go away, how that is going to impact the real estate market is going to be very interesting. And I myself have already to the point where I feel like that short term rental market is I mean, we run five Airbnbs and so we're starting to feel that that short term market is getting a little frothy. And, you know, now I'm actually considering shifting those properties in some areas back to short term rent or excuse me, long term rentals or traveling nurses or something like that. So it's very interesting to watch how it all transpires and how one thing or one sector can impact other parts of the industry.

Speaker2: [01:05:28] Yeah, absolutely how the movements shift. So you talked briefly about short term rentals versus long term rentals and material participation. What is the difference between the two when we look at material participation?

Speaker1: [01:05:42] Yeah. So if if one can qualify for the material participation and there's a there's a whole laundry list of rules and I don't think we need to get into the details of it, but the material participation rules are very interesting. I mean, you you have to spend, you know, at least 150 hours a year managing that property. So if you are if you have two income earners, they're W-2 and then you have a short term rental that you're managing, you know, if that was a long term rental, that would be passive income. But if you can manage that short term rental on your own and prove that you have that 150 hours a year in material participation, then that becomes not only active income, but also the depreciation, as we mentioned, becomes active losses, which you can offset against your active income, which is the W-2. So that creates a huge benefit to someone who is in a position where you have two income earners, you know, but they still want to have some offset of tax liability, a long term owner, you know, in order to qualify for, say, a real estate professional, it's a little bit different rule. The material participation is specific to short term rentals. The in this case, obviously, there are some extenuating circumstances, But but in a long term rental situation, you know, in order to reach that same manifestation in the reduction of taxes and turning it into active, one of the two parties has to be classified as a real estate professional. It doesn't necessarily mean you have to have a real estate license.

Speaker1: [01:07:22] It just means that there's now a requirement of at least 750 hours a year, which is about 15 hours a week. You know, it's not small. And you have to prove managing that property if you have a property manager and then you're trying to claim real estate professional, it's not a good fact pattern, right? So you want to make sure that you have your ducks in a row. And then if you are a real estate professional, then you can also use those those same rules where everything becomes active and you can offset using your your losses from the property, the depreciation, the bonus depreciation and offset your W-2s. And so in in my doctor practice. Disorder in my inner workings with the doctors. A lot of them are actually, you know, one of them is a doctor and the other one is, you know, maybe a part time teacher or something. And they want to stay home with the kids. So they actually teach them to have that spouse, you know, basically quit their job or, you know, or facilitate, you know, material participation so that they can reach either the material participation or the rep status so that they can then have that spouse offset income. You know, and I mean, this could be doctors, it could be lawyers, it could be dentists. You know, there's a lot of different higher income professions that this could work with, but. Yeah. Mean very, very interesting the strategy there.

Speaker2: [01:08:43] Yeah. Yeah. Really? And yeah. So I mean, we are working, you know, myself as well. You and I work together obviously, and work with a lot of investors where this discussion is constantly going on about, you know, can it be qualified as active versus passive, because that's really key in offsetting ordinary income or W-2 income, which is where a lot of people are making the majority of their cash flow or their income on a monthly basis for a lot of the clients that we're working with. Can you give us an example? Let's look at some of the actual numbers behind that. Let's say that one of these doctors decides to set that structure up. They've they've kind of got it outlaid and they go out and they buy an Airbnb of, you know, half $1 million, $500,000 property that they're going to begin renting. Nice area, nice vacation, you know, area people like to go to. What would the benefits be to them, the tax benefits that they could capture and how would that essentially offset their income?

Speaker1: [01:09:42] Yeah, it's it's a good question. So let's just say hypothetically that in this same scenario that I gave you, physician as married, I mean, let's let's just say it's a female physician, right? And her husband is more or less working part time as a teacher. And then they decide to kind of go this route and that, you know, the husband or the teacher is going to, you know, take on a little bit of that material participation responsibility of managing this short term rental. So they go buy it. You know, let's pull out out of a half million dollar property, we can pull out, you know, maybe 100,000 for land. And then that leaves them with a depreciable basis of about 400,000. And in the scenario with the bonus depreciation, you know, assuming they buy this in 2022 and just for easy math, they'll have a tax deduction of that property of about $120,000. Now, if you start looking at at the numbers, let's say they take and spend $25,000 on furniture. Right. Which also would be bonus depreciated. So now they have a tax deduction of about $145,000 that they can take. And if that is the material participation that they have qualified for and they can document and justify, I will tell you that that is the number one thing the IRS agents, IRS auditors are going to look for is that that log of hours. So it must, must, must be documented. But let's say they take that and now they have a tax deduction just for starting this Airbnb of about $145,000 the first year, you know, say they're at a 35% tax rate.

Speaker1: [01:11:26] That's, you know, that's worth about $50,000 a year, at least that year in offsetting, you know, income. So that's that's a tax savings of about $50,000 a year. Now, then working part time, they might have been bringing in about $35,000 and they likely would have to pay for child care while that person worked and those types of things. So you start looking at the numbers and realizing that, you know, hey, we can have just by me being a real estate professional or having that material participation, it kind of goes both ways that now, you know, this particular person is contributing much more to the family by offsetting some of the other wages and the other taxes, then actually bringing in the income. Right. And so this is the model. Now, obviously, as bonus depreciation starts to diminish, this is going to be less impactful. But while we've had this since 2017, we've seen hundreds and hundreds, if not thousands of of doctors in this circle building a portfolio of real estate that facilitates cash flow, whether it's passively or actively in a situation that they could not have gotten there without it. Right. And so now it puts them in a position where they have a very nice nest egg. They've got passive income. If they decide not to have that material participation at a later date and they've got property that they can choose what to do with later, you know?

Speaker3: [01:12:56] Yeah, right. Well, and on that example, if someone's.

Speaker2: [01:13:01] Buying a $500,000 home, and let's assume that they put 20% down. That would be $100,000 down payment to acquire that home at $100,000 down payment that they're putting down to purchase that home. And in that scenario where it is active and this could potentially save them 50,000 in taxes. Your estimate of 35, 35%, that's somewhat conservative, someone who's in a top tax bracket, maybe at 37% if they're at a state that also have state tax added to that, it could be 40, it could be 45% or more. So the cash value from a tax savings standpoint, you know, could be 50, 60, 70,000. Essentially, they're recouping immediately what the what the down payment they paid just even to acquire the home. And now they've got the passive income, the rents generated off that property. So it's so fascinating to see how the market has changed. And I think it'd be interesting. We'll have to circle around in a couple of maybe, you know, 18 months or 24 months and see what's happening in this market. Because as to your point, I agree. I've seen some of this frothy behavior in terms of all of the Airbnbs and how different markets are responding to the level a number of Airbnbs that are available and how investors are going to kind of shift their focus. One last point I want to make as well, relating to bonus depreciation is yes as bonus depreciation, sunsets. It's been 100% this year, 2023, it's at 80% first year. For 2024, it will be 60% in the first year as a bonus. Depreciation is some people are confused that cost segregation is going away, then it's gone. So we just respond to that question because I know I've had that a few times as to how you would explain what's happening there, that it's not necessarily going away, but what bonus will the reduced bonus amounts will have impact?

Speaker1: [01:14:55] Yeah. So I think it's important to note that a lot of people who are just now learning about bonus depreciation and cost segregation for the first time do have that mentality like, Oh, this is starting to sunset and there's this urgency of trying to acquire property while we have it. And and I think it's important to note that cost segregation has been around since the 1940s. So for get bonus depreciation, right, this is something that's been around for a very long time. And it wasn't until 2006 that we had and was introduced bonus depreciation for the first time and it was really only 50% and it was made for new construction or new money that was spent like improvements. And it wasn't then until yet again 2017, with the Tax Cuts and Jobs Act that Trump extended that bonus depreciation to 100% and then expanded it to include purchases, which totally, totally changed the game for real estate investors. And so going back as we start to see the bonus depreciation begin to diminish and sunset, that just means that we're going back to our normal cost segregation rules. And I'll clarify that for those who are, you know, questioning it a little bit, because I think there is a disconnect between cost segregation and bonus depreciation. People think, oh, I'm going to go get my bonus depreciation, you know, but essentially cost segregation is where we are breaking down all the components of the building and putting them into different depreciable buckets. And the really the the reality behind it is the IRS recognizes that some of those components are not going to last any longer than, you know, of course, 27.5 or 39 years.

Speaker1: [01:16:45] And so so they allow us to depreciate these assets over a shorter period of time as so long as there's a breakdown of the building and a substantiation of what the assets are. Bonus depreciation is a result of cost segregation. So doing cost segregation, anything that is shifted into a bucket that is less than 20 years qualifies for the appropriate respective level of bonus depreciation for that year and in the year that it was purchased. And so essentially it's like an advance on a paycheck. So you can start a job and say, Hey, you know, Mr. New employer, I want you to pay me five years up front. And then, you know, he says, okay, fine, here's your five years of pay up front, and then you quit your job in year two. You know, there's going to be some some payback, right, of the last three years that you didn't fulfill your obligations. Well, bonus depreciation is is basically the same thing. You're getting an advance on the on the depreciation. And that that could end is creating this huge tax strategy that is beneficial to strategizing and setting up your taxes in a specific way. So it's a tool in the tool belt, right? But just because the bonus depreciation goes away doesn't mean it's all bad. It means that you're still segmenting those assets into faster class lives five years or 15 years. And so it's important to differentiate those those two things. And and that's why, you know, we don't see bonus depreciation or excuse me, we don't see cost segregation going away as a whole. I mean, it's been around for decades, right?

Speaker3: [01:18:34] So yep. Yeah, absolutely. So how have you personally been able to utilize some of this stuff?

Speaker2: [01:18:41] I know that you you mentioned you have five short term rentals, but you have some other real estate as well. So how have you been able to personally apply some of the things you've learned working with investors, coaching other people and building your own portfolio?

Speaker1: [01:18:56] Yeah, so it kind of started out small and then it just continued to grow from there. I haven't jumped into syndication, although I've had multiple people ask me to do that. I just don't feel like I have the, the time, you know, to to do that. But, you know, we one of the things I mean, I'll be very, you know, transparent that my husband was able to retire from his job, you know, at 51 years old last year and, you know, became basically full time a real estate professional, you know, in managing our real estate, which, you know, dramatically helps our family because of our situation. And we're able to achieve and to reach that that real estate professional status. Whereas as we're now investing in so many other real estate deals that it it, you know, it's exponential, you know, compared to I mean his his income was, was very high. But, you know, it's exponential now that we're able to strategize things a little bit differently. So we we began obviously with long term rentals, short term rentals. And we've just been building. I think one of the things that, you know, my motto was, you know, I'm never going to sell a property. I'm just going to move and keep it and rent it and started that, started that early and. Of course, we've sold a couple along the way, but only for specific reasons. But then I started seeing trends in the market, you know, and in 2019, you know, I went to my husband and he thought I was out of my mind, but basically told him, I says we need to we need to buy a mobile home park because I'm starting to see these trends. And the benefits of this real estate is is exponential.

Speaker1: [01:20:43] And so we we bought a mobile home park and the next year we bought another mobile home park. And those actually turned out very, very well for us. You know, it was just a right timing in the market, you know, and we basically bought them and sold them within like each of them sold them within about a year and, you know, basically made, you know, about $1 million on each one in about a year. And that posed another. You know, if you take the bonus depreciation, then you turn around and sell the property. I took the advance on the paycheck. Right. And now it'd be very easy for us to turn around and just do a 1031 exchange and then we don't have to worry about that recapture to pay. But in this particular case, we decided to go. Instead of doing a 1031 exchange, we went and bought a gas station and then the gas station has really high bonus depreciation and that was able to offset not only the gain but also the recapture on on the mobile home park sale. And so we we were able to kind of shift one to the other and still keep the benefits of the cost savings that we got upfront, the advance on that paycheck. Right. And so we also are investors and, you know, about 14 cannabis warehouses, you know, in the West and I guess some in Massachusetts as well. So and I'm on the board of of a A group doing that. So we've we kind of started investing in cannabis industry when before it was cool. So that was that was kind of interesting. That's crazy. It's done very well.

Speaker3: [01:22:24] Well, that's amazing. That's an amazing journey how you've been able to transition from different sectors anyway. Yeah, it's been amazing to see you be able to grow your own portfolio and to see that coincide with your ability to coach and work with other investors. So with that, thank you so much again for being a guest. I know it's been a long episode, but we had the amazing opportunity to dive into your personal background and then also learn more about your expertise as it relates to real estate and to tax incentives and how you're working with other clients all over the country. So thank you again, Kim, so much. It's been a pleasure and we'll talk soon.

Speaker1: [01:23:02] Thank you, Heidi.

Creators and Guests

Heidi Henderson
Heidi Henderson
I am a Tax Consultant and Real Estate Investor, and podcast host of Healthy, Wealthy & Wise. I advise clients on the application of Tax Efficiencies relating to their investments both directly and indirectly. My education is in Accounting but my entrepreneurial spirit has led me through many business ventures. But I love finding money for people who didn't know it was there! Cost Segregation, 179D deduction, 45L credits, R&D tax credits, Historical Tax Credits, Conservation Easements, Opportunity Zones, Alternative Investments, and Captive Insurance are a few tools we can help you with. As the Executive Vice President and Board Member of Engineered Tax Services I help plan for growth and operational improvements internally, while working externally with investment minded individuals to optimize their investment. I also teach over 30+ Continuing Education courses annually to CPA's, Design Build Professionals and Real Estate Professionals across the U.S. If synergies are apparent, please send me a connection request and let's see how we can work together.
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