The Tax Strategy Behind Short Term Rentals

In today’s episode, I sit down with Lamè Kinikini, Founder and CEO of Elk Ridge Investments, to talk about how short term rentals can become a powerful tax strategy for high net worth investors. Lamè shares how Elk Ridge evolved from property management into an investment model built around maximizing the tax advantages available through real estate. We discuss the importance of understanding tax incentives, why traditional advisors may overlook certain strategies, and how the right structure can create equity, cash flow, and depreciation benefits. Lamè also explains how Elk Ridge reduces the time and emotional expense that often comes with property ownership. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

• 0:00Speaker 00

  Welcome to Two Minute Drill. I'm David Meltzer. We're here live at the Sirius XM Studios at the Wynn in Las Vegas. It's time for our entrepreneur showcase. I have an incredible entrepreneur with me today, the incredible Lame Kenny Kenny. He's the CEO and founder of Elk Ridge Investments. Lame, welcome to our entrepreneur showcase.

• 0:17Speaker 01

  David, thanks for having me, brother. You know, I've said this a few times now and I mean it. We've been here for, you know, just about a day and a half and the energy, your team, everything, it's infectious. I don't think people get an opportunity to see, you know, the people behind the camera and everything like that. And it's just been, it's been stellar. It's spoken highly of who you are and everything, Bill.

• 0:34Speaker 00

  Well, you are part of that frequency and neighborhood now, and we're so appreciative of it because our mission to help people make a lot of money for the sake of helping others and having fun was an immediate lesson that I learned from you and the people that work with you as well. But a lot of people, it's like my book. It has a title that sells, right? Don't do business with dicks, but the book is not really the title, but without the title, I couldn't sell the books because I wrote Compassionate Capitalism and that title didn't sell. And you can't sell a secret. Your business really isn't necessarily about real estate. It's about utilizing a tax strategy.

• 1:16Speaker 00

  Can you help people understand why the tax strategy is more important than actually the investment itself?

• 1:23Speaker 01

  Absolutely. And I think to go along with this, I think it's important to kind of know a little bit just high level of the background of Elk Ridge. We started in the operations side of the industry, specifically in short-term rentals. And so the company early on, early stages was a management company. We vertically integrated, so we owned all the cleaners, we owned all the handymen, everything outside of contracted license work, HVAC and things like that. And I think, you know, it's funny because I started that business just prior to COVID. And it's funny how things work out because I thought I was so good at what I did. And in hindsight, now I just see it was an inflated bubble, right? So, but luckily, I, you know, like any good entrepreneur, I trust the pivot, right?

• 2:04Speaker 01

  And our pivot in kind of a high level version of it, we started in short-term rental operations. It then evolved into a short-term rental investment strategy, which then evolved into what our product is today, a tax product, right? And that came by way of really looking at the market, understanding the asset class, and really determining what is the highest value that this asset class can give to a potential capital partner, right? And a lot of people don't realize that sometimes that can change depending on the market, depending on things. But in short-term rental specifically, with it being such an early-stage asset class, it's still fairly new, right? Airbnb, all these platforms are still young, even though they're bohemus.

• 2:48Speaker 01

  We really started to understand and study, why would somebody invest in this? And why would it, what would be the greatest value proposition of it? And therein, in the IRS code, is a very specific tax strategy that incentivizes those that invest in short-term rentals to take incredible tax benefits, right? And that's, that's effectively what we help people do and accomplish.

• 3:13Speaker 00

  Right. And one of the things I want to clarify, when we talk about the incentivization of the tax code, I'm a recovering lawyer, actually did very well in tax law, not that it wasn't 30 years ago. But nonetheless, I changed my perspective of the tax code. I, I used to look for, well, if I'm going to be a tax lawyer, I'm going to find loopholes and be able to save money for my client. And what I started to realize was these tax laws are created to incentivize you of where to spend your money, not to save your money. They, they want to incentivize you so you don't give the money to the government because they know the government's inefficient, bureaucratic, and not targeted and concise.

• 3:57Speaker 00

  And you won't get, they would rather you utilize the code to get a bigger ROI than to use it and get a less ROI and have the government spend money to manage your money. To that measure, in that incentivization, comes the number one tax benefit that I like to talk about. I brought it up earlier with, with View. It's called the dummy tax. You know, people ask me all the time for his tax strategies and I said, let's start with the $100 million dummy tax that I paid because dummy tax will cost you everything, trust me, that you ever made. But if you're really stupid, it'll cost you everything you will make in the future. And so the situational knowledge of how you have evolved, you call it pivoted.

• 4:38Speaker 00

  I call it expand and evolve. I don't think people pivot. I think you take your capabilities, and I see this in you, Lame, you expanded your capabilities into more areas to help people make money, help people and have fun. So in this expansion for you, that situational knowledge, what were some of the key components that you learned? Because you manage properties, then you invested in properties. And now you realize what it's really about is this situational knowledge value of a tax strategy.

• 5:08Speaker 01

  Yeah. Great question. So I think there's a few things. I think the first one is, you know, the uniqueness about short-term rentals, specifically that asset class is it's still relatively new. It hasn't been institutionalized yet, right? People haven't been able to do it at scale. I actually think we're probably one of the biggest, if not the biggest, private owner of, you know, short-term rentals. But there, with that becomes a lot of, a lot of new trailblazing as it pertains to cash flowing these assets, right? What people don't realize about Airbnb is you can be profitable in a 12-year span. But the way that it looks like in short-term rentals is that, you know, there's certain properties where you're making money, you're only making money really four months of the year.

• 5:50Speaker 00

  Right.

• 5:50Speaker 01

  Right? And then the rest, you're lucky if you break even. But when you look at a 12-year annual, you're actually profitable because you made so much in those first four months, right? And that brings about a lot of, a lot of like strategies and you have to think about it very strategically to scale, right? And so for us, when we looked at it, we were like, okay, knowing that this is such a volatile market, right? Knowing that this is something that isn't cut and dry like normal asset classes are, how can I position this product in a way that makes sense for really those that are choosing to invest in it? And that, it was kind of that thought process of just stumbling through all these failures, honestly.

• 6:30Speaker 00

  Right.

• 6:30Speaker 01

  To eventually, yeah.

• 6:31Speaker 00

  Dummy tax. You pay the dummy tax for all these thousands of people that you help.

• 6:35Speaker 01

  Yep. And, and creating a system that allows people to receive consistent returns where they, where it's mailbox money, right? But on top of that, focusing on all of the benefits of what the asset could provide, one of them being the primary, primary benefits is taxes, right?

• 6:54Speaker 00

  Yeah. Well, the way to true wealth, as I always say, taking rich dad, poor dad to the next level is that your asset creates interest or revenue that's tax-free.

• 7:05Speaker 01

  Yeah, yeah.

• 7:05Speaker 00

  And it grows exponentially.

• 7:07Speaker 01

  And I think, and I think one thing-

• 7:08Speaker 00

  That's what you guys do.

• 7:10Speaker 01

  Yeah. And I think one thing too, just to add on to that point, what was, what is incredibly insane to me is now, obviously, we do this at a large scale. We help a lot of high net worth individuals save money on taxes. One of the biggest bottlenecks in doing this is the lack of knowledge and education that CPAs and wealth advisors specifically have on this topic.

• 7:34Speaker 00

  I think it goes farther, to be quite honest. And then let me put this out there to someone like me who had the same problem, that I trusted my CPA, my accountant, even my tax attorney. Because what happened with like ERC and some other things that came out, they didn't know about it as early as I did because I'm so integrated in the entrepreneurial world and obviously into the strategy world as an advisor. So I heard about this stuff early on and I went to my accountant, my CPA, my tax attorney, and they all told me it was BS.

• 8:04Speaker 01

  Yep, yep.

• 8:05Speaker 00

  Because they didn't know about it and they were lazy and they didn't do the research. And so I think it's really important that you have to realize that there's a difference between an accountant, which you need, a CPA, and a tax attorney compared to a tax strategist.

• 8:20Speaker 01

  Absolutely.

• 8:21Speaker 00

  Or I, I call them, if this is fair, what I call you and your associate Ricky, tax architects.

• 8:29Speaker 01

  Yep, yep.

• 8:30Speaker 00

  Right? And that's a whole nother level of strategy. So you're a tax architect. You're taking into consideration the situational knowledge. Obviously, when you're in the high net wealth side, most people are paying about 52%.

• 8:41Speaker 01

  Yep.

• 8:42Speaker 00

  So if you're not looking at, how do I make an extra 52% by utilizing the tax strategies, the tax codes and the tax incentives, you're missing out on an automatic gain. Even if you break even, you have a 52% gain. And I have too many friends who listen to their accountant, CPAs and attorneys about things they don't know.

• 9:03Speaker 01

  Yep.

• 9:03Speaker 00

  And they let their ego in their time. A lot of it is their time constraint. They don't want to deal with it. So they just tell you it's BS because the percentage of the time it's BS.

• 9:13Speaker 01

  Yeah, yeah. And, and I think to add to that, the very few, I think short term rentals are the greatest in my opinion, obviously I'm biased. I consider them one of the greatest tax advantage strategies that exists. Because when you compare it to other things, what other place or what other asset class can you take a massive tax benefit? And just to give really optics, you know, what, what we allow people to do is, you know, when they give us a dollar, they're getting about a 1.3 to 1.5 of, of tax dollars back to them, right? And it's an asset. It's an appreciating asset, right? A lot of people like to use FF and E. They like to use equipment. They use cars. These are depreciating assets, right?

• 9:55Speaker 01

  The opportunity in short term rentals is you get the tax benefit in an asset that makes money and appreciates, right? And that's to me, that's, I don't know whatever, where else you can do that.

• 10:04Speaker 00

  And it's a bankable asset. So, right, so.

• 10:07Speaker 01

  It's active income too, right?

• 10:09Speaker 00

  Yeah. So if you look at true wealth, a lot of people don't understand asset based lending, right? Because liquidity is so important and timing is so important. You know, my philosophy is never buy real estate that you have to sell. And so there's no reason to have to sell this investment because when you have an asset that you can borrow against, right? Now you're talking about an additional tax free income because they can never tax you on, on borrowing money. And this is one of the older tax strategies of real estate is asset based lending and also life insurance. And people will continue for over a hundred years, even though the Rockefellers have made all their money in this way, will continually the accountants, attorneys, you know, or financial planners,

• 10:53Speaker 00

  because they're not making commissions on it or they're not getting dollars, they're going to tell you, no, that, that doesn't really work. Yes, it does. And I want people to reach out to us to learn more about how tax strategy and architecture works. Because, you know, another area is a car wash, for example. Most people wouldn't realize it. Why are there so many car washes? Same exact reason. It's exactly like, but STRs. Now, one of the things that is also a huge benefit is what I call emotional expense. So as I coach and advise so many different people now, I ask them, where's your emotional expense column? You know, they try to get lawsuits. They have employees that are emotional expensive. They're just looking at the bottom line.

• 11:38Speaker 01

  Yeah.

• 11:39Speaker 00

  So if you try to do this on your own, absolutely a work. I literally, that's where I started, right? I had some by colleges and I have on the boardwalk at the beach. Great STRs, great tax benefit. But when I found out about Elk Ridge Investments and I said, okay, there is huge, because my wife manages the shit, right? And or we have a property manager and she's managing the property managers, right?

• 12:05Speaker 01

  Yep.

• 12:06Speaker 00

  Emotional expense, sometimes when you're a high net wealth individual, is it worth it?

• 12:11Speaker 01

  Yep, yep.

• 12:12Speaker 00

  Just like some of my highest paid employees that don't work with me anymore, the emotional expense was too much.

• 12:17Speaker 01

  Yep.

• 12:17Speaker 00

  So for me, it's, I'm just giving you my dollars and I have zero emotional expense. You guys take care of everything.

• 12:26Speaker 01

  A hundred percent. And, you know, there's a few criterias within the IRS code that, you know, need to be met with these capital partners. But to your point, we minimize effectively the big lift of emotional and time, right? And what people don't realize, 100%, very closely related. And, you know, when you get to a certain level of income, those are by and large your greatest assets, right? Your time and your emotions, right? Your mental state. And what we've built is really a done with you model to eliminate it as, as much as we can while making sure they qualify. So you get really the two benefits of ownership, right? Equity, cash flow and tax depreciation without all the headache of having to do it all yourself and become a real estate professional and all of those things, right?

• 13:10Speaker 01

  And, uh, cause really, when you look at taking depreciation in real estate, there's only two forms that I'm aware of, and these are the primary main stages. The first one is real estate professional status. You and I both know 750 hours has to be your primary, that's all emotional expense. That's all your time, right?

• 13:27Speaker 00

  Exactly.

• 13:28Speaker 01

  And really on this other side is the short term rental, short term rental tax strategy, right? And that's, that's what we do.

• 13:33Speaker 00

  If you're doing this with your wife, you can have an exponential factor on the emotional expense because everybody knows happy wife, happy life. If you want to make a lot of money, help a lot of people and have a lot of fun, follow the tax code, follow the incentives of the strategy of the tax code and make sure that you call my partners, Elk Ridge Investments and Lame Kenny Kenny is the CEO and founder. You can reach out directly to him. Where can people reach you?

• 14:02Speaker 01

  Yeah, people can reach us on our website, elkridgeinvestments.com. That kind of goes through a lot of what we do. But a lot of people like to find me on Instagram. So lame dot Kenny Kenny. So.

• 14:11Speaker 00

  Easy go, easy go. That's been an amazing educational tax strategy here on two minute drill with our entrepreneur showcase. I'm David Meltzer. This is two minute drill.