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.
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.
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.
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.
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.
Darrin: [00:00:08] What is the BIGGEST RISK? [00:00:09][1.3]
Bob: [00:00:11] That's a good question Darrin and certainly one that we should consider you're in that business. That having been in real estate forever you want to minimize that risk especially as you get older and have less time to recover from exposure to a risk that actually comes to pass. It is after all real estate. And the value of real estate goes up and down. So I would see 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, it was in the fracking business. I wouldn't invest, or encourage an investor to invest there because what if fracking goes away. What if we decide we don't want to frack anymore? Then that apartment house doesn't have a high value if fracking were to go away. So buying that apartment house in Florida or California or someplace Dallas proper would be completely different. I think avoiding prop properties in markets that are you know have exposure to down markets. And I think investing with new sponsors that don't have a track record someone that they may be great they may be well intentioned but don't have the wherewithal to Inland or Pascoe Cantor that if there is a problem they they can solve it. Where a new sponsor perhaps couldn't solve it. 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.
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..
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 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 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.
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:
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.
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 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.
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/
Darrin: [00:00:08] Ted Lanzaro, "What is the BIGGEST RISK?" [00:00:12][4.2]
Ted: [00:00:14] The BIGGEST RISK that I see for real estate investors right now has to do with state legislators making laws that are anti-landlord, essentially. A lot of this is primarily in the residential market. But like for example here in Connecticut there's legislation right now that would make a landlord 100 percent liable for lead paint poisoning in their apartment buildings. So if someone and this is you know this is sad stuff and you obviously want to avoid this happening. But to make the landlord 100 percent liable for for something like that that happens. If it's done in such a way that it may not have been their fault. You know in other words like they may have already done a remediation but then something happens and, but they're still 100 percent liable. So those kind of you know there's other laws that restrict the amount of rent you can charge. There's the laws pending that would change Section 8 program. So it's all of these kind of legislative initiatives that are that I feel are a big big threat to landlords. [00:00:14][0.0]
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?
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 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. 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? 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.
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.
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/
Darrin: [00:00:07] And so I'd like to ask you Damon Lupo what is the BIGGEST RISK? [00:00:13][5.7]
Damion: [00:00:15] 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. The key consistent thing here is the action you have to take action. There is no avoiding risk and playing it safe. You play it safe. We've all seen games basketball, football, anything. When a team starts playing not to lose to me that's avoiding risk. It's avoiding making a mistake. Guess what, they lose. Every time, they freaking lose. So that's what we're doing when we're avoiding risk. Risk. To me you did great. I learned something from my friend Robert Kiyosaki, when I was teaching with him recently, and he he changed my outlook on what wealth is. He said wealth is not it's not cash, not cash flow. I go Wait? It's not Cash flow? And I've said maybe it's not even one of those it's confidence. He said here's a wealth really as wealth is your collection of mistakes that you've made where you've learned because you've done something the more you do the wealth you you get. It doesn't matter whether you get it right or wrong. The fact that you did it and stub your toe and tripped and fell in the sand or whatever. And I said oh my gosh. That's why I feel so wealthy because I'm like the biggest f up ever! I'm out there stripping and stubbing my toe constantly. Most people are afraid and why, because of judgment. They don't want people to look at them like they're an idiot. We're all an idiot. We start off basically screaming because we have no idea what's going on popping out of our mama. And then we see we go about our lives trying to prevent anybody from looking at stupid. Well how else are we going to learn. That's how you learn by going out there. So the risk is in not taking any risk. And it's because we're afraid of the judgment in general. [00:00:15][0.0]
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
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.
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.
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 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.
The market and property must have the following elements for Bruce and his investors to proceed:
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.
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/
Darrin: Bruce Petersen, I ask you what is your BIGGEST RISK?
Bruce: My BIGGEST RISK you know that's yeah it's the liability we had we've had people die on the property. It's just as you grow a business you can't be the one doing all the jobs you have to entrust people and you hope that they're doing an effective job. You've interviewed them. You coached them you mentor them and their job and you can't be there with them all the time. You just hope that they're doing the right thing and they're not getting you hung out to dry from a fair housing standpoint from a discrimination standpoint. Or that we have done something negligently that causes somebody to pass away. The one death we've had, there was nothing we did wrong absolutely nothing at all. That's probably the biggest risk. You know you're dealing with hundreds and hundreds and hundreds of people on a property. You buy a two hundered unit property, average occupancies probably two to three people. Right. So if it's three people have a two hundred unit property, that's 600 people right there that we are very involved in their lives on a daily basis. So we have a lot of responsibility we take it very, very seriously. But as this is for me you said Bruce Peterson right. I'm a syndicator but I own my own management company so I have a lot more risk than a lot of people have. I would guesstimate 80 to 90 percent of the people that do what I do they want no part of management. They hire a third party management company like us to come in and do it for them so they won't have that risk. For those people, I would say, this is kind of a macro. Be careful what you're doing. Right. Don't get aggressive don't get anxious Don't get impatient. I can't find a deal. Oh this one works. No it really doesn't work. But I gotta get a deal. Don't do that. Don't buy the crap that's in An offering memorandum from a from a listing broker. Don't believe them when they tell you that your taxes are going to go up 3 percent year over year because that's what everybody here is right. You increase your expenses every year by an average of 3 percent. Taxes are different. And if you believe that you could fall flat on your face so don't be overly optimistic. Don't think the economy can't shift because it's going to shift again. We all know it's going to shift. We don't know when we think it's coming kind of soon but we don't know for sure. So just be safe in what you're doing. Don't overextend yourself.