You Don't Have a Tax Problem—It's a STRATEGY Problem Killing Cash Flow

David Wiener: Most landlords don't have a tax problem. They have a strategy problem. Their properties, tenant laws, and tax code are all pulling in different directions. And that's how good portfolios quietly leak cash. In this episode, we're going to unpack where those leaks really are and what a smarter, more intentional landlord game plan actually looks like. Welcome back to the Tax Strategy Playbook, where real estate investors and business owners learn how to stop overpaying the IRS and turn taxes into an opportunity center instead of an annual pain point. I'm your host, David Wiener If you own rentals, today's episode is especially for you. We're going to talk about how smart landlords design their portfolios so tenant laws, and tax rules all work together instead of pulling in opposite directions. This is the difference between owning some properties and running a true real estate business purpose. I'm thrilled to have as my guest today Christian Walsh from WIRE Associates. If you Landlord Education online, you've probably seen his videos helping California landlords survive crazy regulations, sell tenant occupied properties, and still grow wealth. Christian doesn't just close deals. He helps serious owners think strategically about their entire portfolio. We're going to dig into some of biggest mistakes he sees landlords make, how he helps investors design a five-year plan, how to use your agent and tax strategist together as a true A-Team. And by the end of this episode, you'll have a clearer checklist for what to fix next in your own portfolio. Christian, welcome to the Tax Strategy Playbook. I'm thrilled you're here.

Christian Walsh: David, I finally made it. I'm on. I'm on big time. I made your podcast. I'm so excited to be here. That was a great intro. I'm sure most people aren't overpaying on taxes. There's no such thing, right? ⁓

David Wiener: Ha ha ha ha ha ha ha ha ha ha Not a thing, no. let's where most rental portfolios ⁓ quietly wrong. What are the most common rental property mistakes you see real estate investors make that quietly destroy cash flow and passive income?

Christian Walsh: I will tell you literally the biggest mistake in real estate comes from the worst piece of advice in real estate and that is don't ever sell. Now I know what you're thinking, he's a real estate broker. Of course, he's going to tell you to sell. Churn is how he makes his money. But people use that as an excuse not to actually evaluate their portfolio, not to actually evaluate geographically what does it look like for landlords in that area. So I'm in Southern California. Some places are absolutely literally it's like they're trying to drive landlords out, keep squeezing the orange, trying to get more juice out of the orange. And the orange is a landlord. So you need to look geographically. Are you in a spot? where this asset you can continue to increase rents, increase your income. has very strict rent control. So you can only increase your rent. There was about four years where you couldn't increase it at all during COVID while every other cost under the sun went up. And now they went ahead and they rolled it back. So it's going to be 4 % or less annually for certain properties. So as every cost goes up, your income increase is capped.

David Wiener: You

Christian Walsh: So that might be something that you want to evaluate. because you've heard don't ever sell, it's going to always go up in value. I'll tell you another quick story. I'm going to get passionate here just to let you know I get passionate about some of this stuff, David. My arms might be moving around. My face might get more red. So quick story. In Los Angeles, I'm actually going to be releasing a video on this. This is a 30-plus unit building that in 2016,

David Wiener: Good.

Christian Walsh: traded for over $10 million, 10.75-ish. then, the owner rehabbed a bunch of units, increased the rents. It was listed ⁓ of last year and into this year for over $2 million less than they paid for it. So even though they had to increase in income, increase ⁓ how the property looked, upgrades they had done, it lost over $2 million in value during that time.

David Wiener: Wow.

Christian Walsh: So that's highly relevant a landlord. Look your portfolio, see which assets underperforming. For example, ⁓ the don't sell ⁓ mentality. I find investors who have some great assets in the portfolio, some great multifamily real Maybe they inherited it, maybe they purchased it. And then they've got a few condos or houses that they... ⁓ That was where they raised their family, their first condo they owned. That thing might be a dog because HOA dues have gone through the roof. Maybe you can't get insurance for that HOA anymore. So evaluate the whole portfolio. back. Don't use don't ever sell as an excuse not to actually look at it. Evaluate. So quietly losing cash can be, you still have rental income coming out of that condo. But what's your return on equity? If that condo has gone up and it's worth $500,000, we have million dollar condos around here, but you're only getting a couple grand a month or maybe three or four or five grand, your return on equity is terrible. So evaluate that, make changes. you, sure, you were making money, but you wouldn't run around town bragging to everybody, hey, I've been getting a 2 % return for.

David Wiener: Yeah

Christian Walsh: past five years. ⁓ my gosh, look at me. I'm a genius. No, you don't. So anyway, again, I get past.

David Wiener: And I'm sure that's not just California, right? There's plenty of places.

Christian Walsh: 100%. Yeah, all across the nation. So I'm from small town Ohio and outside of Cleveland. And even looking back in Cleveland, the city itself, I'm shocked at how values have gone up. And again, run your return on equity. you've got, if you don't be bragging about an asset that's essentially giving you a 2 % or less return, fix that. That's a problem.

David Wiener: Yeah, that's definitely a problem. When you look at a typical small rental portfolio, say somebody has three to five doors, what are the biggest cashflow killers that don't show up in the listing photos?

Christian Walsh: So cash flow killers, mean, look, great question. The insurance has become a huge issue. So insurance costs are basically destroying cash flow for properties. HOA dues, if it has a homeowners association, is another one. Another big one is property taxes. And this is more a case where, so in California, property taxes are set when you acquire the asset, can only increase about 2 % a year. So over time, you get a big disparity as values go up between what market value for the property taxes would be versus what you're paying. So that's a benefit. It's actually, it's almost a crutch. Your assets doing better, you think, because your property taxes are so low. But what happens is it's inherited by the children or grandchildren, California set it up under Prop 19, where they reset your property tax basis. And in doing that, it goes to whatever the value of the property is. And if you were barely making money when you had your artificially low property taxes, you're certainly not going to make money after you're reassessed. that actually, in areas where property taxes are annually reassessed, that's actually a benefit. I know some landlords are like, no, I'd rather have the California way. But advantage there is on some level, it's almost like it keeps you honest. You actually look at property taxes, the real liability that it is, because it's being reset.

David Wiener: Yeah. .

Christian Walsh: So those are some examples. Maintenance, property management is another one. Property management is its own category of ⁓ issue. You've got your monthly expense, but you don't know ⁓ how they're actually taking care of the property. I had one property owner in a city near me. He had a single family home, and ⁓ they ended up, he hadn't seen it in the past 30 years. And...

David Wiener: my.

Christian Walsh: I helped him get it empty. He had a property manager the whole time doing annual walkthroughs. He was literally getting emotional on the phone when I sent him pictures of what it looked like. He could not believe how bad it looked. Had a property manager supposedly taken care of it. So anyway, that's another example of an issue where ⁓ your values and ⁓ your cash flow. Had the property manager kept the property up, maybe he would have generated more income, his rent would have been

David Wiener: So the answer is pay attention

Christian Walsh: Yeah, long answer to a short question. You can't set it and forget it. many people are doing that with real estate. They just say, okay, well, I've got a property manager. I'm getting monthly checks. All is good in my world. You got to analyze the property and the around it.

David Wiener: That's the difference between somebody who just owns some property and somebody who has a real estate rental business.

Christian Walsh: Yes, well said.

David Wiener: So let's talk a little bit about some other things. How do tenant law decisions and notice mistakes or lease issues turn into real estate investing losses and surprise tax bills as well?

Christian Walsh: Yeah, great question. I happen to be in an area where, again, going back to what I said about squeezing the orange, in certain particular spots, so the state of California has certain laws. And for the most part, look, ⁓ way I explain it to clients, you got to stay up on it. They continue to change ⁓ laws related to security deposits, ⁓ much you can charge, how you refund money. ⁓ charging screening fees, things like that. That's at the state level. And then there's a rent cap law as well and the Just Cause law. The rent cap is 5 % plus CPI, not to exceed 10%. So you can still get around an 8 % 10 % annual increase on rent. Statewide, it's not terrible. Look, it would be great to be in a state with no rent caps. The problem is when you start to zoom in and you look at local areas like Los Angeles or Santa Ana and Orange County or other places that are talking about San Diego City, other places where they're talking about passing more strict rent control laws, that's the issue you run into. And going back to the story about that building with 30 plus units, talk about kind of a kick in the teeth. Not ⁓ did that building produce as much income as possible because of rent caps, even though they increased it, but it also lost value over time. So that's the challenge you have if you're not looking, the I use is zeitgeist, which is like ⁓ what's ⁓ the in the thought ⁓ area. Some politically, the zeitgeist is gonna swing heavily towards the renters, and some areas it'll stay in the middle. And maybe there's some areas where it's all landlord. That might be a good spot to invest,

David Wiener: You know, as you know, I've got a lot of clients for cost segregation in California and it changes so fast. It's hard for me to keep up with what's going on. I know they're they're turning down short term rentals in a lot of places in California. Plus, they're valuing the land at crazy amounts.

Christian Walsh: Yeah. Yeah.

David Wiener: So as far as coming up with a cost basis, I have people who call me and say, well, I spent three million on the property. And I have to tell them, but you can only depreciate a million and a half because the rest of it's land value. So want to turn attention a little bit off of the mistakes ⁓ and kind move on to the next question, which is how to design a portfolio that avoids those mistakes from the start. ⁓ Let's zoom out a little bit, talk about portfolio design, especially in the toughest places to be a landlord, my experience is is the poster child. ⁓

Christian Walsh: Yeah, they figure out a way to be number one the top of the most wanted list. So what you just said there, David, is such an amazing, amazing point to make. And that is where they call you up ⁓ after bought the property to do the cost segregation and say, ⁓ no, ⁓ I'm able to depreciate half of this because most of it's in the land. So that's a ⁓ run when you're coming up with a plan. ⁓

David Wiener: Yeah.

Christian Walsh: We're looking at local regulations, we're figuring out the value of the properties, we're figuring out if there's a different property type to switch to. So I'm speaking particularly 1031s and strategy around there. But we're also talking to the CPA, we're talking to the cost segregation specialists like David to get an idea what can we expect with bonus depreciation. So it's a whole team, ⁓ I've got a top, QI, qualified intermediary, that I work with, the founder of the company is an attorney who knows this stuff. So you need a whole team. You pressure the plan first, and then you move forward with the plan. what you is genius there. And then as far as the things you can do strategy-wise, ⁓ obviously listening to like this. ⁓

David Wiener: Stop.

Christian Walsh: reaching out to experts like David, ⁓ about things like bonus depreciation, how to put that into work, figuring out, OK, where am I in my cycle? I know I'm laying a lot of random nuggets down, David. ⁓ I you, I get excited. Where are you in your investment cycle? ⁓ Early you could be focused. You've got appreciation, and you've got cash flow. And in an ideal world, you get both appreciation and cash flow.

David Wiener: No, that's great. I

Christian Walsh: doesn't always work that way. tends to be an appreciation market. Certain spots in the Midwest tend to be cash flow. So where are you in your investment life? Are you early on where you're going to count on appreciation? Are you later on where, cash flow would be nice so you can kind of sit back a little bit, take your foot off the gas pedal? So that's

David Wiener: I've always been told that short-term rentals are for cash flow and long-term rentals are for appreciation.

Christian Walsh: Yeah, that's good summary of it, but it also on where it is. ⁓ Yeah. ⁓ and it's... ⁓

David Wiener: Well, that's probably an oversimplification too. But for somebody who's a serious real estate investor in a high regulation market like California, how would you advise them to think about buy and hold rentals?

Christian Walsh: Yeah, you need to be strategic in location of where you're going to buy. So you're to look for areas that haven't had, that don't have strict rent control and haven't had any of those discussions. The council meetings, for example, they tell you a lot, ⁓ depending what the city council's up to. And also how the city or local municipality to COVID. is a good litmus test for how they'll react in the future, just for the record. Use that as a litmus test, go back and do some research. ⁓ Yeah, I've given client on that. But yeah, it's ultimately boiled down to ⁓ for my rental ⁓ owner that to keep an asset for a while. You can't go wrong at the coast, that's for sure.

David Wiener: Interesting.

Christian Walsh: It's an appreciation play because your cash flow is going to be lower, but it can't go wrong at the coast. And then just certain asset types. Some people feel more comfortable with the one to four units where it's going to be conventional financing and a little easier. And then others want five plus and commercial financing, adjustable rate mortgages, things like that.

David Wiener: That's a good point. When you're talking to a landlord who's in a strict landlord-tenant law environment, how do you decide which rental properties they ought to keep or sell or move into a 1031 exchange?

Christian Walsh: That is a great question. ⁓ answer is, if have a very LA-centered portfolio, my advice would be to get rid of all of it. And I know that's, again, sounds like a real estate broker, hey, he just wants churn. But it is not going to get any better. It's going to get far worse. And on some level, you could say, as a landlord, well, hey, that should lead to increases in value because it's so tough. There's going to be fewer rental properties around. And that should lead to increases in rent. But they cap that. They cap increases in rent. So you can't. So as it gets tougher and tougher, your value is not going to go up and your rents aren't going to go up. So yeah, again. And look, there's spots in LA. So for example, Torrance is a city that it's in LA, but it's its own incorporated city. And if you have single family homes and properties there, you're fine for now. There's still a few limitations at the county level that trickle down, but you're fine. But if you're in LA city and very heavily LA city focused, it's time to get rid of all of it. So that would be my advice.

David Wiener: Other than that, how do you decide what to sell and what to exchange?

Christian Walsh: Timing. It's timing and what makes sense for the landlord. if there's any, like certain assets may need repositioning if you've got a bunch of non-paying tenants and we need to do some evictions. So if certain assets need repositioning, assets, we'll have to stack them up and we'll have to figure out the master plan. And really investor specific. And also could depend too on ⁓ they need. So I had an example in LA where they needed to sell a duplex because they had to pay for mom's care. That's a prime example. So we ⁓ it, positioned because we had to evict one renter. Then we did cash for keys with the other renter. And we got it sold relatively quickly because mom needed that. So it really is investor specific ⁓ guiding them the best plan and the So I have another client who has 11 single family rentals in Arizona and they are an investor here. I originally helped them exchange about three or four years ago to Arizona so they could take advantage of short-term rentals there. That market's become saturated ⁓ and hasn't turned the cash flow they ⁓ Timing it up to sell those 11. We started with the two that were all cash and then we've got sets of, there's one, set of five and a set of four and depending on how their ⁓ loan is, again, how much interest they're paying, that the higher interest rate loans we're selling that batch of five first and then finally ⁓ last batch. So ⁓ that's a long answer but yeah.

David Wiener: That's a great tip. That's that's a great tip. And there are places where where it's not saturated for short term rentals. Some great places still yet to use short term rentals is part of your strategy. Once you have that sort of big picture strategy in place, I guess the real multiplier is how you use the tax code and how you use your advisory team. That's a great that's a great transition into talking about an advisory team. And we're going to be doing a

Christian Walsh: Yeah. Yeah.

David Wiener: session within the next few weeks an episode completely on 1031 exchanges and all the ins and outs and the legalities of it and that kind of stuff. if you're if you're interested in 1031 exchanges stay tuned for the next few episodes at least and we'll have some answers for you. So let's connect the deals to the tax strategy and the people around the investor. Before somebody does a 1031 exchange what are the questions they need to ask first about capital gains and depreciation of recapturing cash flow?

Christian Walsh: Yeah, great question. And what's interesting is as long as the 1031 exchange has been around and as much content as there is, a lot of misconceptions out there still, even amongst experienced investors. I'm you've heard some of them, David.

David Wiener: just like cost segregation.

Christian Walsh: Yeah, yeah, well said. Cost segregation has been around forever. It's not brand new just because it was in the one big beautiful bill. And we talked about that. So for example, like kind is something that folks often mix up where, look, if you sell a triplex, it doesn't mean you have to buy a triplex. You could buy triple net, commercial office, land, a single family home. That's one of the big mistakes people make. when people come to me, a lot of times when people come to me, particularly through my YouTube channel, and they're ready to to sell a property, they're actually at the point of frustration and they just want to get out of the property. So what I do is I ask them questions about the property, fill them in on some strategies, but before we determine whether a 1031 exchange or a flat sale or some other strategy, carry back financing, we're going to they need to talk to their CPA. So that's going to be they need to wrap their heads around what their tax bill is going to look like. So that's pre deciding on a 1031 exchange. So that's the first big question. If I sold this, this and this or just this, what does it look like from an income tax standpoint? That's the first big. Yeah. Yeah. Exactly. Yeah.

David Wiener: capital gains, recapture, those kinds of things. They need to talk to a tax strategist, not just a tax preparer.

Christian Walsh: Well said, because it's funny how many of the tax preparers or financial planners, I have a client who has a house in LA city she needs, she really should sell. And it doesn't have to be with me, I don't even care. It could be with anybody. But her tax preparer, because of the don't ever sell mentality, is telling her not to. And he doesn't even understand the nuance. He doesn't understand the law. So that's where you said, like, attack strategists. And you know some great ones. You've had some great ones on your podcast, IAF as well, that understand real estate. That's the key.

David Wiener: That is key. That is absolutely key. And so, you know, there's got to be a difference between the landlords who use a 1031 exchange to build a serious portfolio from those who just want to kick the can down the road and not pay capital gains tax. ⁓

Christian Walsh: Yeah, if you're doing onesy twosy 1031 just because you're sick of the property, that's where you're just kicking the can down the road and you're not strategizing. Then other investors are using it to actually increase cash flow and or appreciation, going from a duplex to fourplex, then to... eight units and bigger. you can be strategic with it to grow your real estate, not just your portfolio, but your empire.

David Wiener: something to be said for those that just want to kick the can down the road as well.

Christian Walsh: Yeah, yeah, hey, it's there, take advantage of it. But I'd encourage you to just definitely think bigger and see how you can leverage this to put you and your family in a better position in the future. That's at the end of the day. Yeah.

David Wiener: I totally agree. Totally agree. So you talk about about the landlord A-Team So ⁓ is a real landlord a team look like when it comes to tax planning and entity structure and rental property acquisitions, that sort of thing?

Christian Walsh: Yeah, so the A team is a mix. put myself in the center and it's not about me. It's because I speak the different languages and I know the questions that the landlord needs to ask the different people. I don't have all the answers. I don't think for a minute that I have all the answers, but ⁓ know the questions and that's the guidance that the landlord needs to come up with to help develop the strategy and then I'm going to be the point of contact to implement the strategy. So it's going to be ⁓ eviction attorneys in areas where ⁓ ⁓ It's very difficult to terminate a tenancy or you've got a bigger property and sure you're keep it occupied but you want to make sure that you don't try to sell with any evictions or pass any problems on to another owner because that's ultimately gonna net you less money. So an eviction attorney is a big part of that team. Obviously the tax strategist is part of that team. qualified intermediary as part of that team. It's gonna be ⁓ as a cost segregation expert, because again, we're not gonna shoot first, ask questions later. We're going to plan potentially where we're headed with this 1031 exchange and what the benefits look like. Now, if you're just doing essentially sell five million by five million, you're not gonna get your depreciation back. but you can actually add improvements. And that's where we're going to talk to David. And we're going to be strategic with our improvements so that you can take advantage of bonus depreciation. by improvements, it could be adding additional structures or just improvements like fixing it up to increase your income. So that's where David fits in. ⁓

David Wiener: Wait

Christian Walsh: Contractors, my father-in-law is a contractor, somebody there to do the work. Could be real estate agents in other markets. Could be real estate agents who specialize in different asset types. do residential, so ⁓ unit on up to about 25. I've had listings that big. Getting much bigger, I may another expert. Or other of assets, if you're doing an exchange into commercial. other asset types, industrial, I don't know that. So all of those people.

David Wiener: So it's a good idea to gather all those people before you actually need them.

Christian Walsh: Well, talk to me, because I've got the people. And then if I need to help find the people, the doesn't need to figure out who they need necessarily unless they enjoy doing that. They can come to me, be the main point of contact, and then I'll help them figure out who they need on their team. ⁓ And I don't have the person, I'll find some, and they'll vet them, and we'll go.

David Wiener: One of my favorite things to say to a client is, I can't help you with that, but I got a guy. And one of the guys that I got is Christian Walsh.

Christian Walsh: Yeah, exactly. I got a guy for everything. Or gal. I got a gal for something. I appreciate that Dave. Well, you're my cost seg dude, so I've already referred you out.

David Wiener: Once you have the right team and the right tax approach, the natural question is, what are the next few years actually look like? Let's turn this into a concrete five-year plan for a real landlord because this is the playbook after all, the tax strategy playbook. Let's say a landlord has three rentals and he wants to build a real passive income portfolio. What should their next five-year plan look like?

Christian Walsh: That's big question and a great question. it seems basic, but the first thing is you got to know what you have. And I know that seems silly, but in some cases, people have inherited disparate assets. I've got a client who's got two liquor stores, a condo, another condo, a luxury duplex. Bring it all together. Figure out what you have. And then work with a good broker who can help evaluate the actual value of those assets and what your rate of return is. You may find that of those three that you have or five that you have, there's one or two that you shouldn't do a thing with. Don't touch it. Just let it do its thing. But maybe there's one or two or three that we need to figure out a strategy for. So first thing is figure out what you have. Talk to somebody who can help you figure out what it's actually worth and whether you should keep it or not. then ⁓ ⁓ next big step there. Then we also need to figure out where do you want to be in five years? Do you want to more, do you want to start switching to cash flow? Do you want to let it all ride on appreciation? So that's the next part of it is figuring out where you want to be in those five years. And then I'm going to work with you and help or a broker like me is going to help you figure out happens next. Do we? ⁓ Do some improvements any of these assets. Do we get it empty? Do we get it filled up? So up with a plan for each asset. And then from there, execute on that plan. So the five-year plan is going to be so client-specific and that it's tough to give big tips for that.

David Wiener: Sure. somebody wants to go from what heard you call an accidental landlord to a real estate investor, what's the first three moves they ought to make this year?

Christian Walsh: Great question. So you've got to treat it like a business. You're going to need to implement systems. So you need some sort of software that is going to help you understand your income and your expenses. You're going to need to lean. I would join an apartment association, a local apartment association as well. That's another key thing, because you're going to find others who are like you, ⁓ new, been it forever. ⁓ So that's another big thing that if somebody wants to take it more seriously, continue listen to podcast to understand taxes and understand real estate as investment. And then. ⁓ mean, look, you can get AI involved. You can use AI on ⁓ thousand different levels from deal analysis to one just use chat GPT to sell his house. you could do go all the way down the rabbit hole. But the other thing you can do is use it for research to better understand about the local market where your assets are. What do things look like? Are there any laws that you're not following? Any laws coming down the pike?

David Wiener: Heh.

Christian Walsh: So yes, yeah. it's, look, Chicago is implementing something brand new with inspections and there's rental registries that are popping up everywhere. It's just, it's changing nonstop. So that's, again, circles back to treating it like a business. So it's not a part-time hobby being a landlord, whether you have one...

David Wiener: Especially if you're in California.

Christian Walsh: 150 doors. I have a client who has 150 doors, she still manages it herself. there's tax reasons for that too. Talk to a tax strategist as well about your portfolio ⁓ ways to optimize your portfolio as well.

David Wiener: Yes, there are. if you need a good tech strategist I got a guy

Christian Walsh: David's got a guy. Yeah, it's not easy. Look, a landlord has never been easy. ⁓ some cases, it's actually a lot tougher today because of legislation. But then there are certain things that make it easier. Access to education like your podcast. AI that can help you learn things. Don't rely 100 % on AI. You still got to take it to the real world and make sure it's true. But we have so much more access to knowledge. you got to cut through the noise and implement. it's...

David Wiener: We AI is kind of like the GPS that used to be in your car and if you followed it without thinking you could wind up in a lake. It's good but it isn't perfect yet and hopefully it never will be perfect because I don't want them taken over from me. ⁓

Christian Walsh: you Well said, yeah. Do not drive off the cliff with AI. Nope. That's like a good marriage. No, no. Nobody can replace you, David.

David Wiener: All of this only matters if the listeners actually take some action after this episode. So let's draw this down to some specific moves and mindsets behind them. What's one rental property tax strategy most landlords overlook that could immediately improve their after-tax cash flow?

Christian Walsh: So this doesn't even have to be, it's nothing crazy, it's raise your rent. I talked to so many landlords that haven't raised their rent because they want to be nice people, they haven't raised their rent in ages. Raise your rent. Find out what the rent is. Yeah, yeah, exactly. Go to Zillow. Zillow actually gives you a rental estimate and then look at some other nearby properties with those are renting for. Raise your rent. That's a quick and easy one.

David Wiener: And there's ways to find out what the market will bear in your particular community, right?

Christian Walsh: and find out what the local maximum is and find out how to do it and find out if it's a 30 day notice or whatever it is. But yeah, raise your rents, join an apartment association. Like this is all stuff that by the, what is, it's early in the week when we're filming this. Who knows when you release it. But seven days from now, I would like to see you what's in your portfolio, know the value. I'd like you to. Figure out how you're gonna raise your rents, how much, and how you're gonna do it. I'd like you to join an apartment association. I'd like you to become a subscriber to David's podcast if you're not already. What else?

David Wiener: would a landlord, how would you have a landlord think differently about risk management and reserves and debt if they want to survive the next downturn? Because ⁓ know, this is a strange market. Risk management reserves and debt, if they want to be able to hang on through the next downturn, what would you have them think differently about?

Christian Walsh: Risk management, it's not if but when something goes wrong. The answer there is treating it like a business, having proper procedures in place for screening, rent, having ⁓ a eviction attorney who knows the local laws on speed dial when rent is late, it's insurance, having the right insurance policy. If you rent out your home because you got a 2 % mortgage rate and you think you're doing great on cash flow, number one, you're not. Your return on equity sucks, but we'll leave that aside. But number two, yeah, insurance policy for your single family home does not translate as a rental. So you have no coverage if something goes wrong. So insurance is your friend. I just had a personal injury attorney on my channel and holy smokes, that opened my eyes.

David Wiener: That's fixable.

Christian Walsh: risk ⁓ that may that may not even be the type of risk you're talking about but that's the ⁓ yeah ⁓

David Wiener: I'll bet. It's all a part of risk management though. What about debt? How should they be thinking about debt considering volatility of the market?

Christian Walsh: Yeah, we can never predict where interest rates are going to go. That's what's tough with the five plus units. So it tends to be adjustable financing. Whereas if you do one to four, you can get away with fixed rate financing. So I'm a fan of fixed rate. But there's arguments to be had for both. I would say, your tax strategist tells you that a really good reason for it, stay out of a negative cash flow situation. And by that, mean, basically, all your expenses add up to more than the rent comes in. And that's more than the rent comes in when everything's going right. So stay out of a negative cash flow situation these days.

David Wiener: Good advice. And when the rent stops, then it's definitely going to be you're definitely going to be underwater.

Christian Walsh: Yeah, that's another thing, accidental landlords. ⁓ overestimate is how quickly they're going to get their cash flow going again. yeah, debt can be your friend. when you do a 1031 exchange, one of the big other things that people forget, David, is that the debt has to be replaced. So when you do the exchange and you've got a million property, you $2 million in debt and $3 million in equity, your up leg is going to have to have a minimum of $2 million in debt against it. Or you bring in outside cash to take advantage of. That's a... No. No, everybody wants to oversimplify the 1031 exchange and say, it just has to be more than the price we sold it. Don't forget about the debt. And that's why it doesn't work for everybody because grandma and I might not be able to get a $2 million loan or grandpa. So again, part of the strategy. And then as as uncertainty goes, uncertainty is your friend on some level.

David Wiener: That's definitely something people don't think about and don't realize.

Christian Walsh: So everybody's scared, well Warren Buffett, I know it's a cliche, but be fearful when others are greedy and be greedy when others are fearful. So we've got a lot of uncertainty right now. So I can tell you that buyers are out shopping for real estate. They're touring and they're looking at it, but they're not writing offers because of uncertainty. So if you are the guy or gal who shows up and writes an offer, you might be surprised at the price you get.

David Wiener: Okay, down to one point now. If a landlord listening to this wants to fix their portfolio in the next 12 months, what's the very first step you'd have them take this week? Walsh. ⁓

Christian Walsh: ⁓ Yeah, besides doesn't help. it does but you don't to do that. First, I would ⁓ again, go back to know what you have. that's. ⁓ It seems so basic and it seems so simple, but what is your property actually worth? Don't just use a Redfin or Zillow estimate because if they have a number for multifamily, it's wrong. know ⁓ the value of the property is. Know where your rents are. Know where your expenses are. Because a lot of people say, I think my insurance is this. And it's not. It's way more than that. So know what your income and expenses are, then know what your income could be. So get an idea of where rents could go.

David Wiener: To determine the value, is it worth getting an appraisal on the property now?

Christian Walsh: No, to be honest, I wouldn't spend the money on an appraisal because appraisal is more art than science. That's where you could reach out to a few different brokers get broker price opinions. Those are free mean their opinion of value a true BPO would probably cost money But yeah reach out to a few different brokers who know rental properties very audience that understands rental properties of amongst real estate agents But get get an idea of the value from those real estate agents and you'll see the numbers will still be you get three different numbers But it gives you an idea

David Wiener: That's good. That's good advice. Christian, I can't tell you how much I appreciate you being on this episode. We have covered much stuff. I think it's been one of the most practical conversations we've ever had for landlords trying to build real wealth and not just collect a few doors. We've covered where landlords are quietly bleeding money. We're talking about how to think about portfolio design in high regulation markets, especially.

Christian Walsh: you

David Wiener: and how to use your agent and your tax strategist together instead of treating them like completely separate worlds. So has been great. I appreciate you joining me for this episode.

Christian Walsh: I can't wait to be back if I'm allowed to come back. I'm coming, David.

David Wiener: You'll be allowed, I guarantee that.

Christian Walsh: you. It's been an honor. I appreciate it.

David Wiener: So if this episode has helped you do two things for me. hit subscribe, leave a quick rating or review on the podcast. It really does help other serious investors find the show. Secondly, just pick one idea from today. Maybe it's fixing your notices. Maybe it's getting a five year plan or having a strategy call before your next 1031. Put it on your calendar this week. You can learn more about Christian and WIRE associates in the show notes. Go to subscribe to his channel and let him know you heard him here. they'll really want to come back. And if you're ready to get proactive about your own tax strategy, head to the TaxStrategyPlaybook.com to connect with me and my team and get more contact information for Christian and our other guests. I'm David Wiener, Mr. Cash Flow. Thanks for listening. I'll see you in the next episode.