Happy Friday. This is The Shake 🤝: the weekly newsletter that’s always pencils up even when 90% of investors are pencils down.

Here’s what we got this week:

• Tax on Tax 💱 

• Wealthy Waves 🌊 

• Weekly Giveaway 🎰 

MARKET RADAR

Tax on Tax 💱 

​​When you hear sales tax, you probably think of purchasing a consumer good. An uncommon hidden tax that catches most first-time tenants by surprise is the sales tax on commercial leases in places like Florida and New York City.

Normally, a landlord or real estate owner is taxed on the rental income they receive. Well, this tax is actually imposed on the business lessee of the real property. So if you’re in the market for a lease in FL or NYC, you’ll want to keep reading.

According to the Florida Department of Revenue, each sale, admission, storage, and rental in Florida is taxable unless the transaction is exempt (non-profits and such). Just when you think you caught a break by moving to a no-income-tax state…

The state sales tax rate in FL is 6% but they dish out a 0.5% discount for your troubles of spurring the economy. On top of that, there is a county tax (67 total counties in FL) that varies from 0.5%-1.5%. Typically, you’re looking at a ~6.5% tax on your lease.

Who submits payment?

The taxes are paid to the immediate lessor (landlord) with your rental payment, who will transfer the collected taxes to the state.

States are beefing up their compliance teams to ensure they get these funds from slick landlords. Failure to comply can result in penalties, interest, and criminal sanctions so keep those receipts.

What’s taxable?

Damn near everything:

• Rental or license fee to use the premises

• Common area maintenance cost for the property

• Property taxes (yup - paying tax on tax!)

• Utilities, exempt in some instances

• Parking

• Subleasing

Let’s check out an example:

You’re in the market to rent a 5000 sqft warehouse for your e-commerce company. Base rent is $15/ft with Triple Net fees at $5/ft bringing your total lease amount to ~$8,333/month.

Now let’s say you’re in palm beach county where the sales surtax is 1% which brings your total sales tax amount to 6.5%. That will tack on an additional $541/month for a new total of $8,874/month.

This tax can be a B****. Pushing an ideal space outside of the lessee’s budget - ask me how I know. To avoid disappointment, CRE agents will want to set expectations with first-time tenants early in their discovery.

Where else is this happening?

NYC triggers a 6% commercial rental tax on leases that equal or surpass $250k/year - chump change by NYC standards. Five cities in Arizona impose a CRT with the Phoenix rate coming in at 2.9%. Also, Hawaii has an excise tax that landlords pass through to tenants.

The good news for Floridians is that the state government agreed to lower this rate to 2% once the reemployment fund balance surpasses ~$4 billion which is estimated to be in early 2024.

Overall, it’s easy for this sales tax to be overlooked when budgeting for a lease, don't get caught with your pants down.

Wealthy Waves 🌊 

We’ve seen different cycles of where the ultra-rich decide to buy their vacation homes. Over the last 5 years, the amount of absentee owners that have flooded the mountainous areas of the United States has been staggering.

It genuinely feels as though people want to follow trends just as badly as they actually want a home in areas like Montana, Aspen, etc. I always smirk when I see homes in these areas that look like palaces. The entire point is to go the f outside, but I digress.

The next best-kept secret where people are flooding into? Costa Rica. 

Now, you might be wondering why anyone would want to buy a home in Costa Rica. Is it the breathtaking natural beauty? The vibrant culture? The opportunity to immerse oneself in the local community?

Nah, who needs all that when you can have a luxury villa with an infinity pool overlooking the ocean? Clearly, these rich folks have their priorities in order.

But let's not get ahead of ourselves. What's really fascinating about this trend is the fact that these illustrious individuals are not just buying homes; they're buying them for cash. No mortgages, no loans, just cold, hard cash. Because, you know, when you have a ridiculous amount of money lying around, what better way to spend it than on a vacation home you'll visit once a year? Can’t lie, the waves are pretty sweet down there…

We’ve preached in this newsletter in the past about the value of using OPM to purchase real estate, but that’s no small feat in Costa Rica.

The majority of homes are bought in cash because financing a home in Costa Rica is the furthest thing from the traditional process that we have here in the States, where it feels as though there’s a loan product for everyone. Don’t believe me? End up on a loan officer’s “weekly rate update” blast. Sorry LOs, you know we love you guys.

When it comes to your options, almost all of them are unconditional. Owner financing has grown in popularity in the States, but in Costa, it’s hard to earn the locals’ trust (through a language barrier mind you).

So what do people do if they aren’t going to try to dive into the creative finance world, or simply don’t have hundreds of thousands/millions of dollars to throw around in cash? They use leverage.

In all honesty, I can’t blame anyone for foregoing the mortgage route in Costa Rica after seeing the “Mortgages 101” page on CostaRica.com, which looks like a 5th grader made for their graphic design course:

The craziest thing is that even this site shows that the idea of obtaining a traditional loan through bank financing or a loan officer is near mission impossible. People are running through home equity loans or utilizing their self-directed IRAs to fund their purchases, both of which come with an incredible amount of risk. Is all of this worth it to play in the same sandbox as the full-cash buyers? Many say yes.

Let us raise our glasses of champagne to these valiant individuals who are single-handedly propping up Costa Rica's economy with their wads of cash. May they continue to bask in their own opulence, secure in the knowledge that they are making the world a better place—one lavish vacation home at a time.

WEEKLY GIVEAWAY 🎰

Threshold is disrupting property management. They're 100% owner-aligned and you only pay based on net distributions: no leasing commissions, kickbacks, or hidden fees. Plus they've built a sweet owner platform that's like Robinhood for your rentals.

Shake readers get Threshold Management free for two months 🤝 

This week’s giveaway item is an OrbitKey 

How do you win?

We are going to post a closed transaction with some high-level details and whoever can guess the right sale price, wins.

If nobody gets it right, the closest guess wins. If two people get it right (screw us right?!) we will hook you both up!

Let’s kick it off 👇️ 

This Costa Rica oasis boasts 3 beds and 2 baths with over 3k sqft surrounded by a national park 🌴 

FIN 🤝 If you enjoyed this week's edition, don’t be selfish — share with a friend!

^{DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.and how regu06}