Loopholes of Real Estate

December 23, 2013
The latest in the Rich Dad's Advisors series is a look-before-you-leap guide to real estate investment. Author/attorney Sutton (Own Your Own Corporation) delivers a simple message: "real estate offers huge financial advantages to those who will learn the system." Yet it is the complexity of the system that affords such advantages, which Sutton does his best to explain clearly and dutifully with case studies and diagrams providing readers with a lot of useful information that is by nature hard to grasp. Those looking for easy solutions, as the term loophole might entail, will either be discouraged or enlightened by this book. Sutton's priority is educating the reader in a way that makes them better suited for the road ahead. The key to successful investing, he explains, is understanding where in the legal and tax structures these advantages exist and developing an ongoing strategy that makes use of them. This is no easy set of tasks but it's available to most anyone willing to make the commitment necessary for sophisticated investments. While Sutton diligently relays the overview of the various infrastructures at play, he defers when it comes to the strategyâwhich he reiterates is context dependentâand recommends seeking a team of advisors (he offers advice and resources on how to do so). More of an educational resource than a guide, the book is practical in its sincerity toward smart investing and, as a result, the first step toward successful investing.

Investing in real estate is as easy as understanding the tax code and personal-injury law, according to this informative but daunting primer, part of the Rich Dad Advisors series. Sutton (Run Your Own Corporation, 2012, etc.), an attorney, expert in business law and one of real estate-investment guru Robert T. Kiyosaki's stable of Rich Dad Advisors, offers clever, if complicated, new ploys to grow and safeguard a fortune. He begins with a motivational sketch of the cash-flow investment doctrine popularized in Kiyosaki's Rich Dad Poor Dad--buy rental properties with borrowed money; rake in cash from tenants; leverage the equity to buy new properties; repeat until rich--but focuses on the labyrinthine "loopholes" that make the formula tenable. The first kind involves subtle tax dodges that add greatly to the profitability of property investments--everything from "cost segregation" depreciation to "passive loss" allowances to the "1031 exchange." The flip side of amassing real estate wealth, the author continues, is protecting it against lawsuits, especially those filed by tenants. Sutton therefore explores another suite of legal loopholes for sheltering assets from court judgments, including insurance, limited liability corporations that distance owners from their wealth, and the tactic of loading properties with debt so they are less tempting targets for plaintiffs. There is plenty of arcane tax, legal and corporate-structuring lore here, but Sutton explains it in admirably lucid, straightforward prose supplemented with entertaining fictional case studies, including a picaresque involving an alpaca ranch, a moonshine still and whiplash payouts. Readers will learn a lot from the book, though not quite enough to master the subject; Sutton stresses that a team of expert "advisors"--a lawyer, broker, accountant, insurer, property manager--is indispensable for guiding investors profitably through the legal/financial minefield. The book cuts against the grain of Kiyosaki's cash-flow populism, his credo that real estate investment, not earned income, is the little guy's road to riches. Here, the investor is the almost vestigial figurehead for the army of business-service professionals who do the legwork. Still, novice investors will find it an excellent road map for getting started. Readers looking for easy money may be discouraged by Sutton's demonstration of just how complex real estate money can be, but others will find helpful guidelines, tips and tricks presented in a clear, engaging style. COPYRIGHT(1) Kirkus Reviews, ALL RIGHTS RESERVED.