Should You Buy Real Estate With Pre-Tax or After-Tax Dollars?


This post is in: Real Estate
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12-09-2010-1

Robert Kiyosaki has said on more than one occasion that he buys his real estate with pre-tax dollars and he lets his company buy the real estate.

You have no idea how many times that simple statement has been misinterpreted and challenged.

Can you buy real estate with your company money? Of course.

Can you buy real estate with pre-tax dollars? Of course.

But it’s not quite that straightforward as just writing a check for the downpayment on a building and then getting a tax deduction for it. There are a couple of ways that you can effectively use pre-tax money.

But before we get into that in today’s blog, there is one more important question to answer: Should you buy real estate with pre-tax or after-tax dollars?

This is where your personal strategy comes into play.

Is your income higher now than it will be in the past?

Do you anticipate having ongoing losses from the property?

Are you going to hold the real estate as a passive investment or are you going to flip it quick for a profit?

These are all questions that you need to go over FIRST with your tax strategist. Can you invest with pre-tax money? Of course. But should you? It depends.

Now on to the ‘how’ of investing:

  1. Buy property that your business then leases. The rental expense will be a deduction for your business and income for the entity that holds the property. The income is offset by depreciation and other expenses that will most likely create no profit.
  2. Set up an aggressive self-directed pension plan within your business. The pension can then invest in real estate.

Obviously, there are a lot of steps involved in either of these plans. But the bottomline answer is that you can reduce your taxes. You can buy real estate with pre-tax money. But don’t start any of it without first creating a strategy.



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