Commercial Real Estate Pro Network

J Darrin Gross Podcasts

J Darrin Gross Podcasts

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Delaware Statutory Trust Option for 1031 Exchange with Robert Zink – CREPN # 213

Delaware Statutory Trust is an option for real estate investors looking to utilize a 1031 Exchange rather than pay capital gains and depreciation recapture taxes. .  

Robert Zink is a commercial real estate broker with a securities license.  The securities license allows him to offer Delaware Statutory Trust as an option.  It can provide a solution to real estate investors wanting to sell out of their current property, but are not willing to surrender a significant portion of their gain through paying taxes.  They would like to do a 1031 exchange, but not continue with the issues of owning real estate, tenants, toilets and termites.

Delaware Statutory Trust

A Delaware Statutory Trust provides the opportunity for investors to own a fractional interest in an institutional grade property; multifamily, office, medical, warehouse, etc.  The tenants in these properties are high caliber, typically national companies with strong balance sheets and long term leases.  

The investment in a Delaware Statutory Trust is passive.  You have no involvement with the day to day operation, property management, or lender.  The typical life expectancy of an investment is 6 to 8 years. At the end of the investment, the investor can either cash out, or 1031 Exchange into the next opportunity, while preserving their original 1031 Exchange. 

Rate of Return

The rate of return will vary from property to property, however the sponsor carefully selects properties in growing markets with less possible downside.  Investing in growing markets with strong employment, and demand for the type of property invested in provide a lower risk and solid return. Cash flow expectation is between 5 – 6 average return on the investment .   The investor receives a K1 for their taxes with the income and their percentage of the depreciation.  

Planning Your 1031 Exchange

In order to execute your 1031 Exchange properly, you must designate a qualified intermediary.  The duty of the QA is to hold the funds from your sale and then deliver to closing on your new property.  You have 45 days from the sale of property #1 to identify its replacement, of which you can identify 3 potential options.  In total from the date of sale, you have 180 days from the date of sale to close the purchase of the replacement property identified in the first 45 days. 

A Delaware Statutory Trust property can be identified in part or whole for the proceeds from your sale.  Many use this as a way to “balance” a trade. If you find a replacement property of lesser value than property #1, you can invest the balance of the sale proceeds into a separate property to balance the trade.  

This is also an excellent tool for estate planning.  If you have multiple beneficiaries you want to benefit upon your death, you can select multiple separate fractional investment.  This assures each beneficiary will receive their designated property investment.  

BIGGEST RISK 

Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”  

BIGGEST RISK:  As you get older and have less time to recover from exposure to a risk that actually comes to pass you need to minimize your risk. The value of real estate goes up and down, so I would say the BIGGEST RISK is investing in a “C” property in a bad market. Recently I saw a sponsor with a large apartment complex in one of the oil patch towns with a lot of fracking. I wouldn’t invest nor encourage an investor to invest there because, what if fracking goes away?  What if we decide we don’t want to frack anymore? If that happens, the apartment house doesn’t have a high value if fracking goes away. So buying that apartment house in Florida, California or Dallas proper would be completely different. I think avoiding properties in markets that have exposure to down markets. Additionally, I think investing with new sponsors that don’t have a track record is risky. 

So the BIGGEST RISK would be going into bad market or weaker markets or with a sponsor that doesn’t have the ability or track record to solve the problem.

For more: 

Call: (503)880-6968

Email: robert.zink@coloradofsc.com

Tax Benefits of Real Estate with Ted Lanzaro CPA – CREPN #212

The Tax Benefits of Real Estate are numerous.  Ted Lanzaro, author of the Tax Smart Landlord, is a real estate investor and CPA whose practice is focused on helping real estate investors.

Ted began working as a CPA for a firm where his clients were real estate investors.  After he recognized the benefits of real estate investing, he started investing himself.

Like most investors, he started investing in single family properties, purchased, rehabbed and rented these properties.  As his experience grew, so too did his portfolio. Together with friends, they purchased and grew a portfolio of smaller multifamily properties in SE Florida.   

Since then, he has relocated to Connecticut where he currently invest passively in other syndicators projects..

Benefits of a Real Estate Focused CPA 

The benefits of a real estate focused CPA are not always recognized by investors.  It’s usually only after hearing Ted speak at an investor meeting that audience members will seek him out to discuss how they can improve their tax situation.  Ted’s experience as an investor helps him connect with investors as an investor rather than just a tax theory CPA.   

The difference between a generalist and a specialist is proportionate to your tax consequence.  There are a lot of great CPA’s that know a little about a lot of different business types, but this is of limited use to someone whose business is primarily real estate.  A real estate specialist makes it his job to stay up to date on the laws and opportunities to take advantage of the laws to better their clients tax situation.   

The Benefits of Real Estate

The benefits of real estate are numerous.  With a real estate focused CPA, you are more likely to take advantage of the legal opportunities to lower your tax bill.  Benefits include: 

  • The ability to depreciate the asset, and expense the depreciation against income; lower income equals lower tax owed.
  • Leverage the asset and expense the interest payments.
  • Receive loan proceeds without tax consequence.
  • 1031 Exchange into a larger property rather than pay capital gains from a sale.

Biggest Mistake Investors Make with Taxes

The biggest mistake investors make with taxes is hands down, failing to take advantage of the tax filing rules as they apply to deprecation.  This failure combined not doing cost segregation studies nor writing off abandoned capital assets when they are replaced, add up to significant missed opportunities.  He attributes this to the fact that the client’s prior CPA was not a real estate investor, and therefore did not fully understand the benefit of depreciation.

There are additional deductions available to you as a real estate investor that are often missed.  One additional expense often missed is the miles driven to your properties while you manage them. Even if you cannot take advantage of the losses in the current year, it helps you to accumulate these losses for the future when you have a significant gain from a sale.  These accumulated losses can then be used against your gain to lower your tax expense.  

What Class of Investor are You?

Depending on class of investor you are, will dictate the opportunities available for you when filing your taxes.  The taxpayer classifications available to you are: 

  • Passive: For the investor who invests as a limited partner in a syndication.  You are not allowed to take any passive losses against your Ordinary Income. 
  • Active – For the investor who actively manages his property, they can expense up to 25,000 if their Adjusted Gross Income is less than $100,000.  The ability to write off losses lessens as your income approaches $125,000.  
  • Real Estate Professional: If you work in Real Estate and spend more than 750 hours in Real Estate per year, you can expense 100% of your real estate expenses against your Adjusted Gross Income.

Any depreciation that you are not able to use in the current tax year, is carried forward to be used later.  If not used prior to sale, you can use to offset the gain from the sale of the property. 

Cash Flow

The goal of investing in real estate is cash flow.  The benefit of real estate is is amplified with the benefit of depreciation, in that the paper loss of depreciation against income can reduce your taxable income to zero.  Keep in mind that if you keep the property long enough, you will eventually run out of depreciation, unless you exchange or recapitalize the building with new investment. The reason most investors are not concerned with this is because the present value of cash is worth more than cash received at a future date.  

Selling a Property

Selling your property can cause a significant taxable event.  Prior to selling, you want to engage your CPA to determine what your tax consequences will be, and if you can do anything to minimize the tax consequences.  

If you elect to do a 1031 Exchange, you have guidelines you have to abide by to avoid the tax consequences.  These include time lines and the use of an exchange intermediary.  

BIGGEST RISK 

Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”  

BIGGEST RISK: The Biggest Risk Real Estate Investors currently face are the local laws being passed in favor of tenants.  These include environmental consequences, caps on rent increase, landlord fees charged by local jurisdictions, etc.   

For more go to: http://lanzarocpa.com/

Phone: (203)922-1742

Email: ted@lanzarocpa.com

Financial Freedom with Damion Lupo – CREPN #211

Financial Freedom is the goal for every working person.  Unfortunately, most never achieve their goal.  

Damion Lupo is an Insurance agent, turned real estate investor who lost it all in the 2008 crash.  Instead of making the same mistakes all over again, he sought answers to change his course.  

His journey has led him to become a best selling author, podcast host and entrepreneur responsible for over 50 company start ups and created.  Additionally, he has started a Martial Arts Yokido.  Today his mission is to free 1,000,000 people from financial bondage. 

The answers he found continued to provide more clarity as he started asking more specific questions.  What is wealth?  

Fear of Risk

Luckily for Damion, he grew up poor.  He wanted to play video games, but his parents did not have the money to buy him games.  This did not stop Damion. Instead, he figured out a way to make money trading games between his friends.

His entrepreneurial spirit continued into adulthood.  He wanted financial freedom. To get there, he needed to make a lot of money, and realized that insurance was not the path, but real estate was.  So, he sold his insurance book and chased his dream in real estate. On paper he was worth millions. However, when the crash happened, he lost it all. 

Unfortunately, kids today are insulated from risk and making mistakes.  Their helicopter parents have prevented kids from making mistakes and learning the lessons available only from making mistakes.  Additionally, technology has made it easy to not connect. If things get awkward and you don’t like the person, swipe right, and find someone new.  The outcome is a generation of scared adults.  

Success is a Terrible Teacher

Success is a terrible teacher.  When you are successful, you can fall victim to the thought process that you can do no wrong.  Failure is a terrific teacher. Whether it cost you money, time, or embarrassment, there are terrific lessons in failure.  

There is a formula for wealth.  You have to think, ask questions and seek answers.  If you focus on the formula instead of the feel good in the moment, you can fine tune your direction and priorities.  

What is True?

What is true?  After Damion’s crash, he worked to not repeat the mistakes.  He asked himself with the help of another, over and over, “What is True?”  When he came to an answer, he asked the question again to dive into the next layer.  He did this for multiple years His process lead him to one truth, he is a teacher.   

What’s the difference between a mentor and a coach?  The mentor has experience and has made mistakes. The coach has studied the topic, without having risked loss.  Damion recognized all of his mistakes had value. He could teach others seeking answers.  

Financial Freedom

True Financial Freedom comes from having focus, and expertise that others are willing to pay for.  If you lack focus, and are all over the place, you will have no expertise and no value. Instead, focus.  Get laser focused. Develop knowledge and expertise. This expertise, will allow you to see the opportunities before others.  

Mastery is subtle.  It requires long term commitment to achieve true mastery.  Most will fail to see the value in the journey to mastery.  

If you are an entrepreneur, you have additional options such as EQRP.  If you have kids, you can hire them and pay them up to $12,000 each year.  The payroll expense is a deduction for your company, and the $12,000 is tax free to your kids.  

BIGGEST RISK 

Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”  

BIGGEST RISK: Avoiding risk is the BIGGEST RISK. I mean when you’re when you’re three you avoid, minimizing and transferring. And when I see avoiding risk people, in general, are taught, and we talked about helicopter parenting. People are taught to avoid risk. I have a painter who’s a brilliant artist and he was avoiding risk of going out on its own and so he kept working at Costco to get health benefits at 22 years old. And I look at him and said What is wrong with you. You realize you can go buy insurance for your health. Like are you sick. I mean do you have some crazy disease. He said, No I just you know it’s it’s expensive. The problem is we make up these things in our brain. And so here’s here’s how you shift. You get educated. By with people that actually have an understanding and you learn by doing stuff. So there’s there’s ways you can you can learn. You can go out and just run into the street and say OK what’s going to happen you’re going to get run over. Or you can say OK I’m going to go look for a mentor that has a reputation maybe he’s bald or Gray has been out there, and and get that person to help guide you and you take action. 


For more go to: https://damionlupo.com/

Don’t Save for Retirement with Daniel Ameduri – CREPN #210

Darrin: [00:00:00] Today my guest is a returning guest. Daniel Ameduri. He’s the author and founder of the newsletter and the YouTube channel Future Money Trends. And also he’s got a book most recently. It’s called, Don’t Save for Retirement. And we’re gonna talk to Daniel a little bit about strategies that worked for one generation and maybe wrong for the next. But first a quick reminder if you like the show, CREPN Radio, please let us know. You can like, share or subscribe and you can also leave a comment. And we love to hear from our listeners. Also if you want to see how handsome our guests are, be sure to check out our YouTube channel. That’s Commercial Real Estate Pro Network with that, I want to welcome my guest Daniel. Welcome back to CREPN Radio. [00:00:47][46.8]

Daniel: [00:00:48] Well thank you so much for coming on the show. [00:00:49][1.1]

Darrin: [00:00:50] Well I’m delighted to have you back and I’m looking forward to our conversation today. And before we get started if you could just take a minute and share with the audience a little bit about your background. [00:01:00][9.9]

Daniel: [00:01:02] Yeah I mean it’s the background is in the book. Don’t Save for Retirement. So, I’d highly recommend that everybody everybody check that out. And it starts off with me and my wife at a bankruptcy attorney’s office in 2008. And today we are financially free and traveling the world with our children. But like many people I went through all those other cycles I had I had a lot of credit card debt. I had housing mortgages. I had foreclosures. A lot of foreclosures in the ’08 crisis and I just kind of stumbled my way through it and eventually came across all the right people. It’s such a small world, building wealth and investing in real estate. And I’ve been doing this as a hobby for many many years. And then I started a Web site and that’s pretty much my labor of love that I do and it does it makes a great living as well now. But I did it for free for a year. So I’m very lucky to be able to do my hobby which is anything and everything personal finance. [00:01:56][54.5]

Darrin: [00:01:58] I love it. And as I recall your Future Money Trends you were one of the first YouTube would be the first to get paid doing YouTube. It was kind of like you were a pioneer if I remember right. [00:02:10][12.3]

Daniel: [00:02:11] You know, I was well I was one of probably only two people talking about the economy in 2008 on YouTube and made some very successful predictions. It’s funny I actually thought the predictions would happen earlier so I patted them well they end up having like dead on by patting them which was the collapse of Lehman Brothers and the Dow Jones. And the the Google had taken it over and eventually it contacted me and said hey we’re starting a new thing called YouTube partnership and I end up getting paid by YouTube. So that was really cool because I was literally doing these videos every week for free and then all said I’m doing the same exact thing I was doing but I was making about twenty five hundred a month from Google which which was which was awesome at the time. [00:02:53][41.6]

Darrin: [00:02:53] Now that’s great. That’s kind of love here. So let’s talk a little bit about your book. The title is definitely an attention getting one Don’t Save for Retirement. It’s a little different than you know look both ways before crossing the street. Can you expand a little bit. I mean on on just the concept don’t save for retirement. [00:03:15][21.8]

Daniel: [00:03:17] You know the book could have been called Don’t Save for Conventional Retirement. But I think the conventional would have been too much in the title. So we Don’t Save for Retirement and you know specifically to the younger generation I think that saving for conventional retirement is it’s an experiment that has pretty much failed for most of the baby boomers. Even the ones that were high income earners who live like peasants you know now they’ve conditioned themselves to save save save save save. And if you speak to many of them or if you read some of the data from Fidelity they’re living in this scarcity mentality they’re having trouble even spending the money because you can’t you can’t save for 30 or 40 years and then cut your active income out of your life and then all of sudden draw from this chunk of money. I mean it’ll make you sick to your stomach when you think about it. And for young people today who would who would do that to themselves after we’ve already seen that it’s not working. I don’t understand why they would do it. So there is another way there is a way that’s been proven for thousands and thousands of years and it’s what the rich do. And so instead of being speculative with your money and putting it in a 401k and hoping it goes up. And by the way the most speculative part of the 401K isn’t the stocks in it. It’s the you have no idea what rate you’re going to pay on withdraw. Nobody would take a loan from a bank and not know what your interest rate is. But that’s what we do every day when we take that deduction on the 401K. We have no idea what the tax rate is going to be when we withdraw that money. All we do know right now is we have to pay a 10 percent penalty that extra money which is kind of frustrating. So the middle classes are very focused on speculation and appreciation. And the rich are focused on preservation and income. And if we simply adopt that lifestyle combined with sustainability, a sustainable lifestyle. You can be financially free and independent within five to 10 years. [00:05:04][107.7]

Darrin: [00:05:06] I tell you it’s something that’s deffinately I guess kind of crystallized in my focus and and I know one of things I’ve recognized as both a you know, I’m getting older myself and aging parents and also clients as a as an insurance broker have clients that you know they get in the business they grow the business than they they get out of business. And I think that that the thought process for me has crystallized is that recognition of the people you know people work really hard to grow something but very rarely have a crystal clear idea how they’re going to get out. Or how they’re going to get their money you know out and whether or not that’s fully understood. And like you just said I think that’s for some member of her dad is that notion of not understanding the cost to get your money kind of thing as opposed to you know you’ve been working so hard to put this in put this in put this in put this in put this in. So that’s that’s awesome. [00:06:05][59.4]

Daniel: [00:06:08] By the way Darrin, the the tax rates if you look at the federal income tax it was this low in 1931 and for a brief lip in the 1980s. But if you if you kind of look at the chart we’re basically paying the lowest taxes right now since 1931 and then you gotta ask yourself a twenty two trillion dollars in debt and trillion our deficits do you think taxable going up or down. And I think it’s pretty obvious tax are going to go up eventually. And so you’re pretty much guaranteed to pay a higher tax than you are today. [00:06:40][32.1]

Darrin: [00:06:41] Well you’re saying that trickle down isn’t going to work? What are you saying? [00:06:43][2.0]

Daniel: [00:06:45] I’m saying, it doesn’t matter what you what happened but it’s been a long time coming. The United States is definitely on a trajectory of being in an unsustainable situation. [00:06:53][8.9]

Darrin: [00:06:55] Gotcha. So let’s talk about some of the aspects of the lifestyle or the different way of thinking. What do you see as some of the traditional ways of thinking that have gotten people to this point. [00:07:12][16.5]

Daniel: [00:07:13] I think the normalcy bias of of the acceptance of so much debt in one’s life. Financing a car for five to seven, eight years. If you if you make fifty thousand dollars a year buying a fifty thousand dollar car it makes no sense. But it’s actually quite normal in our world. It’s a perceived as normal but it shouldn’t be. Same thing for a house. I understand the appeal of getting a three decade loan. Well why does it have to be ten times your annual income. Why are people buying things seven times their annual income. That’s unsustainable it puts them in a situation where there is no room for error there’s no room for living. And like most things in life a lot of times people are buying things to impress other people. When the reality is after the first day of introducing your new car to your friends, no one cares and you’re stuck with a bill. I remember when I became financially dependent I was still driving a 2003 Nissan Altima and it was almost like a badge of honor. Now at the time I was in save and sacrifice mode and you know in the beginning and now I’m not going to lie to people Look the book will explain in the book you’re gonna do this if you really want to become financially independent fast you could do it slow. I’m saying if you do that you’re gonna have to have some upfront sacrifices for the first year to two years. But as you sacrifice and save and then have that mind shift say of living a sustainable life combined with instead of buying things for speculation you start buying things for income that those good decisions start to compound on themselves and all of a sudden your expenses are way down and you have multiple streams of income instead of just one source from yourself or two from yourself and a spouse. You might have six or seven sources of income coming in in the beginning it might be small it might be only fifty dollars a month but you’ll use that to pay a water bill off, or you’ll use that to buy more income. But I want people to understand that this is not income that you just save and save and save for you know 30 years and maybe it works out for you. This is income that is usable as spendable income and can also grow. But the main focus is having that sustainable lifestyle combined with multiple streams of income as much income as you can bring into your life. [00:09:28][134.8]

Darrin: [00:09:30] The streams of income. What have you found to be the. The I guess the I don’t the norm. But are there some go to points for you know buying a stream of income that you you find people go to? [00:09:43][12.9]

Daniel: [00:09:44] You know conventional thought is dividend paying stocks and bonds and fixed things from banks. But the reality is as you’re far better off being involved in the real estate market. And if you look at other countries who’ve gone through a crisis, the real estate investors always come out okay on the other side. It’s a physical property. People no matter what happens in the economy people need a place to live. So I tend to have a heavy bias towards either real estate note investing, physical real estate, rental properties, commercial real estate. There’s a lot of opportunities in commercial real estate because there’s more seller financed deals than there are in let’s say if you wanted to buy a single family home get credit or something. So I think there’s a lot of opportunities to create passive income in real estate. And if you’re like a I don’t want nothing to do with that kind of stuff that’s fine too. There is tons of crowdfunding type real estate vehicles like Fund Rise and Peer Street. And then there’s also old money private REITS that have been around for 70 years and I love those because they’ve been around through multiple crashes including the 2008 crash. And these companies regularly are paying out eight to ten even twelve percent yields and you know people are like well what do you own. What do you own your own slivers of J.W. Marriott properties and you own fractional shares of a brand new Walgreens and beautiful golf courses. So a lot of times instead of buying a physical individual single family home where you have a lot of risk you can own some of that you can actually upgrade your income by partnering with some of these groups who invest in very quality projects and assets. [00:11:19][94.9]

Darrin: [00:11:20] So may I ask you the comparison between the an income stream as opposed to the traditional 401K mentality of put your money in the stock market as a stock market you’re 401K. What do you think there’s more of a mentality shift is it taking control or is it just doing what’s comfortable and presented to you as an option what do you see as kind of the the hurdle for people to get from. The traditional way to of an income stream. [00:11:54][33.5]

Daniel: [00:11:54] The biggest hurdle is that they’ve all been conditioned that this is the way to go. And certainly the intentions were probably great for retirement and that’s a great incentive to bring the best employees and give them a great retirement plan. But this is relatively new you can trace the pension system back. Do the Romans. But then it skips you know eight hundred years and jumps to Germany in the late eighteen hundreds. And you know the 401k the IRA, all this stuff, most people don’t realize that this has been around. It was passed in the late 70s it’s been around essentially since the 80s. And a lot of these things have become great vehicles for a Wall Street to make money. The fees the commissions the vehicles the ETF the explosion of mutual funds there’s a lot more mutual funds and there are stocks. And so this has been a great time for Wall Street and there’s a book I can’t think of the guy’s name but the title is Where are All the Clients Yachts? And I think that’s what people should look at where all the clients yachts you know Wall Street. And if you look at hedge funds and Goldman Sachs what they’re buying or what some of the richest and wealthiest institutions are buying. It’s much different from what their clients are buying. And certainly anybody who’s going to run a portfolio you have to run it like a business and businesses need cash flow. So it’s just such a shame that most people just blindly throw the money at the 401K. 60 Minutes has done studies, all these hidden fees? Sometimes are taken up to a third of what you should have made. And they’ve got even worse ones now where you do these targeted things and they think you have even more fees. So everybody treats it like it’s been a perfect world like Adam came out with the 401k plan and the Dow Jones has been around for a thousand years and it’s not one of this is you can’t just tell everybody that it’s going to compound it’s 12 percent for the rest of your life. That’s ridiculous. And by the way one last thing was quick. No no nobody nobody compounds average returns. You know they’re commonly saying the average return is 10 percent or 12 percent. But let’s be real. No one’s compounding at an average return. The stock market goes up. You might buy high then it’s down. And you know look at if a stock stock doubles 100 percent one year and then goes down 50 percent they’ll tell you about the average return. But you know where are you right back to where you started. [00:14:15][140.3]

Darrin: [00:14:16] Right. Right. I’ve always wondered about that. How you can actually calculate the return and and it is. I mean conceptually saving for a future date for whether it be a purchase or some sort of a financially to be financially free. Concept makes sense. But I think that what I what I hear you saying is the where is the money going and how is the money work. Whereas on a like a real estate it seems like a little bit more clear or there’s a direct line of if you can understand exactly. Money goes in there is a vehicle whether it be the the note you have to pay the income that’s coming in from the rent. I mean it’s it’s a little more direct as a kind of what I’m hearing. [00:15:08][51.2]

Daniel: [00:15:08] Yes. And I’m not all in on real estate. I own a lot of stocks too. And I’m going to teach them to buy stocks they own Disney and Costco and Kimberly-Clark. These great companies great businesses that over deliver. And the reason, they pay a dividend. So it’s very important I train I train my children like hey if you’re going to invest in a business they need to share in the profits. That’s the entire purpose. If you remember there used to be a video back in World War 2 and it was on YouTube and it explains why people buy stocks and it explains about that. They companies are receiving capital to grow the business and then they share profits with investors. But somewhere along this journey companies stopped sharing the profits with investors and everyone just became a speculator. If the only way for you to make money is for the next guy to pay more than you you are speculating. So if you’re going to buy a stock buy a stock but make sure they’re sharing in the profits. That’s the entire purpose of owning a business. [00:16:02][54.6]

Darrin: [00:16:05] I love that. Because I think the you know a lot of what happened up up to the 2000s and that was more about stock split stock split stock split and it was more of like said just a speculative thing. And again I’m not the biggest in the stock market or anything. I don’t fully you know keep an eye on him like others do. And I’m sure you do. But just the whole notion of the price per earnings and stuff now that has blown way out of the round of what was traditionally thought to be a a model and maybe speak to that even just as it is that it my speaking in relative terms or is it. [00:16:47][42.0]

Daniel: [00:16:48] But you’re right they throw that out on market watchdog comments CNBC about P E ratios or the Dow to gold theory that all these different things look it’s all Fugazi. The game has changed there’s algorithms involved there’s more computer trading for half a penny than there are humans. So things have things have changed. And if we don’t change with it and consider that all these changes have been have happened, we we will end up losing money. And we won’t get any of it. We won’t be able to retire. And I say again you know in the book Don’t Save for Retirement which by the way I have for your listeners at future money trans dot com slash save. They can read the first chapter in the intro for free. And the book comes out on August 20th. But they can read that anytime right now. So you know if people just keep following these these metrics look it’s it’s we have no idea the last 20 years is going to look totally different than the next 20 years. Think about it some of the biggest companies on the planet; Netflix, Instagram, Facebook, Uber. Biggest company some of the biggest companies on the planet. They didn’t exist 11 years ago. Some of them did these meetings 10 years ago. So a lot of things are going to change. So I don’t like using any of those metrics in the end. How much am I going to invest and how much am I going to make every month or every year from the income. [00:18:11][83.0]

Darrin: [00:18:13] Another reminder just to have nothing last forever kind of thing. And you know kind of drive home that speculative speculation. You know if you’re if you’re waiting for you’re waiting for a way for it it may never come kind of thing based on you think about some of the companies that were you know that were so big and dominant my childhood that are no longer. But that’s great. So you mentioned a little bit about your kids and you know working with them and getting them taught you know invest in the market, but know that they’re going to get a return that the company is going to share in the profits. Are there any other kind of points that you recommend people talk in with their kids about. I mean I think that’s kind of what do you think should you talk about this generational thing and that like for you know the baby boomers it may have worked but the the Gen Xers or the Millennials it’s clearly not what they’re looking for. Is there is are there some points that you make for young people for especially for kids. I mean I would say elementary you know kids haven’t gotten started in the workforce yet. [00:19:24][71.1]

Daniel: [00:19:25] So with my family I have a 5 year old 7 year old and a 9 year old. We regularly talk about money if we have on a property we go to an investment we look at we look at it together. There is an escrow closing. They come in the office and sit down on the floor. They’re just around it just like you know if you want to teach your kid the construction trade you bring them on the job site. You to teach your kid to farm, you bring them on the job site. I want that. I want to know how to invest. It’s very important to have this mindset of having a buying income bringing them come into your life. So Cambridge did a study that financial habits are actually developed by age 7. So absolute you mentioned elementary school kids as early as you can. We played Monopoly with the kids that very simple one when they were young. Now they play the regular one they pay the Cash Flow Game by Robert Kiyosaki. Instead of playing Uno there’s a game you can buy called Net Worth very similar to Uno which kids love. However on Net Worth, you’re paying off debt, you’re paying off credit. So it’s good to get the mindset into focusing on on those type of things and understanding it. Keep in mind parents they’re not going to get any of this in school they’re gonna get nothing. In fact they might even get some bad habits talk to them but so it’s important for the parents to you know go over with them. I love when my kids have to buy something they pay for it at Target or something if they’re buying a toy they have to look at the receipt and explain to me what’s going on. You know I’ll help them. Course the five or seven year old but they have to understand the value of money. And it’s interesting I was at the store my son the other day and we bought just a handful of items and it came out to seventy nine dollars. He was he. He understood the values like. I’m surprised I thought that would be like 20 bucks and it’s kind of helping him understand hey when you make you know when you save one hundred dollars from birthday parties don’t go blowing 50 dollars on some toy. In fact we make our kids safe 50 percent of everything they make. Originally they were saving it in checking accounts and was like You know why aren’t they buying assets that buy income. So we opened up a brokerage account for them and now they buy you know some very friendly stocks that they actually engage with because it’s a twofold lesson there. If you let’s just do it easy example. But if you get your kids the buy Disney stock not only are they understanding a little bit more about the stock market and business and fractional shares because that stock does pay dividends but they also understand it might even make them more interested when they hear about Marvel making a billion dollars or something or the park because they realize hey I’m making more money and they’ll really start to connect but I even go like a step further when we interact with Disney on their cruise ships or their their parks. I always talk to the kids I’m like What do you notice about Disney versus another theme park or Costco’s another stock. They only like what do you guys. Like going to Costco they love going to Costco. Do you like going to any other grocery store on the planet. No. Who the hell cares about going to Vons or Safeway or any Kroger? You don’t feel anything when you go to those great stores. But the Costco has an experience and I and I always bring that up to them and I’m like What is this business doing? And it’s very important to teach the kids to over deliver because outside of the investments kids need to understand that you don’t make money from working super hard or being super smart or working for this guy that guy. You make money. The simple equation, you give value to other people and if you give more value than they paid for you’ll make more money. So I’m very very focused on teaching them that no matter what you do whether you’re a I have a job or a business you always over deliver for people and that will be your economic peace and security over delivering for whoever you’re working with. [00:23:01][216.0]

Darrin: [00:23:03] Now I love that I love the just the concept of money and getting them glued into it as soon as possible. I know my oldest just got his driver’s license and we’ve had the conversation about the gas pump you know. And they’re always surprised at what it cost to put gas in the car. You know kind of things like throw money. That’s great. Hey Daniel if we could I’d like to shift gears here for a little bit. As I mentioned before we started I’m an insurance broker by day. And work my clients to assess risk and determine what to do with the risk. And there’s a couple of strategies we typically consider and one is avoid the risk to is minimize risk and then three is transfer the risk which is what an insurance policy is. And recently I’ve started asking all my guests to identify what they consider to be the BIGGEST RISK. And just to clarify I’m not I’m not necessarily looking for an insurance related answer. [00:24:08][64.9]

Darrin: [00:24:10] But if you could if you Daniel Ameduri could say what you see is the BIGGEST RISK? [00:24:20][9.8]

Daniel: [00:24:20] I think my personal biggest risk at this point because of what I learned in the scars from 0 8. My biggest risk right now is simply myself. I have no debt. I am a big believer and having no debt I’ve surrounded myself with 21 sources of income. I have a great business. So I mean I’m well capitalized. I’m not leveraged. So all the missed all the big risks that I that blew me up the first time out are out of my life. So I would say the biggest risk is just me perhaps wanting to go on too many trips. Too many travelling trips. Not being focused. Losing my focus. Losing what got me here. And I’ll give you a perfect example. I mean I just spent thirty five days in a trip that we went to Kenya and then we came on a week and then went to Japan for three weeks. So my biggest risk is just having too much fun in life at this point because I’ve done the hard stuff. You know if you if if everybody is not happy with that answer I could say the biggest risk to all of us is probably the bond market. You know I mean that could throw the real estate market into a tailspin it could totally implode the stock market could even affect the U.S. currency so my absolute real biggest risks are things I can’t control. The biggest risk that I can’t control is me sleeping in. [00:25:41][80.6]

Darrin: [00:25:42] Yes. That’s great. You know I recently I’ve been reading Howard Marks some of his books on. I think one of it’s like the biggest or the biggest thing or the one biggest thing. [00:25:57][15.2]

Daniel: [00:25:58] It’s always the Most Important Thing. [00:25:58][0.0]

Darrin: [00:26:00] Yeah The Most Important Thing. yeah, yeah, yeah. And just his is just how it’s it’s everywhere. I mean the risk it’s not limited to one thing and what I think the theme that I keep hearing him come back to is people. You know it’s none of it’s you know the market is not mechanical. I mean you can set something on a on a path but it’s the interaction of people and how they react and whether you know the emotions of the people of the market and like said things that you can’t control that are really the things that that you know are out there. [00:26:36][35.8]

Daniel: [00:26:36] So so true because think about when you buy like a smaller company you know I’ve invested in a lot of these cannabis companies and I hope they do well and they should do well. But you know what. Sometimes I go to bed thing I’m like Man the whole thing holding that company together is one guy. The founder and CEO who’s working 16 hours a day. I’m like if that guy if something happens that guy across the street that company is going to zero. And it might not necessarily be as drastic for like your blue chip stocks, but there are some very very good CEOs who are the driving force of their businesses that have something happen to them. You can imagine a company might go into a tailspin or lose its focus like much like Apple did when they lost Jobs. Jobs literally when he came back the second time he pretty much pulled the company from saying they had like 1 percent of the market at that point I mean companies basically was going to die. And now it’s you know one of the most popular companies and probably the most popular brand on the planet. [00:27:30][54.1]

Darrin: [00:27:32] Right. Right now it is it is interesting and you don’t realize it. I think a lot of times on the is things are starting and going. But just how much of the identity and momentum that a company has is tied up with the founder or you know one or a couple of people kind of thing and that’s that’s interesting. Daniel where can the listeners go if they would like to learn more and connect with you. [00:27:58][26.7]

Daniel: [00:27:59] I would love for them to go to FutureMoneyTrends.com/save. They’ll be able to subscribe to the free weekly wealth digest. You’ll get letters about what the different experiences my wife and I went through as we were coming up as well as exactly what we’re investing in right now and I’d like to bounce a lot of different cash flow ideas up some experts. So we’re trying to introduce new cash ideas, because I’m selfish I want more I want to learn more and so I share it as soon as I get it with everybody. And you’ll also be able to read the intro to the book as well as the first chapter and there’ll be a link there if you want to continue reading the book. And you can buy it on Amazon. [00:28:34][35.4]

Darrin: [00:28:36] And I will put on the show notes and I highly encourage any of the listeners to go check that out. I’ve read the first chapter or so and it’s extremely well-written and it’s a compelling story. And for anybody that’s interested in you know how to take control of your money I highly encourage you checking out Daniel’s stuff. So it’s good stuff. Daniel I want to say thanks for taking the time I’ve enjoyed it. And as always learn a lot and I hope we can do it again soon. [00:29:04][27.6]

Daniel: [00:29:05] I really appreciate your time. Thank you. [00:29:06][1.2]

Darrin: [00:29:07] All right. For listeners if you like this episode don’t forget to Like, Share, and subscribe. Remember the more you know the more you grow. That’s all we’ve got this week. Until next time thanks for listening to Commercial Real Estate Pro Networks CREPN Radio. [00:29:07][0.0]

For more go to: https://www.futuremoneytrends.com/Book 1st chapter: https://www.futuremoneytrends.com/save

Multifamily Syndication with Bruce Petersen – CREPN #209

Multifamily Syndication is the vehicle used by Apt-Guy, Bruce Petersen to purchase over 1100 units consisting of 6 properties of which all are 120 plus unit apartment communities.  In 2016 he was recognized by Austin Apartment Association’s Independent Owner of the Year. Then in 2017, Bruce was awarded the National Apartment Association’s Independent Owner of  the year award.

Why Multifamily 

When Bruce Petersen first considered investing in real estate, he looked to small multifamily because he thought it would be easy and could do it on his own.  However, his real estate mentor suggested that instead of going small, he should raise some money and look for a bigger property. Why? Because bigger properties are easier.  So in 2012, he found his first 48 unit property, and has never looked back.

Multifamily Syndication

Multifamily Syndication is the coming together of individual investors to purchase a larger property than they could on their own.  In each syndication, the sponsor finds the deal, raises the capital then operates and manages the investment.  

All of the investor ownership percentages, investment returns, splits, preferred returns, waterfalls, etc. are defined by the sponsor.  And each sponsor does it their own way. For Bruce, he has chosen to forgo the complicated model that has preferred returns, waterfalls, etc and keep it simple for is investors.  In each of the deals, the split is spelled out for the whole deal from purchase to sale. The sponsor promote, the percentage of equity designated for the sponsor. The range of split for investor / sponsor  goes from 70/30 to 85/15 depending on what is needed to attract investors.    

Market & Property Selection

The market and property must have the following elements for Bruce and his investors to proceed:

  • Dynamic Market 
  • Population, he is not interested in investing in a tertiary market.
  • Population growth where there are more potential renters coming to the market.
  • Multiple employers, he is not interested in a market that is overly reliant upon one employer, ie the government. 
  • Neighborhood crime that is not out of hand.
  • Properties that were built in the 1980’s or newer.  This eliminates the need for costly capital improvement that older properties require.   
  • Identifiable operational issues that can easily be corrected to improve value.

Value Add

The term “value add” can be achieved using multiple value add strategies.  Most often it applies to the investor who purchases a dated property that can be freshened up by doing unit and exterior renovations to give the property a current look and feel.  Bruce and his Blue Bonnet team like to find stabilized properties that do not require any heavy lifting. The value add they achieve is through operations. They find that by listening to residents and providing the easy things the residents want and are willing to pay for, ie; car ports.  This approach has proven to produce a quick return on investment with increased NOI and overall property value.  

BIGGEST RISK

What is your Biggest Risk:

My BIGGEST RISK is liability.  We manage our own properties and there are a lot of moving parts.  Employees, residents, guests, vendors, etc. You have have to entrust people, you coach them and mentor them. You have to hope that when the time comes, they will do the right thing.

For investors that hire out their property management, the risk is impatience.  There are a lot of investors who want a deal so badly, they get to a point that they will buy a bad deal.  Also, nobody knows when the economy is going to shift, but we all know it will. So, be safe and don’t overextend yourself.

For more go to:https://apt-guy.com/

Real Estate Investor Tax Classifications with Nick Aiola – CREPN #208

Each Real Estate Investor Tax Classification has specific benefits and limitations.  Nick Aiola with Aiola CPA takes us through some situations and breaks down the consequences for each.  

Real Estate Investor Tax Classification

The IRS provides three general classes of real estate investor tax payer classifications; Passive, Active and Professional.

Passive: This applies to the investor who invest in other investors deals, ie a syndication.  In this case, they provide the capital and receive income.

Active: This applies to investors who invest on the side ie; flip homes, landlord.  This is not their primary occupation.  

Professional: This applies to investors who spend more than 700 hours active in real estate; analyzing deals, talking with brokers, raising capital, working with contractors, tenants, etc.

Real Estate Income Tax Basics

The purchase price is your basis.  The IRS recognizes that the structure has a useful life expectancy.  For each year you hold the property a portion of the structure is depreciated.  The amount of depreciation is subtracted from your basis, effectively reducing the value of building.  

When a Mortgage is used to purchase the property, the interest paid is allowed to be written of as well.  

Depreciation

Depreciation is one of the most effective tools available to real estate investors to reduce their taxable income.  This is recognized as an expense that is subtracted from income when filing taxes. The amount of depreciation expense is based on the type of property, residential or commercial and if you or your sponsor has done a Cost Segregation Study..  

For straight line depreciation, residential is based on 27.5 years and commercial is based on 39 years.  When cost segregation is employed, a large portion of the building is broken into different class codes of personal property which have 5, to 15 year life expectancy.  The life expectancy dictates the depreciation schedule applied.

Passive: For an investor with less than $100,000 annual ordinary income, they are able to take up to $25,000 above the income generated by the passive income generating property.  This phases out as investor ordinary income grows to and in excess of $150,000. For losses that are not allowed in the tax year, they are carried forward for future tax years.

Active: Same as Passive.

Professional: This investor can claim all losses in the year they are recognized up to the amount of income received.

Sale of Property

The sale of property creates a taxable event.  Depending on the length of time property was held will determine if the gains are ordinary or capital; less than or greater than one year.  

When you have a gain, sell for more than your basis, you will owe taxes on the gain and depreciation you recaptured due to your gain.

The Depreciation recapture will be taxed at 25%, while the Capital Gains will be taxed at 15 – 20% depending on your taxable income.  

For all investors; Passive, Active & Professional;  Depreciation that was previously generated and has been carried forward, may be used to reduce the taxable income upon sale.  

BIGGEST RISK 

Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”  

BIGGEST RISK:  I would say the biggest risk as a real estate investor would face would be failure to prepare. Not analyzing a deal or not understanding the scope of the work involved or understanding what kind of what level of commitment; time or cash it’s going to require from you is detrimental. We’ve seen that cripple people in the past. 

For more go to: https://www.aiolacpa.com/

First Multifamily Value Add Purchase with Branton Blount – CREPN #207

Your First Multifamily Value Add Purchase can be overwhelming.  

Brandon Blount and his partner pulled the trigger and lived to tell the tale of their first multifamily deal and are now looking for their next opportunity.  Reading books, listening to podcast, and talking with investors helped them create the plan, but they soon learned, there is no substitute for experience. The lessons they learned by doing an actual investment don’t compare. 

Branton is former active duty and current reserve member of the US Armed Forces.  His military experience uniquely qualified him to recognize the opportunities a military town can offer.  So, he and his partner jumped into their first deal, a 16 unit value add property.

First Multifamily Value Add

First Multifamily Value Add was a true value add opportunity in all aspects.  The property had deferred maintenance, rents that were well below the market and it was 30% vacant.  All of these issues made acquiring the property difficult, but perseverance paid off. 

Due diligence was enlightening.  To start with, the seller had no records, and the management company had only one lease.  The deferred maintenance was easy to identify, and plan for.

Plan

Having walked each unit, there was a firm understanding of what needed to be done. 

There were 5 vacant units that needed to be updated and rented ASAP.

The color scheme was set, levels of finish set, contractors hired, and there was no time to waste given their hard money loan with a nine month window to avoid any additional points.

The Unknown

As soon as the new management was in place and the light was shined on residents.  In a very short amount of time, tenants who were up to no good decided to move out rather than face the heightened awareness of management.  Instantly, the vacancy rate went from 30 to 75%.  

The additional vacancy was a blessing and a curse.  The blessing, now additional units could be upgraded without the need to work around tenants.  The curse was the loss of rent and the additional funds needed to renovate the additional 7 units.  

Outcome

The first multifamily value add project had the potential to be a show stopper given the wrinkle presented by additional vacant units. However, the additional challenge turned out to be a blessing. It allowed a greater number of units to be renovated right away and get to the higher rents faster.

Once the process was set, the contractors were able to renovate quickly without stopping. When the newly renovated units were leased, the proof of concept gave a local bank the confidence in the project and provide a refinance.  At the refinance, Branton and his partner were able to pay off the hard money loan, and repay the owners for money invested for the capital improvements.

Now there are 13 of the 16 units fully renovated with updated floor coverings, paint, kitchens, baths and appliances that command higher rents. The higher rents increase the NOI, value and ability to refinance.

BIGGEST RISK 

Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”  

BIGGEST RISK:

“Known unknowns”. You know it exists but you know that you don’t know the status of it. So you just have to plan accordingly. And I think on top of that as owners and as investors you have to be able to adapt. I know a lot of people that create a plan and they get so tied to that plan that they lose their flexibility and they and they lose their ability to adapt quickly.  

I think flexibility is the key to adapt to risk. You’re going to adapt and you’re going to overcome it. 

OK. Where do we go from here?  We still have to move forward because the project doesn’t stop. We still got to get to the goal, the finish line. And so I think as investors your ability to remain flexible. You know don’t get don’t get off target. Don’t don’t go off on tangents and change the plan throughout stick to the plan but also understand that on it at any given time 

the plan will change whether you want it to or not.

For more go to:

Email: branton@aom-e.com

Think BIGGER Real Estate with Justin Stoddart – CREPN 206

Think BIGGER Real Estate Show is Facebook Live event where Justin Stoddart shares ideas and methods for real estate professionals to help them build, grow and scale their brand and business.

Justin is real estate and marketing entrepreneur.  He started in real estate as a custom home builder.  Since then he realized his passion was building people rather than buildings.  Today he works with real estate agents as a representative at Old Republic Title in Lake Oswego, OR. 

So many real estate professionals are caught up in the daily grind that must be performed to get the work done, that they have no time to think about, let alone execute, creating a brand and growing beyond the transaction mode. 

There are multiple opportunities to spend money on different tech platforms to advertise and get leads.  But at the end of the day, is a client you work with from Zillow your client or Zillow’s client?

Zillow is working to become the Amazon for residential real estate.  They draw the attention of the prospective buyers, agents pay to be seen on Zillow, and it works.  But will the client remember you, the agent when they are ready to buy again? Unless the agent has distinguished themself as something special, the customer will likely go back to Zillow, not the agent.

In order for an agent to avoid being displaced by tech platforms like Zillow, they need to create value and position themselves as a brand.  If the consumer sees no value in the service provided by an agent, why would the customer look past a tech platform?

Think BIGGER Real Estate

Justin recognized that real estate agents need help to grow their business and their brand.  To help his clients, real estate agents, he created the Think BIGGER Real Estate Show. It is both a resource and an example for his agent clients on how they can bring value, and stay relevant in the eyes of their clients and prospects.

The Future of Real Estate

The future of real estate is certain to change.  Real estate investors and home owners will continue to buy properties.  Presumably, as technology advances and AI is more fully adopted, the division between Fiduciary & Functionary tasks will become more defined. 

Fiduciary tasks: Decisions made by the real estate agent on behalf of the client that put the clients interest ahead of the agent. 

Functionary task: The many task which are necessary to complete a real estate transaction such as filling out a form. Over time, these lower level task will be transferred to tech platforms.  

Ideally, by transferring the lower level Functionary Tasks to a tech platform the real estate agent will be able to work more on the Fiduciary Tasks, to better serve their clients.  

Time previously spent doing the functionary task, will give the agent time to spend educating oneself on where the market is going, engaging the client.  

This higher level will not be for all of your clients, but you will be able to provide this for a small group of your clients & prospects.  When you ask better questions you get better answers. The more you listen and learn your clients wants and needs, the better you are able to serve them.  Ultimately, this better experience will provide a happier client who is likely to refer more clients to the professional agent.  

BIGGEST RISK 

Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”  

BIGGEST RISK:

I think actually interviewed a gal yesterday and she said. I asked her the question which is kind of my signature question get on my shows which is, “what do you do to intentionally think bigger? And I ‘think it’s a great response actually for your question. She said I work too. I work really hard to avoid complacency. And I think the biggest risk that all of us face in a world that’s rapidly innovating and rapidly moving forward is to get complacent with our own personal growth in our own personal network. And I’m going to put up a plug for you. You didn’t ask for this but to have somebody who’s whose business is insurance. But goes about adding value to their clients really modeling media. Modeling marketing at its highest form. I think it’s it’s brilliant on your part because you’re becoming a much more, even if nobody listens to this. I know that’s not ture, we had this conversation before. You’ve got a great audience. That just affect the person that you’re becoming by having these conversations. Just makes you when you show up with a customer you’re so much more valuable to them than had you just been going about as a typical insurance agent. And so I would encourage anybody who’s listening that the biggest risk that you have is to not surround yourself with partners like Darrin and knowledge that’s helping you grow and your business grow. Because we can’t really complain and say, “Oh I’ve had such and such for so many years and you know they’re you know they’ve done fine”. Which I’m all about loyalty, don’t get me wrong. Like I’m not. But what I am saying is all of us need to be aggressively seeking out how to grow ourselves and grow the value to our customers. And sometimes that entails actually taking a look at our partnerships instead of these people becoming somebody that can lead me? Are these people the growing network that can be a value to me and my customers as the competition stiffens. So not growing and being complacent I think is the biggest risk. 

For more go to:

www.ThinkBigger.Realestate

Qualified Opportunity Zones Round II Regulations with Jonathan McGuire – CREPN #205

Qualified Opportunity Zones were created in the 2017 tax plan passed by congress.  

Following is from my second conversation with Real Estate Accountant, Jonathan McGuire, from Aldrich Advisors.  In this we dive into the clarifications provided Treasury Department draft proposal of proposed regulations.  Eventually, final regulations will follow. In the second round, a path from inception to exit strategy has been made clear.  

Qualified Opportunity Zones

On CREPN Radio episode #158 Round I, Jonathan explained what Qualified Opportunity Zones were and their purpose.  For investors with a capital gain, from any investment, they could invest with a temporary deferral on the owed tax if they stayed in for 5 or 7 years.  If they stayed in 10 plus years, the subsequent gain on the investment in the Qualified Opportunity Zone is TAX FREE. 

Click the link to download your Qualified Opportunity Zone Explanation

Temporary Gain Deferral

Temporary Gain Deferral is the initial benefit to investors with capital gains who reinvest their gain into a Qualified Opportunity Fund that invest in a Qualified Opportunity Zone.  The QOZ deferral program last until December 31, 2026 at which time, the deferred tax becomes due. 

Discount on the Original Capital Gain   

If the investor holds the investment for:

  • 5 years by 12/31/2026, the investor receives a 10% discount on the basis for which tax is owed.  
  • 7 years by 12/31/2026, the investor receives a 15% discount on the basis for which tax is owed

TAX FREE BONUS 

If the investor holds the investment for more than 10 years, ALL SUBSEQUENT GAINS ARE TAX FREE!

Round II Clarifications:

Use inside the Qualified Opportunity Zones –  Originally, the understanding was specific to the real estate; new construction, or substantially improved.  The round II clarified that tenants in a QOZ can also take advantage of the tax laws.

TAX FREE GAIN End Date

Round II clarified the end date for the free bonus on the subsequent gain.  The 100% tax free subsequent gain ends in 2047. Previously, there was no recognized end date attached to this.  This will likely create another anniversary date for additional market activity.   

Fund Rules

Fund Rules require that 90% of assets held by opportunity zone fund must be invested in qualified opportunity zone stock, partnership or property.    And, at least 70% of the property inside of the business, etc must be qualified, ie: acquired after 12/17, substantial improvement, original use inside the QOZ, etc. 

More Clarifications:

  • Land will always have original use.  This clarification reduces the amount of substantial improvement required, due to the subtraction of the land value from the purchase price.  The reference point for determining the value of the land is the county assessor tax record.  
  • QOZ allows you to separately recognize the true economic value of the structure and land.  By lowering the value of the structure, this lowers the amount of substantial improvement needed to qualify for the QOZ.
  • Depreciation, if you keep the investment for 10 plus years and sell before 2047, for qualified investments, there will be no capital gain and capital gain tax.  Therefore, the benefit of a cost segregation study is worth even more when considering the basis step up. Because you have no gain, you can have no depreciation recapture.  
  • Paying the deferred tax from your original gain that your deferred into the Qualified Opportunity Zone has been made easier.  Round II explanation provides the option to refinance the property, take cash out so that you can pay the tax due in 2026
  • Property in lieu of cash can be contributed to the Qualified Opportunity Zone.  If you currently own property in a zone, but do not have a gain from a sale, you can contribute the property you hold into the fund, and participate in the investment.

BIGGEST RISK 

Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”  

BIGGEST RISK: I would say the BIGGEST RISK is not taking a serious look at Opportunity Zones. If you don’t do it and put a little bit of sweat equity into this to see if you can you can make a deal fit inside of a zone. If you have a project underway or a potential project that you’re looking at I mean, you would be doing yourself a disservice if you have a property or a business that it’s going to be located in the zone and not take advantage of this. Now maybe you don’t have capital gains so you can’t do anything. But you know maybe you need some investors, and you need capital. Why take a debt interest? Let’s get somebody with equity that wants to have a vested interest in seeing the business succeed and create an investment that works for them and for you. And then it’s a win win on both sides. 

For more go to:

www.aldrichadvisors.com

jmcguire@aldrichadvisors.com

Multifamily Mindset with Tim Bratz – CREPN #204

Multifamily Mindset is key to growing true wealth in multifamily real estate.  

Tim Bratz brokered his first commercial lease for a 400 square foot retail space which rented for $10,000 per month in New York, NY.  When he realized the landlord was going to make almost $2,000,000 over the 12 year lease for this one space, he knew he was on the wrong side of the coin.  He needed to be a landlord instead of a real estate broker if he wanted to create real wealth in real estate.  

Since that time, Tim has flipped single family homes, wholesaled, owned single family rentals, turnkey rentals, and invested actively and passively in multifamily properties.    

The first apartment building he purchased was an 8 unit property for $30,000 which he invested another $50,000 into.  All in he is in for $10,000 per door, and it cash flows like crazy. Since this one property, he stopped investing in all other types of real estate except for multifamily.

Real Wealth in Real Estate

Real wealth is not created on one commission from an individual transaction.  It is created from residual income; getting paid repeatedly, month after month and year after year.  Wealth in real estate is created over time, not by flipping property after property, but by holding the asset and letting it appreciate over the years.    

Multifamily Mindset

Multifamily Mindset for Tim started with the realization that residual income was key.  More wealth has been created in real estate. It’s a proven formula if you stick with it and have a vision.  

The more he learned about real estate, the more he saw an opportunity for him.  He also recognized the power and potential danger of leverage. When the 2008 crash happened, those with too much leverage, lost everything.  While those with cash flowing assets, were able to ride out the storm.   

When the banks were not lending, real estate investors with positive balance sheets and cash flowing properties were able to get loans, because they had cash flow.  This allowed them to buy more and grow their portfolio.   

Getting Started

Your Multifamily Mindset starts with education. Recognize, you will pay for this, one way or another.  If you decide to go it solo, and learn the hard way, on your own, you will pay for your education in costly mistakes and missed opportunities.  If you elect to pay a mentor, you will be able to shorten your learning curve, and gain from your mentors experience, and mistakes so you won’t have to repeat them.  The choice is yours.

There are tons of books and podcasts available for free.  But these do not hold you accountable. How many times have you been to a seminar or read a book that inspired you to do great things.  But as soon as you return home, you get into your regular routine and forget all the excitement and momentum you gained from the event.  Having regular meetings with your mentor or mastermind group, will keep you on track and hold you accountable to yourself so that you reach your goals.  

Tim has learned from books, podcasts and mentors, both bad and good.  He has found his mastermind group has been the most beneficial for him.  His mastermind group is where he learned from other investors who had passed through his current challenge.  

Meeting regularly with his mentor or his mastermind has helped Tim create a portfolio valued at more than $250,000,000 in just over 4 years.

Regular Reflecting

Tim had over 200 doors made up of a mix of single family and multifamily properties.  When he took some time to reflect, the numbers did not lie. NInety percent of his wealth was from multifamily yet it accounted for only ten percent of his time.  This aha, lead Tim to focus only on multifamily from that point forward. 

If you don’t know where you want to go, it doesn’t matter which path you take.  Know your why, and then back into the numbers to get you on the right path for where you want to end up.  When you know what you want, you can ask better questions, on how you can accomplish your goal.    

Take a day, schedule it, and periodically take stock of where you are and compare it to where you want to be.  Then ask questions, and course correct.  This is key to keeping your multifamily mindset. 

Consistency is Key

Consistency is key to building a successful business.  An apple a day keeps the doctor away, not seven apples on Sunday.  

If you want to build a big business, there is no shortcut.  Consistency is the key to growing a big business. If you want to build a big business, recognize that it will take time, and act consistently.  When you do this over time, your efforts will accumulate and you will have success.  

Marketing

Tim recognizes that having a consistent marketing message in front of his key prospects is how he will reach his goals.  This applies to both raising money, and buying apartments. In the communities where Tim is actively acquiring properties, everyone knows Tim buys apartments.  Why? Because, for the past three years, he has marketed to owners, and residential brokers that “Tim buys Apartments”.  

For investors looking to participate passively, Tim stays in front of them, and is constantly building his list.  His consistent actions allows him to raise millions of dollars in a single webinar for any deal he has.  

From his residential wholesale days, where he built his list of buyers and wholesalers, he recognized that wholesalers come across multifamily deals all the time, and usually throw them away.  What if the wholesaler could make a referral fee by sending it to Tim?  

Tim emails his list of wholesalers weekly, reminding them that he buys apartment buildings.  Because these buyers come across multifamily opportunities regularly, and have nowhere to go, Tim has been able to make a win-win-win situation for the seller, wholesaler and Tim.

Syndication Strategy

Tim has a unique syndication strategy for how he structures for his deals compared to traditional syndication models.  Unlike others where investors may not see any return until the building sells, Tim offers a preferred return to investors from day one.  As soon as the property is stabilized and can be refinanced, he pays back the investors their principal, replaces his bridge financing, and keeps his investors in the deal for 10 to 30 percent equity into perpetuity.  

Investor benefits include: tax advantages because the preferred returns are long term capital gains.  The investor gets their capital back for the next deal, and they get the long term equity build from their 10 – 30 percent investment with no capital in the deal.   

For Tim, this has created a constant source of money looking for a return that is ready for the next deal.

BIGGEST RISK 

Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?” 

BIGGEST RISK: The BIGGEST Risk we face is the potential tightening up of the banks.

How do you manage the risk? The model is based on refinancing within 12 to 18 months.  If we see the market shifting, we can refinance sooner, and not take out any proceeds.  Usually we like to wait for 12 months so we can take out some proceeds. This allows us to pay a little more to our investors, and make them happy, and me a little more liquid so I can qualify for more loans.  But if we had to refi before 12 months, we could just refi at our basis, lock into long term debt, and ride out the storm.  

The other thing we do is underwrite our projects as if the loan to value is going to drop by 5 – 10% in 12 – 18 months and we assume that the interest rates will bump up 1 percent.  Do I think these will happen? No. But, I want to be prepared for if they do.    

For more go to:

Face Book: Tim Bratz

Website: Legacywealthholdings.com

Podcast: Legacy Wealth ShowEvent: Commercial Empire