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The Ground Game Podcast
Welcome to The Ground Game Podcast, where land investing meets real talk! Join your hosts, Justin and Clay, both 7-figure land investors and seasoned entrepreneurs, as they dive deep into the world of land investing, team building, and personal growth.
The Ground Game Podcast
Episode 63: Annual Planning, Bottlenecks, and Taxes: How Real Land CEOs Think at Year-End
🎙️ Welcome to The Ground Game Podcast! 🎙️
In this episode of The Ground Game Podcast, co-hosts Clayton Hepler and Justin Piche tackle the unique challenges and opportunities that arise during the busy year-end period for land investors. Join them as they share their experiences and strategies for navigating the complexities of annual planning while managing the ebb and flow of business activity.
Key Highlights:
- Year-End Dynamics: Clayton and Justin discuss the paradox of year-end business, where contracts may slow down, but the pressure of annual planning intensifies.
- Sales Success: Clayton shares insights from his best sales month, emphasizing the importance of preparation and effort put in during the previous months.
- Team Management: The hosts reflect on their holiday schedules and the need for a skeleton crew to handle inquiries while allowing their teams to recharge.
- Identifying Constraints: Learn how to diagnose the real constraints in your business, moving beyond surface-level issues to uncover deeper bottlenecks that hinder growth.
- Strategic Planning Framework: Discover the structured approach Clayton used during his annual planning sessions, focusing on setting clear goals and actionable steps to overcome identified constraints.
- Tax Planning Tips: Justin shares his experiences with tax planning, including the importance of organization and the potential benefits of establishing a management company for expense management.
Whether you're a seasoned land investor or just starting out, this episode is packed with valuable insights and strategies to enhance your business planning and execution. Tune in to gain the knowledge you need to navigate the complexities of land investing and set your business up for success in the coming year.
Don't forget to subscribe, rate, and review the podcast! Your feedback helps us improve and reach more listeners.
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Clayton Hepler (00:12)
Hello and welcome to another episode of the single greatest land investing podcast on the internet. This is your co-host, Clay Hepler.
Justin Piche (00:20)
This is other co-host, Justin Piche, and we're here to show you how to win the ground game. That was a great intro, Man, it is ⁓ the end of the year. It is by far the busiest time.
but also a time when business tends to slow down a little bit. It doesn't feel like it does for the CEO because it becomes more stressful. It's like more stressful, right? Because the contracts, you're not getting as many contracts on acquisitions and sales. Sellers are telling you, contact me after the holidays. Buyers are extending out past the holidays. Title companies and attorneys stop answering your emails and phone calls. You can't get answers on things.
Clayton Hepler (00:43)
Yeah
Justin Piche (01:06)
So it's kind of like you're doing annual planning, trying to figure out all your financials for next year, what your goals are, what are you gonna, know, any last minute spend items to try to reduce your income for the year so that you pay less taxes next year. It just feels like endless amounts of work, even though the business results typically slow down this year, this time of year for most land investors.
Clayton Hepler (01:29)
We had our best sales month this month.
Justin Piche (01:31)
Like actual closed-dispos deals or like under contracts?
Clayton Hepler (01:35)
Close this, bro.
Justin Piche (01:37)
That's That's fantastic. But all that work was done in October, November.
Clayton Hepler (01:39)
Yeah.
That's right.
Justin Piche (01:46)
Still, that's great. Congrats, And, and you're strong.
Clayton Hepler (01:48)
Yeah, it's good. good.
I don't know you're strong. Yeah. How long you? How long is your team off?
Justin Piche (01:55)
I think they'll be off for Christmas Eve, Christmas day after Christmas and then New Year's Eve, New Year's Day.
Clayton Hepler (02:08)
We're just doing, we're actually doing Christmas Eve.
Wow, dude, I'm surprised. We're doing Christmas Eve, Christmas, that Friday, that Monday, Tuesday, Wednesday, and then the first, we're back.
Just like, just have some more rest, right? Like...
Justin Piche (02:30)
I mean, the team is still not gonna be like full force during that time, but we still need like a skeleton crew. You know, we'll get a lot of Facebook messages. We'll get a lot of ⁓ follow up boss messages from people, inquiries, et cetera, over the holidays. So like, I don't wanna be totally have nobody touching the computer for that whole period of time. yeah, people aren't working quite as hard this time of year.
Clayton Hepler (02:59)
Yeah, I don't know if it was, I wanted to do it this, you know, giving that a period of time off, but that's a lot. Like it's over a week, but like rest is important and you know, it's restorative and you know, I believe that we'll be ⁓ better as a result of it. Right. So.
Justin Piche (03:22)
Yeah, I feel like there's just so much to do, you know.
Contracts have been slow for us lately, which is always tough, know, especially when you have such good leads you see the quality of leads the quality of deals and you're like, come on, we can't just get this over the line. I feel like we've had a like two months now of like being almost there on so many high quality deals not being able to get over that last like 5 % hump and then losing the deal for some reason or another or at least temporarily. Maybe it's more follow-up as needed. You know, maybe next year that deal comes back to us, but it's been like, you know, like
Clayton Hepler (03:52)
Mm-hmm.
Justin Piche (04:01)
I'm thinking about a visual of somebody, you you're falling and like the ropes right there and you're like, your fingers wrap around it, but right as you close your fist, like the rope slips right out of your hands on these deals. Like, ⁓ my gosh, guys, come on. We gotta get this done. Gotta get it over the line.
Clayton Hepler (04:20)
Yeah, man. Yeah.
We did. I think we did OK this month ⁓ in lock and deals up, you know, remains to be seen. I think all in probably locked up like. 190 200.
My acquisition guy is a unique guy. He can work on following the process, but he gets deals under contract, man. He just gets deals under contract. He just gets deals under contract. don't know. Do all of them close? No, but that's the reality of the business. Yeah, man.
Justin Piche (04:53)
I mean, that's what you need.
Clayton Hepler (05:08)
That's what's going on.
Justin Piche (05:10)
So maybe give us a follow up from the last episode. You finished conducting your annual planning. How'd it go?
Clayton Hepler (05:17)
Yeah, so it went incredibly well. ⁓
Justin Piche (05:22)
Now you paint the picture for us who is in the room.
You and your office manager.
Clayton Hepler (05:28)
Yeah, me and my COO.
Justin Piche (05:29)
COO and that's it, you too.
Clayton Hepler (05:31)
Yeah, so we basically went from 9 a.m., 8.45 to about 6.45, day one. Day two, we did about 8.30 to...
5.30, 5.45. Yeah, ⁓ and I didn't feel like we had enough time. And we really tackled everything from how do we do ⁓ to like what's the actual constraint? that, you know, on the surface I actually wrote about this in a land letter this morning, which is my weekly newsletter that I send out every Friday morning.
Justin Piche (05:51)
too long guys.
I
Clayton Hepler (06:19)
You think you know what your constraint is, a lot of times it's like the actual, the actual constraint takes hours to formulate. Because...
Sometimes you think that the constraint is, we're not getting enough lead flow. But then when you ask a series of root cause questions, like what we discussed on the initial or the previous podcast, you actually realize it's a something much deeper. It's a bottleneck of the founder. It's a, ⁓ there's, you know, one of the things we actually, I figured out with working with this client that actually flew up with an entire, a one day intensive is
that we found his constraint was he had inability to close a lot of his transactions. And was just, DD was getting delayed, so we looked through cash conversion cycles, we looked through it under contract to close, we looked through due diligence timelines. What we really ended up finding, Justin, was ⁓ the constraint was there was no clear process of how to actually complete due diligence and no authorized owner.
And so the constraint was that little small tiny thing. Because if you speak in generalities, it becomes difficult to execute. But when you are very clear on exactly what, by exactly when, by exactly who, is responsible for fixing the constraint and clarity down to a falsifiable statement, sentence, then
it becomes so much easier to scale, right? ⁓ But it's not easy to get to that statement. It's not just I need more leads. My lead flow is broken. My market selection's broken. You gotta go down to the root cause and then from there put together a series of hypotheses around how you can actually get through the constraint and solve the constraint and then move from there.
Justin Piche (08:32)
Yeah. What did you identify in your own business? That was your number one constraint.
Clayton Hepler (08:38)
We were making too much money and so our bank was...
Just too much money. We were just doing too well. And yeah, I wish, right? That's a good one, right? ⁓ So what was the actual constraint, the core constraint? I got to figure it out. I'm going pull it up here. Because it was like, let me get it, let me get it. Because we had about a million of these. OK, here we go. The thing is we were trying to solve two constraints.
Justin Piche (08:51)
that's good.
Clayton Hepler (09:13)
which made it little more difficult, Justin, because we have the constraint in ⁓ the flipping business, the development arm, and we also had the constraint in ⁓ the deal engine, layman community, right? Because they're complementary, but not necessarily, they're separate. And it became very difficult to actually ⁓ separate them.
Justin Piche (09:26)
Yeah.
Yeah, they're dependent. mean, they're set business.
Clayton Hepler (09:39)
⁓ It was very time-intensive and so we didn't even end up finalizing the true hypotheses around the constraint for the ⁓ land-made deal engine, right? But the constraint was...
Justin Piche (09:57)
This is for the flipping development company.
Clayton Hepler (10:00)
Yeah. The constraint is the rate at which our marketing data system produces a sufficient volume of mechanically qualified subdivide parcels that can be converted by outbound into sales qualified offers.
Justin Piche (10:15)
So the amount of data that you have that's fully qualified and ready to market to, getting that faster and more of it is your constraint. Like you don't have enough of it quickly enough.
Clayton Hepler (10:28)
Yeah, think, yeah, the important part of that is like a very clear definition of what mechanically qualified is. ⁓ But that is the conversion of the mechanically qualified develop, we will just call them developable parcels, not necessarily subdividable. They can be converted by ⁓ outbound efforts.
Justin Piche (10:38)
Yeah.
Clayton Hepler (10:55)
into marketing efforts into sales qualified opportunities is the actual constraint.
So you could say we don't get enough leads. But this is a different way of stating that because it attacks the marketing and data system. And so.
Justin Piche (11:07)
Yeah.
It's just, it's it's it's more specific than saying I don't have enough leads because that's sure. That may be the constraint at like a 30 foot, 30,000 foot view, but that's not, you can't like just change, like you can't make that statement and then move into a solution for it without understanding what is causing the low quality or low quantity of qualified leads. I think that's the whole principle of this constraint analysis that
Clayton Hepler (11:44)
That's right.
Justin Piche (11:48)
Like telling somebody or looking at your lead flow and saying, I don't have enough leads, that doesn't give you any information other than what you already know, which is that you don't have enough leads. It doesn't point you in a direction to actually solving or working towards solving or figuring out how to solve or proposing solutions ⁓ that actually have an impact on that.
Clayton Hepler (11:58)
Yeah.
Yeah, one of the helpful heuristics that I use is that there's always limitations to your organization. And there's a series of ⁓ restrictions and boundaries you have to play within. And so a constraint in my business, you might say this and be like, well, that actually sounds like me because I'm trying to do developments. It's like, maybe. But then there are two or three steps lower that are important.
I'll give you an example, Justin, is like, imagine you are trying to build muscle. Let's just say, hey, I'm trying to build muscle. I'll just give you an example of, hey, Justin, I'm trying to build muscle. Imagine you're a famed personal trainer. That's what your wife tells me. I'm just kidding.
Justin Piche (13:07)
Good.
Clayton Hepler (13:09)
Imagine you're like, what do you want specifically? What do you want to build? I want to build my upper body, my biceps, my triceps, my shoulders. You're like, okay, that's helpful. I'm getting to an understanding. But there's context around that. So if I just said that to, let's just say even to large language model or to a trainer in general, they would build a very general program. But imagine I said this.
And this is where boundaries and set points and restrictions allow us to dive into constraints even better, right? Imagine I say, Justin, actually about 10 years ago, I injured my rotator cuff. And so I can't actually do bench presses, right? I can't do bench presses. ⁓ It's kind of hard for me to do regular dumbbell presses, right? And so I limit.
and this could be a resource, a personnel limitation, we're just using the example of my shoulder, but that could be anything in your organ, could be resource, personnel, whatever, your skill set, your ability to achieve this outcome, right? We're still trying, you and I, or me and another person, we're still trying to build our chest, right? But we have, there are limitations. Whereas people will, this was really me, I'm speaking about myself, I would just say, I'm trying to build my chest, I'm trying to achieve this,
your outcome, right, this goal. And the constraints are the shoulders, right? It's the limitations. And then how we actually get to the outcome, the plan comes down to what is the thing that's preventing me from actually getting to this? I need to solve that thing within the boundaries of what I'm working on.
Justin Piche (14:59)
Yeah, within the boundaries.
That and that's a really good point because for the first several years of running this business, I I did not put strict boundary conditions on solving a certain problem or you know, in our case, it was more like achieving a certain goal. It's like we want to achieve X amount of gross profit. So what do we do? We say, okay, well, we need to send out this much marketing because these are our metrics for how
quickly how many leads we can get, how much we can convert, so on and so forth. So in order to send out that much marketing, I need this big of a team. I need these people in these seats. And so we would do that. We would hire, we would bring them in, we would expand the marketing channels, we would send out the marketing, and we would achieve a higher gross profit. Maybe not our target, but definitely more. At the expense of net margin growth.
Which again, we talked about, we've talked about this a couple of times this year, but the, the name of the game right now is net margin maximization. It's not gross profit maximization. Like I don't think I'd be hard pressed to find somebody in this industry, different industries. It's different, right? You just want revenue growth. It doesn't matter how profitable you are. Like you're a startup, you're a software company. You want a huge user base. You want maximum revenue, even if you make no money or you lose money every month, because once you have that massive following,
you've got momentum inertia to add on other income producing, you know, side businesses or add on packs or like, you can increase the price. You've captured so much of the market. This is not that kind of a business. I think you'd be hard pressed to find somebody that says, yeah, I would rather make $10 million gross profit and a million dollars net than somebody would say, I'd rather make two and a half million gross and a million dollars net.
Right, I'd rather do the second one because it's less people, you're using less resources to do it, but you're achieving the same end result, which is what actually matters in this business is your net profit at the end of the year. And so we would grow the business without constraining budget or personnel. And you can obviously grow your business if you don't constrain your OPEC spend or your personnel.
but it doesn't necessarily mean you have a better business. It just means you have a lot more work and a lot more stress. And when time slowed down, a lot more stress, right? So that's the big shift for us this year as we go through annual planning. I was gonna do it yesterday and today. I gave my leadership team till Monday. I gave them little bit of homework so that we can come in on Monday and spend all day, and Tuesday all day discussing this and ironing out the plan. I set some.
clear OPEX constraints and personnel constraints. And said, all right, this is our team moving forward and I'm flexible. Like we can move people around and don't necessarily marry to a specific team structure. We can combine roles or if we find we're not weighted heavily enough on cold outreach and we have too much middle or too much top or whatever, like we can move things around a little bit, but we're not gonna spend in our general OPEX more than X dollars a month. And we need to achieve.
Clayton Hepler (17:56)
you
Justin Piche (18:20)
the maximum results we can with this much spend. Let's go design a business around that number.
Hey guys, this is Justin interrupting your podcast. Say thanks for listening. Clay is giving some more detail on his constraint analysis for planning. I hope you guys are getting a ton of value from this. I know I am. If you have a few seconds to spare, click that subscribe button, leave us a comment, rate, review. We love hearing feedback. Now back to your regularly scheduled programming.
Clayton Hepler (18:48)
I actually, I like this. I forget where I heard it from, but the, something that's really resonating with me lately in terms of skillset development or development in general in my business is like intensity versus consistency. And ⁓ when I think about constraint ⁓ analysis and execution, it's about intensity, not consistency. So like, you know, a lot of times
in my earlier stages of my land business, I would solve in parallel, not in sequence, consistency versus intensity. so solving in sequence is actually the best way to do anything, right? Because, for example, I would give a team member a series of projects. Okay? And so I can even tell you an example. Okay. So here's...
my chief of staff, want you to fix, know, get our books, put together our books. And I also want you to help build out a better ⁓ customer ⁓ success path for our deal engine clients so that we help them better. This is actually something that, by the way, we're working on right now. I'm giving you a real example. Like, hey, how do we make sure that more people succeed, people succeed faster? ⁓ There's better ratings and reviews. How do we make this a really incredible
Community for people. Now, what I would have done in the past is solve in parallel, right? So, you know, it's like, ⁓ you know, we all know that the sunlight with the microscope analogy or whatever, sunlight, microscope and in the end burning the grass or whatever, you know, it's a concentrated light. It's sequential versus like just having the sunlight, like you're gonna burn eventually, right? If you don't wear sunscreen.
Right. But it takes a lot longer. Right. And so I think constraint for me has unlocked a approach to problem solving that is much more productive for the organ general, because when I give a task to someone, I say, solve in sequence, not in parallel. And that's like a rallying cry for me in 2026 that if we deploy a project, if we deploy a strategy, ⁓
It is solving in sequence. And now, where I could see myself go wrong here or people go wrong here is when they think about solving in sequence, they think, okay, so the entire org needs to solve a specific problem, right? So let's just say that your problem is the marketing data, like Justin, you were mentioning. You could, organizationally, say, okay, all of our team members' discretionary efforts,
are gonna go into this one specific thing. Now that is an allocation of your team members, your resources, and as a CEO you could do that. Now everything is a comma, right? But the better thing probably would be doing is you have an organizational North Star, and this is how we think about it, right? You have an organizational North Star that you expend the majority of your organizational discretionary resources on while also simultaneously
there are departmental sequences, the projects that we need to do. So for us, depends on which org we're talking about, but we have very clear, an organizational North Star, how do we know that we're good? Profit, like profit's a North Star. But the thing that directly correlates to that, the closest sub North Star,
is our largest project, it's the constraint, right? Because that brings us closer to the goal. But underneath that, there are departments that maybe, you know, just because we have a lead flow problem doesn't mean that we can't also solve a fulfillment problem simultaneously, provided that the discretionary effort from that specific department cannot be used to like solve a lead flow. Like a transaction coordinator ain't cold calling.
you know, land owners, right? But you need to be able to do that as a leader.
Justin Piche (23:09)
Yeah.
No, I agree. think the principle behind that you're talking about behind this constraint theory and solving one constraint doesn't necessarily mean the whole business is working towards it because it doesn't make sense. your business, three quarters your business, it's not relevant for them necessarily. I it is as a whole, but their work, their direct output is not contributing to this specific constraint. And so you probably need to have ⁓ one business level constraint, executive team style constraint where
you may pull resources from departments to help work on this specific constraint and that's the primary focus. But the departments need to have their own specific constraints as well that they're working on that aren't interfering with this main company constraint. And maybe those constraints are sequentially worked after this main one if they have inputs into that main one. And if they don't, well then they're working on their own constraint separate.
Clayton Hepler (24:06)
Yeah, I hate to keep just bastardizing diet analogies, the way I think about it is like, so say we have the goal, the north star of losing weight, right? And so the constraint is like, this guy doesn't know how to not put food in his mouth, right? And so you have the project of walking more, of working out, of
⁓ eating healthier, but there's also, let's just say, the Department of Fun. The Department of Fun is like, maybe you do a cheat day every week, or a cheat meal every week. It supports the greater North Star goal. Even though it detracts from the resources in the short term of this goal of losing weight, it does keep you more consistent over time.
So I hope that that was helpful to kind of conceptualize what we're trying to get at, but that's the way I think about it.
Justin Piche (25:12)
I love it. I'm excited for you to be done with your annual planning. Yeah, hopefully you can achieve those goals that you set and you can tackle those constraints and the results and hypotheses that you created for those with the right path to go down. It's always a little, it's even, I mean, that's the one thing that's tough about this is that even after you spend days with incredible focus on this problem and hypothesizing about what it is you need to do to solve it and then,
Clayton Hepler (25:17)
haha
Justin Piche (25:42)
creating a plan and action steps to do that. And then actually working towards solving it. It doesn't necessarily mean you were correct, right? And that's where you're have to revisit this. You're gonna have to prove to yourself it's done and it was done correctly or the results that you achieved that you wanted to achieve you actually were able to achieve. ⁓ It's better if you set up a business where you're tracking the data you need to determine if you've succeeded or failed. And it's tough to set some, ⁓ it's tough to tackle a constraint, a problem.
without having a clear definition of what success looks like and being able to measure it. In fact, it may be impossible. So maybe that's a bit of encouragement to people. you're gonna go down this route, which I highly recommend you do, you've gotta have a measurable result that you can look at and say, yes, I did it. I did it. These are the numbers we were shooting for. These are the steps we needed to take to get there. And we we achieved those numbers or those results. ⁓
We're gonna be doing it next week. So I told my wife I'm doing annual planning Monday and Tuesday. She's like, it's Christmas week. I'm like, yeah, but it's not like those are work days. She's like, you're not taking those days off. I'm like, no.
Clayton Hepler (26:52)
That's what my wife, that's literally what
my wife said last night,
Justin Piche (26:55)
No, am not taking those days off. I will take off New Year's Eve. I mean Christmas Eve, Christmas Day, day after Christmas, New Year's Day, New Year's Eve. But no, I need to work. ⁓
Clayton Hepler (27:06)
My
wife is like, my mother's like, isn't everyone off? I'm like, no, no. No one is off those days. No one is off.
Justin Piche (27:10)
No.
Yeah, no, not not not people that, you know, that are owning own their own business and are still working to make it more successful. You know, if you were if you're on a if you've got a coasting business and you've got the like a CEO that's running it for you. Yeah, sure. Maybe you're you know, or a GM that runs all of your day to day and there's really no input for you. Then yeah, maybe you're maybe you're taking those days off. But one other thing I want to talk about on this podcast other than kind of recapping the results of your
Clayton Hepler (27:22)
That's right.
Justin Piche (27:43)
annual planning, kind of how it goes, last advice for folks is some tax stuff. like we all, mean, we know taxes suck. until really this year, it's not been that big of an issue for me. I've made my kind of earlier tax payments. I've been pretty close on how much taxes I had to pay or I've gotten fat refunds from doing.
bonus depreciation, like buying assets, doing bonus depreciation. Well, this year I didn't do any bonus depreciation. I didn't buy any like assets that I could do that with, or at least for 2024. ⁓ And had some like disorganization in my books. Unfortunately, I got fired by my bookkeeper last November, right before year end, it took me a few months, more than a few months to find a new bookkeeper and a new accountant.
And then by the time you get everything over to them, which is just an outrageous number of documents and things and answers, especially when you run like a land business the way that I do, where you're spinning up partnership, JV entities all the time. There are single asset deals. You don't always spend the time you need to set up their own separate set of books. So some of your books get intermingled. So then you've got to sit there for like months and like pull out transactions and recreate. It's just a mess. I don't recommend doing it. I recommend anytime you do a JV, get a bookkeeper on it.
find somebody that can do it for like a couple hundred bucks a month and like make sure they're handling all the transactions to save you a bunch of time and headache. Anyway, got all of everything done. Got my business return filed. Got my my personal return filed. Made more money than I expected and did not make enough tax payments for 2024. So I've got quite a bit to pay. Unfortunately, I guess it's a good thing, right? Means I made money. The bad thing is, you know, I didn't plan properly for it. And so with an asset heavy business like this is
We tend to take money and put it into opportunities and deals. Like that's what we do. And it feels wrong to set aside hundreds of thousands of dollars to pay your taxes when you could be getting a deal where you're gonna make a 50, 70, 100 % return in like 18 months or whatever, know. It's tough, it's tough, it's a tough business. ⁓ That being said, I've got a plan to pay my taxes. Got to do some cash out refi, some assets I own.
pay those taxes, but for 2025, I'm going have a similar problem. And so I was talking to Drew, our mutual friend, Drew Haney. I was like, dude, I need help. Do you have a person? So he introduced me to an accountant that specializes in real estate businesses, like asset heavy businesses. And she had some recommendations that I implemented. one of the major ones is, which I think it's too late for 2025. If you're listening to this,
and you haven't done this already, it's too late for this year, but maybe for next year, know, talk to your CPA, talk to a tax attorney. But her advice was setting up a management company with a tax reporting year end of November, November 30th, instead of December, the traditional kind of December end of year, December 30th. And having that management company be responsible for some of your large core expenses for your business. So,
Maybe marketing or ⁓ payroll are two kind of like big those are my you know You're two generally biggest expenses for your business marketing and payroll So if you have a management company that is responsible for those that's its purpose its purpose is to pay to manage your payroll all payroll goes through this management company and to manage your Marketing spend all marketing spend goes through this company then your your management company can obviously will obviously bill your primary
operating company for those expenses and then charge some sort of management fee on top. Please, yeah, disclaimer, I'm not a CPA, I'm not an accountant, I'm not a tax attorney, I'm not an attorney. Nothing I have said at all is any kind of advice in any way, or form. If you want answers on any of this, you've got to talk to your own people. I'm just telling you what I'm working on and why I think it's a good thing or could be a good thing for people who...
Clayton Hepler (31:37)
By the way guys, are not CPAs.
Justin Piche (31:59)
⁓ want to potentially lower their income in a tax year. ⁓ And let me maybe caveat this by saying this is not a lowering your this is not some like, don't pay taxes type of thing. No, no, no, this is a deferment of taxes using ⁓ an entity structure and tax reporting structure that is defined in the IRS tax code. So I will have to pay all these taxes for sure. Just because the entity the management company reporting your ends in November.
then in December it bills my operating company for all of the things that it managed for the year. So the management company managed all these things, it holds these expenses, and then it bills the operating company in December. And so for the management company, that's its 2026 tax reporting year. For my operating company, that's 2025 still. So it substantially, it brings over those expenses, it reduces my...
my income in the operating company, it creates income for the management company. That management company though, isn't filing their tax return until the end of 2026 or in March or whatever of 2027 and paying those taxes. So you're effectively able to do is bill your company for a lot of expenses and a management fee and then move all that income and gain over to the management company and pay taxes when that entity reports.
and files its taxes. So it's not something that is like super helpful on like an ongoing basis because it'll catch up to you. Right next year I'll have all 2026 taxes that I need to pay for Scout land group and I'll have all of the fees and management stuff that that management company had and build Scout land group in 2025 due. So it's going to kind of compound. Next year will be a lot more taxes for the 2026 year because I'm taking some of 2025 income.
it's being billed by the management company and it's income for the management company for next year. But if you're in a business like this, right, where you find yourself having not planned adequately for the amount of money you needed to not invest in deals so that you could pay Uncle Sam, it is a good kind of end of year option to do. And that gives you, it just gives you breathing room to plan for paying those taxes when they're due.
Clayton Hepler (34:20)
I love that. ⁓ Yeah. I don't know enough about it ⁓ to know if it's a good strategy or not. ⁓
Justin Piche (34:30)
There's a whole lot of strategies out there. I was just talking to a buddy of mine and maybe this is relevant for people on the podcast to, to think about. And I don't think I need to say the disclaimer again. We already said it. So don't take anything as actual advice, consult with professionals who are licensed and know this stuff like the back of their hand. We're just business owners trying to figure this out just like you guys are. ⁓ but a buddy of mine has, ⁓ a corporation set up C Corp. He's got a limited partnership and he, it's really interesting. He's got a lot of LPs.
that he puts into the limited partnership, like friends, family, kids, nephews, et cetera, they're all partners. And when you file, when you do a limited partnership tax return, the ownership percentage doesn't necessarily equate to how much income you actually make from that entity. So let's say you have a limited partnership with, and you had a million dollars of income across the limited partnership. And Clay, you're in it.
and your wife's in it and I'm in it, my wife's in it, and all four of our collective children are in it. So we've got eight people in this limited partnership. So if this was a regular kind of LLC, we'd have ownership percentages and all that income would pass right through to us based on our ownership percentage. But in a limited partnership, ⁓ you don't necessarily have to do it that way. You could have certain people owning a big percentage of it.
you, aka owning the vast majority of it and me and my family owning 1 % each and your wife owning 1 % and Hess owning 1%. But you could pay us a specific salary that's different than the income. So maybe 1 million comes in, you actually own 94 % of that income technically, but instead of paying taxes on 94 % yourself, you could say, well, Hess, even though he's at 1%, he made 100 grand. And Jacob, even though he owns 1%, he made 100 grand. And so you file a K1 partnership return.
100 grand of that income can go to Hess, 100k of that income could go to Jacob, and they make that income in the collective tax bracket that people pay is it could be lower because if Jacob has no other income and his only income is 100 grand filing individually, well then his top tier brackets going to be like 20 something percent, whereas yours is going to be 37 percent if you took all of that income. And I'm not doing the best job of explaining it, but there's mechanisms in ⁓ in LP that can also help.
you know, pay less taxes than if you just do have a straight LLC and you're passing them directly through to you, to yourself.
Clayton Hepler (37:02)
Yeah, well, one of the things that I've done, again, not a tax attorney, not an accountant, is I do keep a lot of our flip in a lot of our flips in a C Corp. And the only thing with the C Corp is you do get double taxed once you take it out of the C Corp. So it could be more expensive than an S Corp.
But I just keep money just compounding in there. I'm not planning on taking money out. And so it does save you annually.
Justin Piche (37:37)
Yeah.
So you're paying
a 20 % corporate tax rate instead of, yeah.
Clayton Hepler (37:44)
Yeah. Yeah.
I mean, it's not it's not that low, unfortunately, because Pennsylvania has like right now an 8 % corporate tax rate, but it's phasing down to like 5%. But like it's less than 40 % or 43%. And so, you know, if you save 10 % per year in taxes, like that compounds, right? Now, the thing is with the C Corp is, and this is what my accountant told me is like, you know, you can
be in a C Corp for, if you're gonna be in a C Corp, you need to be in a C Corp for a long period of time, three, four, or five years. You can reclassify into an S Corp eventually. But like, I don't really know all the nuances. And you know, I'm doing everything I wanna make sure that I'm right, abiding by the right things with the IRS and the tax code, et cetera, because we do plan on continuing to compound this capital. But it's if you're compounding capital on a single entity that you do not need to take distributions from.
It is a more tax efficient way to compound that capital. For example, if you make a million dollars in the year, you can save 100 to $150,000 in just taxes. Not doing anything differently, like literally just reclassifying. So depending on where you are in your corp status, six figures of savings that you can have by filing as a C corp.
Justin Piche (39:09)
Yeah. There's so many different strategies to try to optimize taxes. And like, I want to emphasize, like, I'm not a, I'm not like a super gray area person either. It's like, if there's a rule, like I really don't want to break it. Like I'm not looking to get sued or in trouble or, or, or, you know, pursued by the IRS. Like I want to pay the federal government every penny I owe them and not a penny more, you know.
Clayton Hepler (39:34)
Exactly, exactly.
Justin Piche (39:35)
I mean, that's not
totally true. I don't want to pay them at all, but I'm going to pay them every penny I owe them, but not a penny more.
Clayton Hepler (39:39)
Yeah.
Well, you know, they're just really, really effective at distributing our tax dollars in the most efficient way. So I definitely want to tip. Yeah, I want to tip them to the most extent possible because I believe they're so good at stewarding my money.
Justin Piche (39:57)
Yep, yep. I'm amazed you said that with such a straight face. You're so, you got a good poker face.
Clayton Hepler (40:04)
Yeah, see me on the table, man. Yeah, so, Justin, this is super helpful. I hope that our listeners got a lot of benefit from specifically the constraint analysis. Guys, I sent an email. If you're not on the land letter, we'll put that below in the show notes. We send out an email every Friday. I do deep dive these types of topics. Kind of little more specific, and so today was an example of that. But, you know, this week we come in hot every week. We're excited to continue to.
bring the ground game pod to see you guys every week. And so the gentleman's agreement for those of you guys that are listening to this and haven't subscribed or rate or reviews, we hear you. Well, we don't hear you and we don't see you, but if we see you in person, Justin will pull you aside and talk to you about making sure that you review us, right, Justin? Yeah, yeah.
Justin Piche (40:57)
I have I probably done that to like one person
Clayton Hepler (41:03)
Yeah, that's right. Well guys, we appreciate you. We hope that you guys all have a Merry Christmas if you celebrate and a happy holiday season, a restorative holiday season. We'll be back after the break ⁓ and we hope that you guys have a successful kickoff to your 26th. Justin, anything else, man, before we split here?
Justin Piche (41:20)
That's it. Yeah, Merry Christmas, Happy Holidays to everybody. It's been a great year. Looking forward to talking more next year.