Congratulations, you made it to April 15th. The National Holiday known as Tax Day. A day most people loathe as they scramble to get their taxes filed, and in some cases write the government a big check.
For us at Wildhorn, our tax-based deadline occurred on April 1st. That was our target date to get our investors their K1’s so they could prepare for today’s festivities. Issuing 600+ K1’s was not easy. We had several sit down meetings with our CPA team to discuss strategy, many many late night phone calls and lots of text messages to get things completed. The downside of closing 4 new communities and 1000 units last year is that it creates a ton of accounting work at tax season, particularly the first year of ownership.
However, as the rush of activity related to tax season is in our rear view mirror, we’ve had the chance to reflect on what it all means, and are left with the following thoughts:
- Gratitude. We’ve expressed this before as we passed 365 investors, and wrote an article about it. We have alarms that go off on our phone three times a day so that we pause and are grateful for the positive things in our life. But working through these K1’s, and thinking about the individual investor on the receiving end of it has been a perfect exercise to once again practice gratitude for our investors. With each K1 is a relationship, a connection and a story, and we’ve appreciated being able to reflect on each one as we’ve prepared the tax documents. We talk about how we are in the relationship business all the time, and this singular tax document is a perfect symbol of the individual relationships we have and value so much.
- Realizing Tax Benefits of Real Estate. Every single K1 we issued, across every property we have, showed a loss. That’s not surprising–in fact the tax benefits of investing in real estate are one of the primary reasons many investors turn to the asset class in the first place. But seeing those losses pile up, and knowing that its lowering the tax burden for our investors, is very good to see. When you know and realize that we made all of our quarterly, scheduled distributions to investors, and increased the value of each asset while we execute our business plan, it is even more impactful.
Even on a property that we closed in late December, we were able to show losses on the K1. In the 10 days we owned that property, the property collected about $120,000 of income. However, by hurrying to complete our cost segregation study prior to tax season we were able to depreciate over $800,000 against the property, and with a full year of ownership in 2019 will show a sizable loss this year. The power of real estate investing!
- Celebrating Our Systems. Last Fall we launched a secure online portal for our investors. We wanted to utilize a portal for two main reasons:
1. To create a secure environment that allows us to control and post information during our acquisitions process. We can use it to post our marketing materials, PPM and subscription documents and allow investors to execute everything online.
2. Create a library for all investor documents, across all their investments with Wildhorn. Each investor has an account on the portal, and on that account we can store all of their documents related to their investments. This includes their subscription documents, but also their K1’s for each investment.
Coming out of posting all our K1’s to each investor’s account, we are very pleased with portal and the smooth delivery of each and every K1. As our business grows, we make sure to take time to celebrate when the systems we’ve built perform. We believe our portal has been an asset for us, and our investors during Tax Season.
Tax season can be a stressful time for everyone as they rush to find all their documents and get things completed on time. For us, while certainly a lot of work, it has served as a good reminder of what we accomplished last year, and a chance to remember and celebrate our investors and tax benefits of investing in real estate.