Welcome to our latest episode. Today, we’re excited to host Larry Pendleton, a seasoned CPA and strategist with nearly two decades of experience in tax strategies for investors. Larry is the senior partner at PC Financial Services, where he has helped hundreds of investors across the U.S. save thousands of dollars in taxes and build passive income through strategic planning. He is not only an expert in tax consulting but also a seasoned real estate investor with over a decade of experience in various types of real estate deals, including mortgage notes, multi-family rentals, short-term rentals, and new developments.
In this insightful conversation, Larry shares his journey from high school accounting classes to becoming a trusted advisor for real estate investors. He dives into the intricacies of tax planning, the importance of understanding investment goals, and the need for a strong team to succeed in both saving on taxes and building passive income. Larry also discusses his approach to navigating the current uncertain market, including his strategies for investing in mortgage notes and new construction projects.
Tune in now to learn from Larry Pendleton’s extensive experience and discover practical advice on how to enhance your financial and real estate investment strategies. This episode is packed with valuable insights for anyone looking to optimize their tax strategies and grow their investment portfolio.
HIGHLIGHTS OF THE EPISODE
00:24 – Larry’s background and journey into tax strategy and real estate
03:00 – The role of investment coaching and tax planning in financial success
06:10 – Analyzing investment deals and the importance of due diligence
09:45 – Adjusting strategies in the current uncertain market
12:30 – The significance of protecting the return of capital in investments
15:00 – Challenges of underwriting deals in a volatile environment
18:10 – Investing in mortgage notes and new construction projects
21:20 – Rebalancing portfolios and selling appreciated assets
25:00 – Opportunities in private lending and seller financing
27:00 – The importance of building the right team for investment success
If you found this episode substantial and want to dig deeper into real estate, or maybe you want to discover better investment opportunities, be sure to check out www.tempofunding.com.
CONNECTING WITH THE GUEST
Website: https://linqapp.com/LarryPendletonCPAinRealEstate?r=link
Linkedin: https://www.linkedin.com/in/larry-pendleton-jr-cpa-msa-493aa249/
Instagram: https://www.instagram.com/larrypendletoncpa/
Facebook: https://www.facebook.com/PCFinancial16/
Youtube: https://www.youtube.com/@MultifamilyU
Full Transcript:
Intro: Welcome to the BigMikeFund Podcast, where you’ll learn about advanced wealth building strategies from real estate investing to creating massive ROI and secure retirement profits. So pour yourself a cup of coffee, grab a notepad, and lean in. Because Big Mike has got the mic, starting now.
Mike Zlotnik: Welcome to the BigMikeFund Podcast. I’m the Big Mike, Mike Zlotnik, and today it is my pleasure and a privilege to welcome Larry Pettleton, he’s a CPA hailing from Virginia, senior partner at the BC Financial Services. Just a couple of words about Larry. He’s been a CPA over a decade, tax and investment coach. His mission is to help folks achieve financial freedom by building passive income and prudent tax planning.
Let’s, let’s jump into a little bit more about Larry you and your family first, and then we’ll, we’ll dive into financial services, CPA work, etc. So tell us a little bit about you.
Larry Pendleton: Awesome. We appreciate Mike. Yes, I’m based out of Norfolk, Virginia, Southeast Virginia. For those who are familiar with the area yes, we decided to raise our family here. Born and raised here. Lovely white Whitney and our 2 boys Larry the 3rd and Wesley.
Mike Zlotnik: That’s wonderful. And I guess you said you’ve been there for a long time. So that’s awesome. And how did you get into the CPA work and tax planning, financial planning, and you work a lot with real estate investors.
Larry Pendleton: Yeah. I actually got into accounting really in high school with a question on the accounting teacher kind of just stuck with me since then. And then that’s all a value that was needed people that need help with accounting and tax services. And as I grown and got into different doors, it’s like, yeah, this is definitely a niche I can help people with and then help with the with the wealth gap in the country.
Well, faith has got to expose other people to the different investment opportunities and educate others as well. That’s what we started doing. The, the investment coaching is alongside with the tax coaching as well.
Mike Zlotnik: So what is the investment coaching? Is like, and what is tax coaching is like, just give us, give us some examples of the work that you do.
Larry Pendleton: Right. So we, in this day and age, people can Google or chat GPT, like any type of like tax opportunity and whatnot there. But the goal is, is kind of work with the person similar to a coach. It’s like, Hey, here’s how, The tax code works, if you’re going to be making this type of income or investing in this arena, and here’s how to really analyze and underwrite the deal.
So, it’s not just telling you something, or just giving you a tax plan to go on your own. It’s actually helping with the implementation of a lot of it is a bit of muscle memory or just analyzing these deals. Understanding how that’s going to impact you and your financial goals, but also how it’s going to help potentially save on taxes or how you need to operate from that standpoint.
So, the whole, the whole aspect is to kind of be a guide with you, not just advisors. We’re going to talk this through together, see what makes sense and then help help kind of guide people in the right direction that they can make informed decisions that works best for them.
Mike Zlotnik: Yeah, I appreciate that explanation. So it’s, it sounds to me a little bit more like a tax strategist, a little bit of that tax coach and tax strategist is some, some similarity versus the tax compliance CPA. Tax compliance CPA, they just file taxes. They do the compliance work versus. Planning work a little bit more strategizing, thinking through the process and then what about investment coach?
And it’s a dangerous territory because I don’t know if you’re a licensed investment advisor or a registered investment advisor. If not, if you’re not. Investment coach versus a registered investment advisor is a big difference because people want decisions made for them And then typically it’s a dangerous territory as a coach What do you coach them because they have to make their own decisions I assume unless you are a registered investment advisor, then you have to do an advice compliant with the
Larry Pendleton: Yeah, we’re very, I’m not a licensed financial advisor pretty similar to the, the, the, the tax coaching, the tax strategies.
Like, Hey, well, what is your investment goals? Like, what are you trying to do from that standpoint? And let’s underwrite these deals because everyone is just getting special people who are having that work for just constantly getting you know stuff emailed to them or messages. Hey, can you invest into this deal?
All right. It’s not for me to say whether or not it works or it sounds good or point you in whatever direction is like, Hey, well, let’s just look out, see how the numbers work and really be a second pair of eyes for individual, help them underwrite the deals. Does it align with what they believe in, in that investment?
Does it provide the equity coverage that they’re looking for? Does it give them the returns that they’re looking for? So it is, it really, once again, is more of a guidance aspect of it. So, cause I’m not making that decision. I’m not telling you where to put your money into. I have my opinions, but that’s just my opinion.
But at the end of the day, you have to make an informed decision and having a team of people that can help help with that assessment of those opportunities goes a long way.
Mike Zlotnik: Yeah, I appreciate that. Certainly folks who don’t have experience could benefit from general coaching, how to look at the deals, underwrite the deals.
But a lot of information and practical decisions should be made outside of just the, the paper. I don’t know. Do you do, do you get involved looking at the sponsors in depth, understanding who they are, what they’ve done? Because in this world, I’ve seen this, right? You could put anything you want.
You can, you can make, you can put a lipstick on a pig and make another deal look pretty good with just a creative way of the numbers. You could get assumptions to the point that they can never materialize. In addition to that, we’ve seen the last couple of years. A lot of even solid assumptions have fallen apart.
So it’s a, it’s a difficult exercise to look at deals today, especially today. I can tell you that it’s gotten way, way harder because the department broke the past reliable methodologies, no longer work super hard. Well, what do you do? Well, there’s a lot of uncertainty related to where the interest rates go.
What’s going to happen with cap rates? What’s going to happen with future rents? What’s going to happen with insurance premiums? So the world of certainty has been changing to the world of uncertainty and looking at deals now is triple difficult.
Larry Pendleton: Yeah, it is beyond just looking at the paper and the numbers, but you do have to look at the operators and you try to go and do your research on the individual or the group as a whole, see if you can find some testimonials, see what stuff in this, whoever he is.
Requesting money from anyone should be able to, hey, here’s a deal that we work on. Here’s the, here’s the address. Here’s how the numbers actually work. Like, we got it for this amount. We put this much into it and we, and we walked away with this after this amount of time. So, it’s really kind of knowing what to ask.
These operators as well, and okay, well, these assumptions are great on this property. Like, show me an example. How does this impact in this particular area? Does it’s the same area we’re talking about somewhere else? Like, does this model work? And can you, and there’s any evidence of this model working in this particular area, especially if they’re new to it because there’s many investors, there are investing out of state.
So they don’t have the convenience of. Of having a network in those areas would be able to hop on a flight quickly to, to, to meet folks there themselves. So, yeah, it is, it is going not just off the paper and the numbers, but assessing the operators as well.
Mike Zlotnik: Yeah, so what I’m hearing from you is you’re coaching on a little bit of deal due diligence and it’s, it’s, it’s hard to do.
And for sure. There’s a wonderful expression. I don’t know what are your thoughts on this, but it’s certainly. Is true now. I don’t want to call it more than ever before, but it, it, it, it, when a pattern broke, this statement is really very applicable. So the statement is incredibly simple. Past results are not indicative of future performance, or past results don’t guarantee future results.
And what used to work a couple of years ago broke a lot of deals. If you went and you looked at the past performance, or what people used to do, what results they achieved, and then you look the last couple of years it’s a very different picture. It’s gotten to the point where success, success, success, success, a whole bunch of failures.
Or possible failures because the market has been hit by a tidal wave called, you know, higher for longer interest rates and other issues. So I’m just curious, what’s been your adjustment, your change, what are you doing different today versus what you were doing a couple of years ago when the pattern was solid, things were progressing certain way and you, you know, if you follow the pattern, if things.
Stayed that way. It would have worked, but things broke the change. Yeah. So now it’s different.
Larry Pendleton: Yeah. It even goes as far as we’ve got the exact, so the Mark Mark Twain quote, and I’m just paraphrasing where the return of capital is more, is more important than the return on the capital. So is, is, is there enough coverage in this deal?
If, if. It’s the fan and everyone has to at least be able to get their money back. How much equity are in this deal in this world of uncertainty that we’re in? Now, there’s always going to be risk involved and you try to find different ways to mitigate that risk, whether you’re going as a, as an LP in different deals or go as a private lender.
And at least have some legal more legal recourse to at least get your money back from that perspective. So it’s just, it’s assessing the different options that are out there, the different markets different ways to invest in real estate is this, I mean, some people get into multifamily, commercial, single family, mortgage notes, like it all, all of this kind of what, what fits into what that person is doing.
And then is like, can the deal itself still return your capital? If it like, if, if, if, if things went south. And they have to get out of it sooner than, sooner than than expected.
Mike Zlotnik: So how do you do that? So for on a debt front, it is somewhat easier to do, although there’s risk on everything. But if you’re in a first lien lender secured by a solid collateral at a conservative loan to value ratio with a good quality borrower that you have underwritten, you have pretty good chances of returning your principal, right?
I mean, back to your, exactly your point. Return of principle first. So safety of principle. First thing that is relatively I don’t want to call it easy, but it’s it’s Much easier understood much easier on the rhythm now when you go into equity things are a lot more complicated and a lot of equity checks the next couple of years It’s not clear if the money is going to come back.
And we do a sensitivity analysis on data, et cetera, but these analysis quite often these projections and assumptions, a lot of things change and now it’s kind of interesting because things adjusted quite a bit, valuations adjusted. So the new deals may look pretty attractive, but how do you do this in methodology?
I’m just curious. How do you look at the safety of principle in an equity investment? I’m, I’m just curious of the thought process because it’s hard. It’s hard for me too. So, when we go look at an equity deal you sort of assess the downside risk and an upside risk and you come up with, okay, if these things go wrong, you could lose your principle and if these things go, you know, semi decent, then you got a decent scenario of at least return of capital and so I’m just curious your thoughts how, how do you do this exercise?
Larry Pendleton: Well, it starts with the understanding and base that you can always lose your principle like there’s there’s there’s no way no one can promise that the principle will not be lost. So, it always starts with that because the individual has to be comfortable way. If I give this out, am I married? Am I comfortable losing this, which is why you shouldn’t just be investing everything that you have, unless you just, unless this is something that you feel a thousand percent comfortable with at that point, you still shouldn’t do it.
So that’s that’s the base understanding there. And then, yes, you, even though, like, past performance doesn’t predict future results, but you’re still going off of how this person has operated in the past. Like, how have they. They may not be if it’s successful, like, like, how did they, do they do right by the LPs?
How do they communicate and all that stuff as well? How are they underwriting? You did like, are they oversharpening their pencils to make these numbers work? Are they accounting for just adjustments to, Hey, there may not be any rent increases that that’s going to be down the road, but there’s still going to be increasing expenses and what type of sensitivity tests are being done to, to, to assess that point of it there.
And, and once again, how, like, Where is the market? Like how, like how much below market value is, is this property, is this asset that they’re, that they’re going, that they’re able to acquire and all this money that they’re going to do with this huge lift, so forth and so forth, because you try to put those type of things in the place with KKK, like, even with all the money that was put in for, for equity purpose, we’re still, you know, Way below what the, what the actual assessed value of the property would be when it’s completely fixed up.
So we have to jump by early. There’s still a possibility to at least all the, the, the LPs to get there, at least get their capital back from there. And does the, the, and does the operator has a history of doing that? And what’s the, what’s their history of dealing with down markets? Like, are they just now new?
There’s a, there’s been a lot of new operators that came into play. I would say probably since 20 2020, 2017, when the bone depreciation all came into play and that became a huge dangling carrot for a, for a lot of people using the raised capital. And now that’s not such a benefit anymore because people became more educated on if they can use these losses.
All right. Now these operators can’t promise the losses and they’re not, and they’re not generating profits on the deal itself. And so how, like, what, so they may just be too new in the game to deal with how a down market is and are you willing to stick it out? If you’re going to get equity, are you willing to stick it out for the ride until until potential upswing?
And what’s the, what’s the operator’s plan? If there’s a downturn. And, and, and does that make sense? So you’re going through multiple things and it’s, and it’s, it’s, it’s everything in life is easier to do when you have a, a, a partner with you along the way that can, that can, that can help and just give you a second look at it from a different perspective.
So, cause you, you can just get caught up in your head, get an ounce of paralysis and not, not pull the trigger on anything. Which is not, which is not a bad idea if it doesn’t make sense, but hey, we can start people still making deals happen. And like, and just kind of like what they’re going through to actually make that deal work.
Mike Zlotnik: Yeah, that’s very interesting. And a lot of great points that the bull run has been long. You, you went back to 17, there’s been a bull run since 2008 crisis. Anything you did since 2008 until, until now, most of these things have done well. Yes. So it’s kind of a, there are very few people today who have gone through 2008 crisis in, well, I mean, they exist, but there are a lot of, a lot of new people who’ve entered the market in between, and they’ve had a lot of successes.
Kind of the tight rows all boats raised all boats. So I concur with you and having I guess coaching services helps folks make these decisions. These are not easy decisions and having another set of eyes and ears helps a lot. So I understood. What else you do? Just, just, just sort of we, we, we, we, we, we dived enough into Tax planning a little bit.
We talked about investment coaching. What else you do with, with folks? Just curious again, this is your floor anything you want to share, any interesting ideas, suggestions, brilliant ideas, kind of what do you want to share with the audience?
Larry Pendleton: Yeah, I mean, at this point right now where the market is and where we are, we’re more if we’re looking forward, like the bigger turnaround, like quicker turnarounds into our new construction projects now where we are in Virginia, we know where the path progression is and and where and where cities are really putting putting their money into and revitalizing schools.
So, so we’re. Well, we’ve worked with our private lenders and our equity partners on our, our new, our new residential new builds. And also from a cash flow play, we’re looking more into a mortgage notes now. So, something that we’ve been dabbling into for about a year bought a few, some have paid out fully some, we’re still getting cash along.
So we’re, we’re building our, our cash flow. From from from that angle and educating people on how that how the investment vehicle can work for them, whether it’s a non performing note or performing note more of a performing note, it goes not performing. So, once again, you’re, you’re trying to get all the different angles of it as well.
But. Lot less liability associated with stuff like that. Less overhead costs still like you mitigate the risk of those type of things. But yeah, just those are kind of our 2, 2 focal points. Like, we still have some rental properties that we’re operating and some that we’re starting to sell off at this point now where the prices are and and just just just better better ways to.
To deploy that equity elsewhere instead of where we currently have them. So, so that’s, that’s, that’s our focal point on the investing side of things.
Mike Zlotnik: Yeah, I appreciate that that commentary. It’s actually a good time to be a lender. Honestly some people have asked, what do you think about equity versus debt in this environment?
And I, I concur with you that being a lender obviously as a lender, you typically don’t have liability associated with equity ownership, but two, you also can get predictable steady income if you bought the right type of performing Instrument you either originated or you bought it. If it’s well underwritten relatively defensive, there’s a risk in everything, but you can get pretty defensive.
Firstly, loans, even sometimes secondary lien loans, we’ve done plenty of those can be very lucrative way to deploy capital and you can get pretty good returns without taking equity like risk. So from that perspective, I certainly share that thought. And then you said something about Seven, so appreciated assets.
It’s kind of interesting. Just, you know, any quick comments or thoughts. So residential real estates have done well. It’s still, it just regardless of the higher for longer rates, residential real estate just not taking anything on a chin. In fact, some of the markets continue to appreciate despite the higher rates because of very limited supply.
What are your thoughts? Is that party over or it’s going to continue? Is it better, better to rebalance the portfolio a little bit because it’s done so well over the years?
Larry Pendleton: I think it’s all those aspects of rebalancing on our end. And that’s where the mortgage notes kind of come into play there. I mean, a lot, a lot of these a lot of these properties that we, that we’re selling off now, they’re kind of part of our, like our original portfolio of items.
We’re like, Hey, they’ve been doing well, but the return of equity, like could be, could be better. And just where, where we, where we initially thought the, the cities were going to progress at night. It’s not really moving in a sense. They were like, Hey, we don’t, we don’t have to sell them, but if we sell them, like, here’s our price, we know what the market is and we’ll just see if anyone’s willing to jump for it.
And most likely it’s going to be a 1031 buyer or someone, and these are real smaller, smaller multifans where you can do a house hack from, from there and get them to get a residential, residential loan there. So that, that’s where we’re kind of seeing from there. We’re like, the, the, the lack of inventory where it is, it’s this weird state where in 08, it was more of a greed aspect that caused the crash where it’s like, now it’s like, Hey, well, it’s just people rarely can’t afford.
And it’s stopping a lot of people from selling because of interest rates or, or, or, or kind of creeping up from, from, from there. So, so, yeah, so that’s where we’re kind of seeing where, like, the residential is going to somewhat stay steady because the inventory is, is so low. It’s just, are the cities willing to allow developers to do more multifamily, or it is going to find more, find more ways to get more housing in their, in their areas. Thank you.
Mike Zlotnik: Yeah, it’s a complex problem. These higher rates are making it very difficult to do new starts. So new starts, new construction or residential housing is, is really subdued and same thing on multifamily, any new, new starts kind of fall off the cliff with these higher interest rates. And it’s kind of a I, I’ve said this in the past and, and just curious your thoughts.
So the Fed has been trying to fight inflation by virtue of hiking the rates, but when you hike rates, you make construction much more difficult to do. And when you don’t bring new supply, no new construction, no new supply, you’re making it more difficult for people to afford because you don’t have a new product.
So it’s, it’s, it’s a counterbalancing force as much as they’re trying to get inflation under control. They’re really hurting the new starts. Are you seeing interesting opportunities there? Or at this point, it’s just it’s all so difficult and it’s It’s just better to be a lender and sit and wait and see what happens.
Larry Pendleton: Well, to piggyback off what you’re saying with the private lending, it works on the residential side because if If you’re able to adhere to the Dodd Frank regulations, you know, you’ll, we’re seeing a lot more seller financing to, to homeowners. From there it was just, like I said, it’s just a compliance stuff.
And most people who are trying to sell don’t have that type of. Infrastructure or or knowledge in place to make sure that they’re not interfering with with those regulations, but there’s there’s huge opportunities there where you can actually structure structural mortgage, someone, and depending how much equity that you need to be pulling out from the property, you guys should get them, get them cash flowing As an actual homeowner, instead of renting out the property from, from there.
So we’re seeing, we’re seeing a lot more of that being a viable option for those as well. And from the, from the, from the private lending side on the borrower side. Long term wise is actually cheaper to deal with the private lending instead of the equity partners, even though it may be less money that you’re paying in the earlier part, but you’re not having to deal with the equity aspect of the overextended period of time.
Whereas with proper, as you know, exactly what you’re going to be paying, you have an exact end date. Where there is no exact end date with the equity partners until you actually sell off the sell off the property. So, so it’s, so it’s, so there’s, there’s, there’s opportunities in that, in that arena for, for, for both sides of the bar and the lender the, the, to be able to benefit from each other there.
Mike Zlotnik: Yeah, understood. I appreciate that. So it sounds like you’re doing some self financing. That, Frank, I guess, qualification is a critical requirement if you are selling a house and you’re financing a house for an owner occupied. That’s a I’ve seen this product a few years ago, and today, I guess, it’s gotten even harder, but you’ve got to qualify them.
If you Otherwise, you can’t You can’t make the loan that’s not Dodd Frank compliant, otherwise you’re going to have problems later. So if you are considering buying a note on residential property or on a ROC, most, by the way, most lenders in the space, hard money lenders, don’t touch and don’t do anything in the owner occupant.
That is a unique space that kind of reserved for the agency money, kind of Fannie Mae, Frannie Mac. HUD VA that are used to making these loans to folks who want to live in these properties versus hard money loans that typically design. And this is what we play on fix and flip projects.
You’re, you’re making business purpose loan short duration versus a long duration. So just any, any other final quick comments on this and then how would folks get ahold of you? What’s the best way to reach out?
Larry Pendleton: No, I appreciate it. Yeah, I think just Just remember that whether it’s building passive income or saving on taxes either way, all of it is a team sport, like, you have to have the right people around you.
No one is doing this stuff by themselves, successful or not, like, Even the ultra successful at this, like they have the right teams and it is, is, is a lot of trust involved in vetting in place. So, but just building the right team around, you’re getting the right team or the right, the right people around you, the right networks goes, it goes a long way.
You can reach me at www. larrypellentoncpa. com. You can looking forward to hearing from anyone that wants to learn more about me, about what we’re doing is it. Different podcasts that we’ve been on and webinars that we’re having we have another webinar coming up in a few days about investing out of retirement accounts.
So there’s, there’s different ways that we can reach out to me. We’re on, I’m on social media, LinkedIn, Facebook, Instagram. So the, the, the normal 3 there, but yeah, that’s that’s how people can reach out to me.
Mike Zlotnik: Larry, thank you kindly for coming on the podcast. Thank you for sharing. Hopefully folks will appreciate some of the wisdoms you shared and we’ll reach out at larry peddleton, cpa. com. That’s the website. And obviously related social media websites. Thank you kindly and have a wonderful day. Appreciate you. Thank you.
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