In this episode of the Multifamily Real Estate Experiment podcast, host Shelon Hutchinson, also known as Hutch the Marine Investor, interviews Brett Swarts, CEO of Capital Gains Tax Solution.
Brett is a leading expert in Deferred Sales Trust (DST) and shares insights on how DST can help high net worth individuals, business owners, and real estate investors defer capital gains taxes while maintaining control over their wealth.
Brett details his journey into real estate, his challenges during the 2008 financial crash, and how he discovered DST as a revolutionary tax-deferral strategy.
He explains how DST works, compares it to the 1031 exchange, and provides real-life examples of its application. Brett also touches on the legal aspects, common mistakes to avoid, and how DST fits within larger tax strategies like Opportunity Zones and Charitable Remainder Trusts.
Listeners will gain a deep understanding of DST and how it can be a game-changing tool for creating generational wealth.
00:00 Introduction and Guest Introduction
02:16 Brett Swarts' Background and Journey
10:57 The Deferred Sales Trust Explained
14:01 Comparing DST and 1031 Exchange
15:16 Client Success Stories and Tax Implications
21:01 Entrepreneurial Opportunities with DST
22:16 Introduction to Advanced Strategies
22:34 Types of Assets for Transactions
24:26 Mindset Shift: Promissory Notes
25:50 Tax Implications and Strategies
29:47 Diversification and Investment Strategies
33:58 Common Mistakes and How to Avoid Them
38:19 Comparing DST with Other Tax Strategies
41:22 Focus Round: Personal Insights
44:21 Conclusion and Contact Information
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Thank you to all of our listeners!!! We would love to hear from you!!!
Email me at:
hutch@hsquaredcapital.com
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Visit our website to find out more:
www.hsquaredcapital.com
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Track 1 (00:00):
Welcome all you multifamily enthusiasts to
(00:02):
another episode of themultifamily real estate
experiment podcast.
I'm your host Shalon Hutchinsonand look, if you've been
connected with me in realestate, you know me as Hutch the
Marine Investor.
And today we have a conversationthat is a little bit advanced
and we're going to try to get tosome foundation questions and
some questions that may not beas, as we would say, or you
(00:23):
young folks would say"Googleable".
So our guest today, Brett Swartsis the CEO of Capital Gain Tax
Solution, which he functioned asa real estate investment
advisor.
He's a leading expert indeferred sales.
Trust.
He helps high net worthindividual business owners and
real estate investor legallydeferred capital gain taxes
(00:46):
while keeping control of theirwealth.
See, if you ever thought.
how can I sell a propertywithout a 1031 exchange and
still keep your money workingfor you, then you're really in
for a treat today.
So Brett is about to break downthe Deferred Sales Trust and
this can definitely serve as agame changer for you if you're
(01:08):
looking to create generationalwealth.
So welcome Brett.
Hutch It's great to be here.
Thank you for having me.
Hey brother.
so before we get into the meatand potato of a deferred sales
trust, do you have a favoritereal estate quotes or mantra
that drives you?
I would say it's a real estatequote that drives me, but I have
read a book.
Am I being too subtle?
Sam Zell.
(01:28):
Okay.
And Sam Zell is one of the mostprolific real estate developers,
owners, investors.
He's masterful.
I would say, listen to that bookand just start learning about
real estate and putting dealstogether and structuring.
And, I think he, in that book,he says something like.
If you're going to be in apartnership, you got to make
sure there's equitable amount ofrisk for equitable amount of
(01:50):
return, right?
So something along those lineswhere if you're going to go in,
like you're going to try to, andsometimes it's 70 30, sometimes
it's 50 50, sometimes it's 6040, you got to figure that out.
sometimes he would structurepartnerships, he would start out
80 20.
And as those people provethemselves, he'd give them more
and more.
And so it's just a, it's amindset.
(02:10):
It's not just, it's more caughtthan taught is what I'm saying.
so check out that book.
Am I being too subtle?
Sam Zell.
Sam Zell is definitely acredible source, before we get
into the meat and potato of theinterview, can you tell us a
little bit about your backgroundand what brought you, to become
the expert in deferred saletrust?
Yeah, so I grew up in realestate building houses with my
parents in California, the BayArea, Silicon Valley, the East
(02:33):
Bay, Fremont Mission, San Jose,that area.
And then my brother and I workedreally hard with our arms and
our legs, building stuff, movingbricks, hammering nails, putting
up drywall.
In understanding that, realestate, you can make wealth in
it.
But at the same time, my parentssaid, Hey, look, we want you to
go to college.
My brother was the first tograduate college on any side of
the family.
(02:53):
I was the second.
And we, we still want it to bein real estate.
he started at Marcus Millichap.
And then I followed His leadthere and at Marcus Millichap, I
started helping people buy andsell multifamily property.
So using the brain more thanjust the hands in the sweat
equity.
more negotiating, underwriting.
And so that was all in 2006 whenI started, then everything was
(03:14):
going great for a little whileuntil 2008 and a crash happened.
And then friends, family, andclients, lost a lot of wealth.
And we are also, we're goingthrough a really tough time, my
wife and I.
We're newly married and we'relooking for a way to keep our
lights on and food on the tableand our first baby on the way
and keep her home full time.
And that's, during this time youdo whatever real estate or
(03:36):
entrepreneur does.
My side hustle is cheesecakefactory nights and weekends
working as a server selling allkind of egg rolls.
And by day I negotiate withbanks and underwrite, deals to
try to help my clients hold onto them, renegotiate tax
assessments, figure out ways toget creative with tenants and
rentals and essentially becomelike a real estate investment
(03:57):
advisor in a distressed market.
I did that for two years.
So I kept it I was like twodifferent people.
Seven to five.
I was in the commercial realestate office.
And then, five to nine, I'mgoing to do, cheesecake factory.
And then I do that all overagain.
Do that for 60, 70 hour weeks.
And I do that for, two years.
And, this time I got to learn alot about what not to do.
(04:17):
And the problems with the 1031exchange.
And see, our clients were losinghalf or all of their wealth.
And so they were going throughtheir own financial struggles as
well.
And so I had a person who camein and became a mentor who
taught us a new way, a betterway of deferring capital gains
taxes, which doesn't require youto stay into debt, doesn't
require you to overpay for aproperty, doesn't require you to
(04:40):
have to be in real estate rightnow, a hard illiquid asset, all
on your own, but it changedeverything, right?
I started to learn like thiscould have been.
They say, the game changer foreverybody.
And so I thought everyone wouldjust, jump on it much So I'd
call people Never heard of it.
Call me back, three years agowhen my property values are up,
call me in three or four yearswhen you've closed a bunch of
(05:01):
deals.
Like basically I was like theprofit not accepted in his
hometown.
And it was devastating because Iwas like, this is the future.
This is Netflix and everyone'sstuck in blockbuster, but if
they can just understand whatthis is.
I would say more, passionatesalesperson that was just cold
calling and trying to bang onthe phones to bring people's
attention to this, to try to getthem to move so I can get a
listing so that I could retirefrom the Cheesecake Factory.
It took my vote for two yearsand it was brutal.
(05:24):
and, but eventually I got somemomentum and eventually I
started getting these biggermeetings.
And then fast forward, inbetween multiple other side
hustles between, that and fourother kids that came along the
way.
But we've launched this companyand now this is all we do.
we went national on a podcast,on a bestselling book.
And now we help people acrossthe country exit any asset of
any kind, I was able to retirefrom the cheesecake factory.
(05:46):
But the most important thing isfor us as a family, we are able
to stick to our core values,right?
Which was keeping my wife homefull time with our children.
She really wanted to be a momfull time.
And then also not giving up onthe dream, but cutting to the
bare bones, like jumping, goingto my brother to live with his
small condo.
and so because we couldn'tafford to own or to rent our own
place.
(06:06):
Right?
And so that's the encouragementfor people.
I'm going to make sure that yourstart where you're at, or if
you're going through a toughtime right now.
there's always a beginning forthis success that you see on
this side of things, but thatmakes it a touch.
Oh man.
I like that.
The beginning of the success.
Look, one of the things you talkabout that I want to hold in
just for a little bit, maybe aminute.
And you're talking about working60 plus hours per week, right?
(06:26):
because he was going throughsome tough times.
In some situation, a lot offolks who worked that many
hours, they'd say that I'mreaching, approaching burnout,
but it sounds like you was onfire.
Tell me a little bit about thattime.
part of that, too.
I was working these side hustlejobs on the weekends for
basketball tournaments.
I was the bouncer at the doorthat would, take them, take the
money and give you the wristbandto get in for the weekend.
and then I quickly figured outthat I could do that and make 20
(06:50):
an hour.
But if I also was the snackshack, I could buy a bunch of
stuff in Costco and I could makeanother, 10 to 15, 20, 30 an
hour.
I was making at one point, Ithink we maxed out at we
calculated like 60 somethingdollars an hour over the
weekend.
We do these eight or nineweekends during the year and we
have three basketball courts.
so I negotiated a deal betweenthe A.
(07:10):
U.
guy who ran all the tournamentsdown the street and he had like
10 courts of his big complex,but they're always looking for
more courts.
And instead of just going towork for somebody, I said, how
can I help him expand?
And then also, how can I get onthe front of that?
And then how can I also takesnack shack okay.
And so we had courts going onanother site, so he's making
(07:31):
good money.
So I got 20 from him, and then Iwas working out, again, at one
point I was making like, I thinkit was like 57 or 59 dollars an
hour, and it was incrediblestuff.
So this wasn't all boring, likethis was entrepreneur, I call it
the honey badger stages, right?
Where you're looking for anylittle angle to get it, So my
wife would show up with theCostco pizzas.
I've been selling bananas fortwo bucks.
(07:51):
People are like, how do you sella banana for 2?
I'm like, people are gonna payfor it.
I go, every single one of thosekids that are coming in here, in
my mind, they had 20 in theirpocket, and they needed to buy,
they're gonna buy the snacks forme.
Now, we had some healthy stuff.
We had smoothies.
we'd make fresh smoothies there.
We'd have, pizza from Costco, sothat's maybe not really that
healthy.
We'd have Clif bars from Costco.
We'd have the candy and stuff.
We'd have the water balls.
(08:11):
But we would make a killing atthe snack bar and, that made it
exciting.
my mom would come in and shewould bring some notes.
She'd do a Costco run.
We were running out ofGatorades.
She'd run and get the Gatoradesfrom Costco, come back and I'd
pay them.
So I was running this little,little mini business, if you
will.
and that was fun, right?
So honestly, I think when youhave a clear passion and a
vision for where you're going,the drive and the fire,
(08:34):
naturally comes, right?
Now, also, my wife is ubersupportive, believed in me, also
willing to move into mybrother's small condo, drop our
expenses all the way down.
So she didn't, she was with me,right?
We were a team.
this is not something that Ijust did.
We did it together.
And we had a vision for if Wecan grow and learn during Marcus
Millichap, because that's reallywhere I was growing.
(08:55):
I was growing both sides ofthings, but during the day, I
just kept growing and learningat Marcus and Millichap.
What was going wrong, how we cando this, solve these challenges
moving forward, but who's doingwell, what they were doing
right, right?
How to negotiate these deals intough markets.
If you could sell and make itthrough those couple of years,
you can make it in any market.
And so that kept me going likeall of those things.
(09:16):
I think the biggest thing wouldbe my faith.
I think if you're in the centerof where God wants you to be.
Even if it's challenging,honestly, those are the most
rewarding years because thejourney itself helps to, build
what's called a growth mindsetversus just a goal mindset.
A goal mindset is you just getthere and you achieve the thing
and you get stuck, Whereas agrowth mindset is, no matter
what, I'm just gonna keepgrowing regardless of the
(09:39):
results or the immediateoutcome.
I'm going to keep growing andeventually if that guy can do
it, I can do it.
And that's what my mantra was atMarcus Millichap.
I would show up and I'd say,that guy's not working as hard
as me.
That guy's not as hungry as me.
Yeah, that guy's moreexperienced.
And he's smarter than me rightnow.
I go, but I'm going to catchthem all.
I'm going to catch up.
(09:59):
And, that drove me.
I just kept, I kept going andgoing until here we are now, no
longer just in Sacramentoselling multifamily.
We're national and we're helpingall brokers across the country
and all high net worthindividuals and M& A attorneys
like it's a thrill to be on thisside.
So that's what I would say wouldhelp me get through it.
Now that is amazing, man.
It's not like he was definitelyon fire.
And it's really cool to hearyour story because, one of the
(10:21):
things that you mentioned thatour leader, John Maxwell talks
about.
is the focus on growth over thegoals, right?
Especially it's beginning ofFebruary right now to record in
this podcast, where a lot offolks just came out of January
and they did a lot of goalsetting, right?
But how much of that goalsetting was focused on growth,
right?
And when you don't accomplish.
(10:42):
All your goals throughout theyear.
How much did you grow and yourability to measure backwards,
right?
And be able to be proud ofyourself and your
accomplishment.
Be like, I did that.
I didn't die and I didn't quit.
So thank you for sharing thatwith us, brother.
Absolutely.
Let's get into it, man.
let's talk about the basic ofdeferred sales trust, so for
those who are unfamiliar, canyou break down this in simple
(11:04):
terms?
What is deferred sales trust andhow does it work?
Yeah, it's an installment saleor known as a seller carry back.
So if you're in real estate, youprobably know it as a seller.
You can finance the buyer who'sbuying your property.
So let's say Hutch is selling a10 million multifamily property
that he used to own in San Diegofor 30 plus years and it's fully
depreciated.
(11:24):
So he has no basis and he, let'ssay he has no debt to keep it
simple.
And let's say he finds a buyernamed George and George wants to
buy it.
And, George's Hutch, I can't getfinancing, and Hutch's that's
okay, it's, I'll finance you,just put a two million dollar
down payment, and I'll financethe other eight, that's known as
a seller carryback.
Now Hutch, you know that the taxthat you pay is only on that two
(11:45):
million that you receive, youdon't pay tax on what you
haven't received yet, that's ina deferral state, right?
It's known as a sellercarryback, so this is very
common, and so that's thefoundation of what we use, a
seller carryback, the differenceis, we say, George, Don't show
up with two million like I meango get a bank loan show up with
10 million bucks Like we don'tcare how you get the money, but
(12:06):
we're not financing you george,right?
But we will finance the trustand what we do is we set up a
trust that comes right inbetween Hutch the seller and
george the buyer and simply thetrust buys it from hutch for 10
million and asks Hutch tofinance 100% to the trust for 10
million bucks And the trustimmediately sells it for 10
(12:26):
million to George, who gets bankfinancing or whatever.
Smoke clears, and guess whatHutch?
You're in a deferral statebecause you have$0 received so
far.
And that 10 million is atCharles Schwab, and this is
where the magic happens.
You can invest into whatever youwant, whenever you want.
No timing restrictions.
You can put it into Bitcoin.
You can put it into businesssales.
(12:47):
You can put it into hard moneylending.
You can put it into a realestate development in Hawaii.
You can put it into stocks,bonds, mutual funds, money
market accounts.
But here's the best part.
There's no timing restrictions.
And so this is where we'removing and shifting the entire
mindset around this whole 1031exchange.
That's so archaic.
It's old, it's broken in manyways, and the people that it's
(13:08):
the most broken are seeing itnow that overpaid 2021 and 2022.
And now all of the loans, a lotof the loans are resetting,
their debt is shooting throughthe roof, and the whole ship is
sinking because they overpaidover, 1031 didn't think they
overpaid, oh, the music stops,and now they overpaid, they have
too much debt, their debt'sreset.
(13:30):
And so the mistake is thinkingthat the 1031 exchange is your
best friend when it's not.
The mindset shift here islooking at our strategy because
if you want time, if you wantflexibility, if you want
leverage on your side, right?
And then the last part I wouldsay is that the method is.
We have crystallized how to dothis.
(13:51):
and that's the key.
You want to find a team to helpyou execute this because it is
new for people, right?
If they haven't been in it, it'shard for them.
But that's the basics of what wedo and how it works.
Gotcha.
Now, you bring up a comparisonbetween 1031 exchange and DST.
Now, when you're talking to aperson who is considering
(14:11):
exiting the property, How do youstructure that conversation,
with the DST and also 1031exchange to guide them in making
the right decisions?
Yeah, it's a great question.
the first thing is you got toget clear and the second thing
is you got to get unstuck andthe third thing is you got to
get going.
Okay, so we've all heard of theRich Dad Poor Dad book.
We love the book, right?
(14:31):
And basically teaches us how toget financial freedom, right?
True financial freedom, right?
Our passive income is able topay for our living expenses,
able to pay for our lifestyle,and eventually our money's
working for our money.
Most people never get to thatbottom fourth quadrant.
And part of that is they're soconsumed with the day to day
(14:51):
operations of these deals andthey're not able to scale and
leverage.
The problem is they're runningout of time.
their time is getting shrunk.
part of our mindset here, a longtime ago was say, how quickly
can we get to truly passiveincome?
Where you don't have to tradetime dollars.
we don't trade time.
We don't have to trade blood,sweat and tears.
to be able to just get, be ableto just collect income
(15:14):
passively, right?
So I'll give you an example.
We had a client Warren andCatherine They had done a 10
multiple 1031 exchanges and theyended up with about a 2.5
million dollar apartment complexin Sacramento and so I sit down
with Warren and Catherine.
I say Warren and Catherine.
What do you really want?
They what we really want is Youknow less toilets less tenants
less termites.
I said why are they so painfulor is it really hard?
They know they're actually goodtenants and we have good
(15:36):
property management and theplace is 100% occupied and but
there's just always somethingYou know, and i'm like, okay.
But okay, so that's what youdon't want.
But what do you really want?
what we really want is the othertwo t's I go, what's that?
They go, our twin daughters.
I go, tell me more.
I go, we had kids a little bitlater in life and they're 10
years old and we realizing thatfrom 10 to 18 is probably the
time we have the most amount ofone on one time with our
(15:57):
daughters.
And we don't want to tradeWarren driving two, three, four
hours, every other weekend tothe property.
I said, wow, that's prettyclear.
I said, then let's look at thenumbers.
what's your NOI?
They go, it's about 120, 000.
I said, okay, what's your ROE?
Your ROE is return on equity.
What's 120, 000 basicallydivided by 2.
35 after closing cost is a basicway to do it.
(16:20):
Okay, what if we can increasethat ROE to about 190, your cash
on cash from 120 to 190, plus wecan remove that obstacle, which
is.
This property that's taking upyour guys's time and energy that
you could spend with your dream.
Your dream is spending time withyour kids.
It was a no brainer.
once you clarify those importantthings and they were free from
(16:42):
it.
Warren shares his story.
Catherine shared their story.
This is amazing, like we thoughtwe had to just keep grinding
through and maybe change the 15units for 30 units and then 30
maybe for 60 units and thiswhole thing and we didn't have
to go into these otheralternatives that are lower cash
on cash and so we're able to putthem into double digit, cash on
cash return.
Diversified assets.
(17:04):
A lot of debt is what we wentinto, which is really important.
Debt is paid much higher thanequity these days, generally
speaking.
And that's what they wanted.
They wanted cash flow as theirbiggest thing, plus time flow,
right?
They wanted multiple time.
Energy with their kids.
And so that's what I would sayto get really clear what you
want.
And then get unstuck on what'sblocking you.
(17:24):
And let's get going on that.
And I'll leave you with thisquote here, right?
This is probably the mostimportant thing.
I'm going to say this entireinterview, right?
That truly passive income is toyour freedom and impact as
compounding interest.
It's to your money.
Truly passive income is to yourfreedom and impact as
(17:46):
compounding interest is to yourmoney.
And this is a complete gamechanger, even though this was,
technically passive in thetraditional, real estate world
that we would think about Hutch.
Yeah, property management,you're 100 percent occupied
emotionally and even justheadspace wise, Warren was still
feeling drawn to take care ofthe tenants fix something on his
(18:07):
own versus the propertymanagement to save a few bucks
here and there.
He's got millions of dollars,like he's so in it because his
habits and his rhythm and his,that's, he's been the worker bee
for so long to get to this pointand then to be able to say, Oh
my gosh, I can harvest thisgain.
I can defer all the tax.
I can diversify my wealth and Ican make more income and I can
(18:29):
actually have more time.
Is it this easy?
I'm like, yes, this is whatwe'll do.
And so we did it.
And here we are.
It's completely transformedtheir lives.
So if I understand it they haveacquired a property through 1031
exchange.
Now, when you go from a 1031exchange to a DST, are there any
tax implications?
No, not if you properlystructure it.
(18:49):
And so on their sale, what wedid, we set up the trust prior
to the exit.
Then we had a buyer lined up.
I happened to broker this deal,so it was really neat.
We got to do the whole thing andkeep every step by step.
and the trust, Bought the assetfor, 2.
5 and sold it for 2.
5 to the buyer, right?
Yeah, it paid off a little bitof closing costs and then the
net was about 2.
35 and the seller got apromissory Note for 2.
(19:13):
35.
I think we wrote the interestrate at 9%, right?
It's a 10 year term and every 10years they can renew for 10
years and they can live up allof the interest or just partial
interest Kind of a key notehere.
They live in California, one ofthe highest taxed states, as we
know, in the country.
they're able to defer theirincome tax.
In fact, what they found is theydidn't need as much income,
(19:35):
especially the first coupleyears here, when we put this
thing set up.
And so they actually, theirtaxes went way low, because
they're not paying any tax onanything right now, because
they're not receiving payments.
So we can delay the payments,which is so important here,
right?
If you don't have depreciationleft and you're having to take a
cash flow What happens is youdon't have what's called tax
(19:57):
flow depreciation to offset andyou pay tax in this trust
scenario You don't have to takethe cash flow the trust itself
typically doesn't pay any tax atthe trust level and so they're
able to get another roi hereWhich is no income tax, at least
for a couple of years.
Now eventually they will takesome income and they will pay
some tax, typically in year twoor three.
(20:19):
But this is a dynamic structurethat I want you to catch here.
The mindset is not just ROE, notjust cash on cash, but also tax
flow.
how does that offset my cashflow?
And is there ways to structure?
We did another 8 million deal inPalo Alto and the client moved
to Nevada.
when he moved to Nevada, heestablished a residency.
And when he did that, the incomecoming in is based upon his
(20:42):
state residency.
0 percent Nevada, California,much higher.
We had another one that's,Pennsylvania sold an 8 million,
6 million, 6 and a half milliondollars self storage.
They're moving to Florida.
Same concept, right?
And so we do this over and overagain with clients and it's a
game changer.
You can partner with the trust.
(21:02):
And so if you're theentrepreneur saying, Brett, I
want to run my own deals.
My name is Hutch.
I buy and syndicate multifamilydeals.
Are you saying that I have to bepassive and just retired?
No, just the opposite.
You can be if you want to be.
but our best clients are theentrepreneurial ones that
partner with the trust.
And so it's real simple, Hutch.
You can set up an LLC postclosing.
We just did a 16 million exitfor a client out of Oregon.
(21:24):
They sold the whole dentalpractice.
And then they partnered with thetrust into an LLC.
And then now they're in theprocess of buying an office,
complex in, Washington.
With a new depreciationschedule.
and the trust puts up the moneyas a silent partner.
So this is huge here.
They're now able to getadditional, larger, much greater
(21:45):
upside than just a promissorynote.
They're able to run their owndeal.
They control that LLC.
They do the management just likethey would otherwise.
the trust just happens to be asilent partner.
they would have paid about 30percent of that 16 million in
tax, but now they're able to useall of that and more to partner
with them to do more deals.
(22:06):
If they want to start anotherbusiness, they could.
If they want to do lending, theycould.
it's truly, a Netflix version tothe old blockbuster, right?
So you could be an entrepreneurif you want to be as well.
that's some phenomenal stuff Ifyou, advanced while sitting down
with this episode, get a pieceof paper and a pen, and start
writing things out and drawingthings out, and I'm pretty sure
by the end of this podcast,we'll give you some resources,
(22:26):
as well to help you to get adeeper understanding of this
concept.
So the next one is going to addfor you Brett, and you touching
to just a little bit, right?
What type of real estate assetsor businesses are qualified for
this kind of transaction?
Yeah, we mentioned businessesalready.
We mentioned real estate.
Bitcoin.
We've helped multiple clientsexit Bitcoin and cryptocurrency.
(22:49):
I think we're up over 16 or 17million now.
And that's just across fourclients, right?
So if you're a capital raiser, Isay, don't raise capital, Hutch,
I say unlock it.
But just think about this for asecond, right?
Both commercial real estatesyndicators, operators, fund
managers, they go to theirnetwork, right?
(23:09):
They look for the people thatare selling real estate, all the
stuff that you said, they wantto be passive, they're tired of
the active, right?
They want to get scale.
They want to come with someonelike yourself, who's doing a
multi family syndication and allthe cool stuff that you do.
But they still focus on just thereal estate world which is 50
percent of our sales But a bigchunk now and it's really
growing because bitcoin's over ahundred thousand a coin these
(23:30):
days Is bitcoin they can exitand defer the tax out of bitcoin
and move it into yoursyndication or your fund all tax
deferred That's amazing.
Okay.
It also works for stock.
So if you have Nvidia stock orTesla stock if you have, a
private stock so we just did anautomotive sale for eight
million up and up inmassachusetts Yeah, it works for
(23:51):
land flipping, where people,they buy the land for 4 million
or 3 million and they sell itfor 10 and they do this,
entitlement play and we candouble close that within a short
period of year and we can deferthat tax.
so it works for business sales,it works for primary home sales,
so big luxury houses, it worksfor investment real estate.
and so really any asset of anykind, here's the key, needs to
have 1 billion net proceeds, 1billion gain.
(24:15):
So it's gonna be big enough,right?
If it's too small, it's not agood fit for us.
Now, if you had two at 500, 000each, we can make it work,
right?
We can combine them.
You can get one trust andmultiple promissory notes.
so the Mindset shift here is tosay, okay, how do I collect
promissory notes versus justselling assets?
first you're an owner and thenyou sell it on terms, right?
(24:37):
You become the bank and thetrust owes you the money.
It's like the, go bank onyourself, right?
Concept a little bit here,right?
Tax deferred.
And then you partner with thetrust into a new LLC.
And you buy a new asset and nowyou're a new owner again.
And so you're going from ownerto lender to owner to lender.
(24:58):
And you're just keeping thisover and over again.
And every time that you're doingthis, there's an extra 20 to 50
percent of the proceeds morebecause you're able to defer
typically a hundred percent ofthe capital gains tax and the
depreciation recapture, justdepending on what nature you
took there and if it wasaccelerated or not, and if you
have debt over basis, there'ssome caveats here.
Okay.
The point is.
(25:19):
If you can build a capital gainstax exit plan, spend a couple
hours with us, get the book, goto our website, start to learn
about all of this, like you'regoing to compound your freedom
and your impact, right?
And that's really what we'retrying to help everyone achieve.
Now, as you start building thismassive empire, of deferred and
collecting promissory notes, Atwhat point does the tax guy come
(25:44):
calling?
And if that doesn't happen, whatare some of the things that we
could do to really, to disruptthat process?
Yeah.
the trust will pay you back.
And you'll get, you'll payordinary income tax.
So let's put a 10 million exitback to your, San Diego deal.
Let's say you did 9 percentinterest on the note and let's
say for the first two years youdelayed all of those nine, the
900, 000 of interest, you let itjust accrue.
(26:07):
And say in year three, you starttaking, I don't know,$600, 000
of payments.
You're going to pay tax just inthat year on what you received.
Ordinary income tax 600.
Now, you might have done somestructuring where you JV
partnered with the trust,established some new basis, and
did some cost seg.
And since you're a real estateprofessional, you might be able
(26:27):
to wash all of that off.
Okay.
Check with your CPA, all ofthose things, a little more
advanced stuff here.
But that's what we're sayinghere, right?
So you will pay tax.
To the extent that you don'thave lost to offset it in the
given year, but to the extentthat you don't receive payments
from the trust.
You pay no tax.
No, we got to make somepayments, right?
We got to keep it commerciallyreasonable.
(26:47):
but a lot of our clients willset up interest only payments
starting in about year one ortwo.
It can be monthly payments, butthey'll take about half of the
interest.
So if it's a 10 million deal at,let's just say an 8 percent
interest, 800, 000, they'll takeabout 400, 000 starting in year
one or year two, and then let'slive off the interest and pay
tax on that.
But they can pass it to theirkids.
(27:08):
So every 10 years, the accruedinterest that hasn't been paid
yet and the principal thathasn't been paid yet can get
refinanced for another 10 years.
So let's say it's a 10 millionand you live off 400, 000 for 10
years, there's been an extra400, 000 accruing, So now it's
14 million that you canrefinance that 14 million for
another 10 years and then you dothat again and you do that again
(27:31):
and then your kids can pass thaton and so that's the idea here
is you can just keep kicking thecan and just living off the
interest and it goes back tothat truly passive income.
Your freedom and impact ascompounding interest is to your
money.
So you see we're using the powerof compounding interest.
By deferring the income and thecapital gains tax.
(27:52):
And we're building this wealthmachine that's diversified.
It can go into any asset at anytime.
And it's very nimble.
If you put a new illiquid asset,it takes some time to get out of
there.
Yeah.
We have one client to a 13million exit out of San Diego
car wash, and then you put alarge chunk of it into Bitcoin
at 40, 000 a coin.
And this is when real estatevalues are still hot before
(28:12):
interest rates shot upbasically.
And then the values of realestate have dropped.
And then we turned around andnow we're selling that bitcoin
and we're buying real estate sowe're selling high and buying
low and that's the whole conceptlike we give you this ability to
do this Dollar cost average stayliquid not being dead But guess
what now that values are downwhat's going on that even when
(28:35):
the interest rates are higher Ithink it's a good time to go
into debt now because valueshave dropped right?
But the other time was not agood time to go into debt
because values are so high soyou've got to use Smart debt,
there's smart debt and dumb debtbased upon the context of the
deal and the context of themarketplace.
We're the only flexible legalproven strategy that gives you
the leverage of all of these taxflow, cash flow, and debt flow.
(28:56):
And real quick on the legalpart, 48 year track record,
thousands of transactions, andthere's been about 30 audits,
all no change, never had achange, never had a finding.
Most of our deals have been donein California, never had a
change, never had a finding.
But here's the reality Hutch,most real estate agents, they
don't want you to know aboutthis.
They want to keep you in the1031 bubble.
(29:19):
And that includes the DelawareStatutory Trust, right?
which I call it Hollywood videoto the blockbuster.
It's just another 1031structured deal, which has its
place and we've done thosebefore.
But what we really want you toknow about is the Netflix,
right?
So you don't have to feel likeyou have to be forced into the
1031.
No, I got you.
so you talk about, a 10 milliondeal.
(29:41):
All right.
Having that promissory notes andthe, trust, how does the trust
generate that income?
Sounds like the 10 million isgrowing at about 4%.
Oh, so we're typically earninglike, 9%, 10% net of our fees.
but it just depends on how,where we invest the funds.
So like we have a lending fundthat's paying 10% right now.
Our fees are about one and ahalf to 2%.
(30:03):
So that'd be about an 8% totalreturn.
We have another one that we'relending at 16%, right?
And so depending on where wewrite the note at, we blend it
to different investments.
we have clients that went toNVIDIA stock and it shot through
the roof.
So we diversify, and where dothey want to put the money?
Like we have a lot of, David andJordan, their business partners,
they have 3000 multifamilyunits, they're clients of mine.
(30:24):
They've done at least five dealswith us.
over 120 million of exits, andthey put their GP interest,
right?
And so for them, they're goingback into their own deals.
They're keeping some liquidcash.
They're going into some debt.
They're going into some stock.
They're diversifying, right?
Every time they exit.
And they're glad they didbecause, had they just put it
all back into their own dealsall at once during that 2020
(30:45):
2022, a lot of that could begone.
And so some of the mindset hereis even though you're probably
doing your own deals, you'remaking your money.
It's good to build a team todiversify and get some different
perspective.
And that's what the DST kind ofnaturally allows you to do.
So you can do your own deals.
Or you can do others deals, oryou can do a little bit of both.
It just really depends.
We would actually ask you, Hush,where would you like to put it?
You go, I want to do it to amultifamily syndication.
(31:07):
Great! How much?
let's start with 3 million.
Awesome! You start the LLC.
Great! The trust puts up the 3million as a silent partner.
Go do the deal.
You're running that, right?
What do you want to do with theother seven?
let's say 3 million into a debtfund that's doing, 10% to 16%.
Great.
Let's do that.
But about the other amount.
I want to keep a little bit ofmy powder drive, maybe a money
market count at 4%.
Okay.
it's not like you have to do itall in one year.
(31:27):
It's think about a 10 year timeframe, Our goal is to try to
achieve, I get 8%, 9%, 10% netof fees overall.
But if we have an extra,especially Hawaii, Hawaii is
huge capital gains taxes, right?
If you have an extra 20% 30% 40%50% more proceeds working for
you, you have more margin towork within investing.
(31:48):
And if you have time on yourside, you have the best thing
for investing, which is time.
Time is the one thing you cannever get back.
Yeah.
And of course the trust allowsit to transfer seamlessly to
future generations.
you just pass it to thepromissory note inside of your
living trust.
So your kids can step into yourshoes.
We have a 2.
0 version where the children canbe the beneficiary of it and
(32:10):
remove it outside of theirtaxable estate without any life
insurance, gifting or charityrequired.
So if you knew someone on theisland where you live on that
has a 50 million mansion, right?
And it's all inside of theirtaxable estate.
it's the whole concept ofYellowstone if you've seen it
with Kevin Costner.
They own let's say 100 or 200million dollars worth of land
and they're like, Beth thedaughter's hey dad They're gonna
(32:33):
take the land when you diebecause the estate tax is gonna
kick in and we're not gonna beable to afford it or we could do
something different now, youknow That's just that's the
whole concept of the entire showAnd so this debt tax we need to
be aware of this that the 1031stepped up basis has not solved
for The DST Divert Sales Trust,we don't have a stepped up basis
(32:54):
in the sense of traditional.
The kids can step into yourshoes, but our 2.
0, we can remove it outside ofthe taxable state.
And then typically also thecapital is capital gains tax
free.
and the kids can be the heirs.
And so a little more complexhere, but for someone, has a net
worth of over 20 million.
you want to be talking to usbecause we can also structure it
(33:16):
to eliminate your estate tax.
No, that's game changing stuff,man, because most people who are
in real estate, that's one ofthe things we aspire to do, is
create the ease of transfer, toensure that our kids are not
burdened with extra taxeswhenever we built this estate or
this empire, great informationtoday, man.
And you touched on a couple ofquestions that I had coming, you
(33:38):
have helped people save millionsin capital gains, but I'm sure
that in some DST, it doesn'talways work out as planned,
right?
You talk about, you've beenaudits, but never everything
remained the same.
And what are some of the mostcommon mistakes that people make
when setting up a DST and howcan they avoid them?
(33:58):
Yeah.
The most common mistakes wouldbe working with someone who's
actually not proficient anddoesn't have the thousands of
hours.
in the trenches for over adecade, at least right anytime
you're if you're looking at anykind of new strategy or new
something, just realize that youwant to work with pros that have
a proven business model toexecute.
And so our background is we'vebeen working with it since 2009.
(34:21):
so it's thousands of hours.
So I think that's number one,like not working with the
professional or just relying onthe person who dabbles on the
side with it.
They might be a financialadvisor and they know about it.
They've never done it, but theyjust want to manage the capital
as a financial advisor.
Nothing wrong with that.
We work with financial advisorsall the time.
But if you're, you have a realestate person who's made all
their money in real estate andnow you're asking them to trust
(34:42):
into this new strategy thatthey've never heard of, or maybe
a lot of people don't hear aboutit until either watching a
podcast, doing a podcast 30 daysbefore they close.
So then I have millions ofdollars on the biggest sale.
And now this financial advisor'sinvested way that they get paid
is when they manage the capital.
And so you have these twodichotomies, right?
Now I'm a trustee and wedefinitely can work with
financial advisors and we do allthe time, but our clients, a lot
(35:05):
of them are business real estatepeople.
They want to go into business asa real estate investment advisor
that also works with financialadvisors to get a balanced team.
And that's the difference there.
And so I would just say.
When, if the person is, feelingpressure to go into some other
product type, like an assetclass, allocation that they
aren't as comfortable with and,yeah, that, that's not always a
(35:27):
great outcome because, theydon't understand it.
It's like a fish trying to climba tree, right?
They made all their money overhere and now it's over here.
the way we really succeed iswhen we give, we go back to the
client and say, Hey, Mr.
Client.
What do you know and trust,right?
Where have you made your money?
What is your risk tolerance?
What is your cash flow needs?
what if we diversify within realestate and our alternatives is
the stock market, right?
So it's the 80 20, but on thereal estate side of things, 80%
(35:51):
real estate with debt mixed in,including real estate.
20% the other side.
Okay.
So those are some of the thingsto really keep in mind.
The next thing would be just,letting your advisors talk you
into something different thatdoesn't really serve your needs
because their fear or theirconcern because they've never
done it.
So sometimes the person willshow up to the advisor who
(36:11):
didn't solve their problem inthe first place.
They'll show up to us.
I'm like, this is amazing,Brett.
Now I need to convince myadvisor.
I'm like, sure, bring'em on.
But sometimes they don't bring'em onto the call.
they just tell'em, and then theperson feels obligated to the
guy that they've been playinggolf with.
That was their college, roommatefor 20 years, a financial
advisor.
And I'm happy to work with thatguy, but sometimes that guy
(36:32):
works for this big, company.
That doesn't necessarily, workwith things that are outside of
their box.
Correct.
Yes.
So we had one client.
She sold a 8 million dollarmobile home park near Napa,
California and literally wasgoing to pay.
40% In tax.
And she was so excited.
The real estate broker was allabout it.
(36:52):
He told her about it.
He's this is the best thing.
Go for it.
She vets it.
Her financial advisor that shehangs out with and is a friend
of hers Talks her out of it.
And the advisor never showed upto a call.
Never came on and had a robustdebate.
And she just paid her tax.
And all the client could saywas, my advisor just says that,
(37:13):
she's not sure if it would holdup with IRS.
It's but we've been perfecttrack record for 28 years.
And She can work with that,right?
We can work with her.
So those are some of themistakes that people make.
and we would just say, we'rehappy to have these
conversations with your CPA,your FAA, anyone else, and let
us walk them through it.
9 out of 10 people, Hutch, thatshow up and have an hour long
conversation with us for 30minutes, they end up joining us
(37:35):
and sending us referrals.
But when they're not brought tothe table to sit down and
discuss it, sometimes it justfalls apart.
It definitely is a complexstrategy, right?
Especially, for long terminvestments.
And one of the things you talkabout earlier is being clear,
becoming unstuck, and thenmoving forward, right?
If we cannot get clarity, thenwe can't get unstuck.
And then the way we move forwardmight not serve the things that
(37:58):
we actually want.
So Brett, I want to ask you onemore question before we get into
focus round is, for high networkindividual who have access, to
elite tax strategy, right?
Where does DST fits with abigger picture of tax deferred
and how does it compare toopportunity zone and charitable
remainder trust?
(38:19):
Yeah.
So we'll start with, the CRT.
So we like to say that deferredsales trust is like the CRT, but
no charity is required.
Okay.
It's key, right?
So the charitable remaindertrust forces you to give to
charity.
Nothing wrong giving charity.
Most of our clients are verycharitable.
They're just not 100%charitable.
(38:40):
You know, mom and dad might havea heart for a charity today, and
they might irrevocably give upthe right to their asset upon
their death to this charity.
They might live for 10 or 15 or20 more years off the cash flow.
Problem is, there's a lot ofleadership that could change
(39:00):
within those 10 to 15 years.
And what mom and dad thought wasA charity that they really
believed in can switch.
And so we encourage, the controlto stay with the family.
And if you set up the familymission, vision values, and you
set up the trust in a way, yourliving trust, that certain
amounts are going to go tocertain charities that your
(39:21):
children, whoever you assign asthe trustee of that living
trust, the DNC works seamlesslywith that to be able to be a
flexible.
So we call this being greatStuart with the capital.
So you're not forced into justone charity.
There's also donor advised fundsthat are also a good alternative
to look at.
They're not going to prefercapital gains taxes, but donor
advisements are also anexcellent way to give and have
(39:41):
flexibility with giving.
as far as the opportunity zones,so I've yet to really find Hutch
except for maybe the first twoyears when this thing came out
Amazing opportunities.
I just haven't seen many of thepeople that I we run do these
deals 10 years is you know whereyou get the real benefit
typically ground up development,or just a major teardown
remodel.
So I just don't see him now.
(40:03):
Here's the cool thing with theDiverged Sales Trust.
If you find a great deal, youcan still go into that right
with a part of the capital.
But I think sometimes peoplethink the Opportunity Zones like
a 1031 mindset.
I'm going to trade my$5 millionand put it all into this one
opportunity zone.
That's going to be the onethat's going to be the thing.
But it's you really want to wait10 years to get the benefit of
that.
And once the cashflow starts,okay, so yeah, you get tax free
(40:26):
money at the end of the, the 10year thing.
just think through that for asecond, right?
Now, why not do a 5 milliondeferred sales trust, and then
if you want to put a millioninto that opportunity zone,
then, yeah, then let's put 4million in the trust, 1 million
there.
But sometimes we're doing apartial 1031 exchange, like a
client we had in Texas.
He did a partial 6 million exit,and did a 1.
5 million purchase in SouthCarolina.
(40:48):
He did a 2 million purchase inOklahoma, and then the rest of
it went to the Deferred SalesTrust.
So we have what's called theBest 1031 Exit Plan, which gives
you all three options.
So you're not just tied to justa traditional 1031 or just the
Delaware Statutory Trust.
You can also have the DeferredSales Trust, where most QI
companies, they just give youthose first two options, which
(41:10):
again, those are typically theless attractive options.
And then ours is a one thatgives you both, all three
options.
That's awesome, man.
Now, be mindful of your time aswe wrap up here.
We can do a fire round called afocus round.
What do you do for fun, Brett?
So I play basketball and jiujitsu, so jiu jitsu, two or
three times a week basketballjust once a week.
But I want to move that up.
(41:31):
That's what I personally do forfun and hanging out with my
kids, playing fortnight, ridingthe one wheels, coaching my son
in basketball, all those thingstogether.
That's great, man.
what is one opportunity that wasa game changer for you?
One opportunity that was a gamechanger for me is when I was 25
years old.
I joined a men's Bible study anddiscipleship group that had
encouraging confidentialaccountability and discipleship.
(41:53):
That was an absolute gamechanger for me.
absolutely recommend that toeveryone at all ages, but
especially when I was 25, whatwould you say is the most
important communication tip?
so I think be quick to listen,slow to speak and slow to become
angry, right?
It's in the Bible and then two,use mirroring and labeling with
Chris Voss, never split thedifference, the art of
(42:14):
negotiation where you label theemotion behind what someone is
saying and you mirror the lastfew words that they say, and you
learn that skillset to becomenot just an active listener, but
an emotionally connectedlistener.
What is one thing you wish youunderstood earlier?
I would just say, probably, Ithink a couple things.
(42:35):
really studying personalitytypes.
And strengths for myself, myspouse, my kids.
There's a book calledPersonality Plus that breaks
down, the four major personalitytypes and how we, how each of us
are uniquely designed it withthese personalities.
Like one, one strong one,typically a second, pretty close
to it.
or second one and the other two,opposites.
(42:56):
So just under understand justthe personality types and how to
communicate, so that, that pieceof it.
All right.
Last one to focus around to whatdo you attribute your success?
I would say two things, right?
having a mindset of stewardshipover ownership, meaning that
everything that's been given tome as a gift from God, my time,
my treasure, talents, the giftshe's given me and there'll be to
(43:19):
be used to be a blessing andhelp to others and to fulfill
the mission he has for my life.
So having that mindset moved meto gratitude.
Versus ownership, which, wasreally focused on the external,
getting the degree, getting thefirst job, closing the first
deal, making that first, bigcommission and all those things
that are really focused.
it tends to be more towardsentitlement.
(43:42):
It can lead to when you have anownership mentality.
and a negative ownership in agood way for Hey, I'm
responsible for my future.
But even more like I'm a stewardof what I've been given to be
able to pass on a legacy for myfuture.
So it's almost another level ofthe owner extreme ownership type
of thing.
It's like stewardship, right?
and although I do love extremeownership and everything,
chocolate talks, it's a goodone.
(44:04):
so that makes sense.
I think that'd be number one.
I'd say number two, I have anamazing wife, Melanie, married
close to 16 years, fivechildren.
They're my world, right?
my goal is to serve them, blessthem and, do.
my wife's been so good to me.
So I think those are two thingsthat really helped me to
succeed.
That is awesome.
And Brett, this has been anincredible conversation you've
(44:25):
given our listeners, pretty mucha masterclass on capital gains
deferred, right?
So are they deferred statustrust?
It's I know listeners, if youlisten to this episode, it's
going to be a complex topic andyou really need to sit down and
dissect.
However, you really need to getclear on what you want as the
best point so you can becomeunstuck and then you can move
forward.
Brett, if our listeners want toget in touch with you, how do
(44:47):
they go about doing that?
Yeah, two places.
BrettSwarts.Com.
That's S.
W.
A.
R.
T.
S.
so Brett 2 T's Swarts.Com orcapitalgainstaxsolutions.Com.
We have our YouTube, ourpodcast.
Build a Civilians podcast andCapital Gains Tax Solutions
podcast if you want to check outthose shows.
(45:08):
All of that can be found onBrettSwarts.Com and then don't
forget the book Building aCapital Gains Tax Exit Plan and
the best 1031 exit plan service.
If you're in a 1031 or knowsomeone who's going to be in
there, make sure you send themmy way so we give them all of
the options and they don't getstuck in the old Blockbuster
1031 only option.
(45:30):
Perfect.
Listeners, thank you again forlistening to another episode of
the Multifamily Real EstateExperiment podcast.
if you like this episode andfind value, Please give us a
fair review and of course a fivestar rating if you so desire and
Catch you on the next episode.
I'm Hutch the Marine Investorout.
Welcome all you multifamily enthusiasts to
(00:02):
another episode of themultifamily real estate
experiment podcast.
I'm your host Shalon Hutchinsonand look, if you've been
connected with me in realestate, you know me as Hutch the
Marine Investor.
And today we have a conversationthat is a little bit advanced
and we're going to try to get tosome foundation questions and
some questions that may not beas, as we would say, or you
(00:23):
young folks would say"Googleable".
So our guest today, Brett Swartsis the CEO of Capital Gain Tax
Solution, which he functioned asa real estate investment
advisor.
He's a leading expert indeferred sales.
Trust.
He helps high net worthindividual business owners and
real estate investor legallydeferred capital gain taxes
(00:46):
while keeping control of theirwealth.
See, if you ever thought.
how can I sell a propertywithout a 1031 exchange and
still keep your money workingfor you, then you're really in
for a treat today.
So Brett is about to break downthe Deferred Sales Trust and
this can definitely serve as agame changer for you if you're
(01:08):
looking to create generationalwealth.
So welcome Brett.
Hutch It's great to be here.
Thank you for having me.
Hey brother.
so before we get into the meatand potato of a deferred sales
trust, do you have a favoritereal estate quotes or mantra
that drives you?
I would say it's a real estatequote that drives me, but I have
read a book.
Am I being too subtle?
Sam Zell.
(01:28):
Okay.
And Sam Zell is one of the mostprolific real estate developers,
owners, investors.
He's masterful.
I would say, listen to that bookand just start learning about
real estate and putting dealstogether and structuring.
And, I think he, in that book,he says something like.
If you're going to be in apartnership, you got to make
sure there's equitable amount ofrisk for equitable amount of
(01:50):
return, right?
So something along those lineswhere if you're going to go in,
like you're going to try to, andsometimes it's 70 30, sometimes
it's 50 50, sometimes it's 6040, you got to figure that out.
sometimes he would structurepartnerships, he would start out
80 20.
And as those people provethemselves, he'd give them more
and more.
And so it's just a, it's amindset.
(02:10):
It's not just, it's more caughtthan taught is what I'm saying.
so check out that book.
Am I being too subtle?
Sam Zell.
Sam Zell is definitely acredible source, before we get
into the meat and potato of theinterview, can you tell us a
little bit about your backgroundand what brought you, to become
the expert in deferred saletrust?
Yeah, so I grew up in realestate building houses with my
parents in California, the BayArea, Silicon Valley, the East
(02:33):
Bay, Fremont Mission, San Jose,that area.
And then my brother and I workedreally hard with our arms and
our legs, building stuff, movingbricks, hammering nails, putting
up drywall.
In understanding that, realestate, you can make wealth in
it.
But at the same time, my parentssaid, Hey, look, we want you to
go to college.
My brother was the first tograduate college on any side of
the family.
(02:53):
I was the second.
And we, we still want it to bein real estate.
he started at Marcus Millichap.
And then I followed His leadthere and at Marcus Millichap, I
started helping people buy andsell multifamily property.
So using the brain more thanjust the hands in the sweat
equity.
more negotiating, underwriting.
And so that was all in 2006 whenI started, then everything was
(03:14):
going great for a little whileuntil 2008 and a crash happened.
And then friends, family, andclients, lost a lot of wealth.
And we are also, we're goingthrough a really tough time, my
wife and I.
We're newly married and we'relooking for a way to keep our
lights on and food on the tableand our first baby on the way
and keep her home full time.
And that's, during this time youdo whatever real estate or
(03:36):
entrepreneur does.
My side hustle is cheesecakefactory nights and weekends
working as a server selling allkind of egg rolls.
And by day I negotiate withbanks and underwrite, deals to
try to help my clients hold onto them, renegotiate tax
assessments, figure out ways toget creative with tenants and
rentals and essentially becomelike a real estate investment
(03:57):
advisor in a distressed market.
I did that for two years.
So I kept it I was like twodifferent people.
Seven to five.
I was in the commercial realestate office.
And then, five to nine, I'mgoing to do, cheesecake factory.
And then I do that all overagain.
Do that for 60, 70 hour weeks.
And I do that for, two years.
And, this time I got to learn alot about what not to do.
(04:17):
And the problems with the 1031exchange.
And see, our clients were losinghalf or all of their wealth.
And so they were going throughtheir own financial struggles as
well.
And so I had a person who camein and became a mentor who
taught us a new way, a betterway of deferring capital gains
taxes, which doesn't require youto stay into debt, doesn't
require you to overpay for aproperty, doesn't require you to
(04:40):
have to be in real estate rightnow, a hard illiquid asset, all
on your own, but it changedeverything, right?
I started to learn like thiscould have been.
They say, the game changer foreverybody.
And so I thought everyone wouldjust, jump on it much So I'd
call people Never heard of it.
Call me back, three years agowhen my property values are up,
call me in three or four yearswhen you've closed a bunch of
(05:01):
deals.
Like basically I was like theprofit not accepted in his
hometown.
And it was devastating because Iwas like, this is the future.
This is Netflix and everyone'sstuck in blockbuster, but if
they can just understand whatthis is.
I would say more, passionatesalesperson that was just cold
calling and trying to bang onthe phones to bring people's
attention to this, to try to getthem to move so I can get a
listing so that I could retirefrom the Cheesecake Factory.
It took my vote for two yearsand it was brutal.
(05:24):
and, but eventually I got somemomentum and eventually I
started getting these biggermeetings.
And then fast forward, inbetween multiple other side
hustles between, that and fourother kids that came along the
way.
But we've launched this companyand now this is all we do.
we went national on a podcast,on a bestselling book.
And now we help people acrossthe country exit any asset of
any kind, I was able to retirefrom the cheesecake factory.
(05:46):
But the most important thing isfor us as a family, we are able
to stick to our core values,right?
Which was keeping my wife homefull time with our children.
She really wanted to be a momfull time.
And then also not giving up onthe dream, but cutting to the
bare bones, like jumping, goingto my brother to live with his
small condo.
and so because we couldn'tafford to own or to rent our own
place.
(06:06):
Right?
And so that's the encouragementfor people.
I'm going to make sure that yourstart where you're at, or if
you're going through a toughtime right now.
there's always a beginning forthis success that you see on
this side of things, but thatmakes it a touch.
Oh man.
I like that.
The beginning of the success.
Look, one of the things you talkabout that I want to hold in
just for a little bit, maybe aminute.
And you're talking about working60 plus hours per week, right?
(06:26):
because he was going throughsome tough times.
In some situation, a lot offolks who worked that many
hours, they'd say that I'mreaching, approaching burnout,
but it sounds like you was onfire.
Tell me a little bit about thattime.
part of that, too.
I was working these side hustlejobs on the weekends for
basketball tournaments.
I was the bouncer at the doorthat would, take them, take the
money and give you the wristbandto get in for the weekend.
and then I quickly figured outthat I could do that and make 20
(06:50):
an hour.
But if I also was the snackshack, I could buy a bunch of
stuff in Costco and I could makeanother, 10 to 15, 20, 30 an
hour.
I was making at one point, Ithink we maxed out at we
calculated like 60 somethingdollars an hour over the
weekend.
We do these eight or nineweekends during the year and we
have three basketball courts.
so I negotiated a deal betweenthe A.
(07:10):
U.
guy who ran all the tournamentsdown the street and he had like
10 courts of his big complex,but they're always looking for
more courts.
And instead of just going towork for somebody, I said, how
can I help him expand?
And then also, how can I get onthe front of that?
And then how can I also takesnack shack okay.
And so we had courts going onanother site, so he's making
(07:31):
good money.
So I got 20 from him, and then Iwas working out, again, at one
point I was making like, I thinkit was like 57 or 59 dollars an
hour, and it was incrediblestuff.
So this wasn't all boring, likethis was entrepreneur, I call it
the honey badger stages, right?
Where you're looking for anylittle angle to get it, So my
wife would show up with theCostco pizzas.
I've been selling bananas fortwo bucks.
(07:51):
People are like, how do you sella banana for 2?
I'm like, people are gonna payfor it.
I go, every single one of thosekids that are coming in here, in
my mind, they had 20 in theirpocket, and they needed to buy,
they're gonna buy the snacks forme.
Now, we had some healthy stuff.
We had smoothies.
we'd make fresh smoothies there.
We'd have, pizza from Costco, sothat's maybe not really that
healthy.
We'd have Clif bars from Costco.
We'd have the candy and stuff.
We'd have the water balls.
(08:11):
But we would make a killing atthe snack bar and, that made it
exciting.
my mom would come in and shewould bring some notes.
She'd do a Costco run.
We were running out ofGatorades.
She'd run and get the Gatoradesfrom Costco, come back and I'd
pay them.
So I was running this little,little mini business, if you
will.
and that was fun, right?
So honestly, I think when youhave a clear passion and a
vision for where you're going,the drive and the fire,
(08:34):
naturally comes, right?
Now, also, my wife is ubersupportive, believed in me, also
willing to move into mybrother's small condo, drop our
expenses all the way down.
So she didn't, she was with me,right?
We were a team.
this is not something that Ijust did.
We did it together.
And we had a vision for if Wecan grow and learn during Marcus
Millichap, because that's reallywhere I was growing.
(08:55):
I was growing both sides ofthings, but during the day, I
just kept growing and learningat Marcus and Millichap.
What was going wrong, how we cando this, solve these challenges
moving forward, but who's doingwell, what they were doing
right, right?
How to negotiate these deals intough markets.
If you could sell and make itthrough those couple of years,
you can make it in any market.
And so that kept me going likeall of those things.
(09:16):
I think the biggest thing wouldbe my faith.
I think if you're in the centerof where God wants you to be.
Even if it's challenging,honestly, those are the most
rewarding years because thejourney itself helps to, build
what's called a growth mindsetversus just a goal mindset.
A goal mindset is you just getthere and you achieve the thing
and you get stuck, Whereas agrowth mindset is, no matter
what, I'm just gonna keepgrowing regardless of the
(09:39):
results or the immediateoutcome.
I'm going to keep growing andeventually if that guy can do
it, I can do it.
And that's what my mantra was atMarcus Millichap.
I would show up and I'd say,that guy's not working as hard
as me.
That guy's not as hungry as me.
Yeah, that guy's moreexperienced.
And he's smarter than me rightnow.
I go, but I'm going to catchthem all.
I'm going to catch up.
(09:59):
And, that drove me.
I just kept, I kept going andgoing until here we are now, no
longer just in Sacramentoselling multifamily.
We're national and we're helpingall brokers across the country
and all high net worthindividuals and M& A attorneys
like it's a thrill to be on thisside.
So that's what I would say wouldhelp me get through it.
Now that is amazing, man.
It's not like he was definitelyon fire.
And it's really cool to hearyour story because, one of the
(10:21):
things that you mentioned thatour leader, John Maxwell talks
about.
is the focus on growth over thegoals, right?
Especially it's beginning ofFebruary right now to record in
this podcast, where a lot offolks just came out of January
and they did a lot of goalsetting, right?
But how much of that goalsetting was focused on growth,
right?
And when you don't accomplish.
(10:42):
All your goals throughout theyear.
How much did you grow and yourability to measure backwards,
right?
And be able to be proud ofyourself and your
accomplishment.
Be like, I did that.
I didn't die and I didn't quit.
So thank you for sharing thatwith us, brother.
Absolutely.
Let's get into it, man.
let's talk about the basic ofdeferred sales trust, so for
those who are unfamiliar, canyou break down this in simple
(11:04):
terms?
What is deferred sales trust andhow does it work?
Yeah, it's an installment saleor known as a seller carry back.
So if you're in real estate, youprobably know it as a seller.
You can finance the buyer who'sbuying your property.
So let's say Hutch is selling a10 million multifamily property
that he used to own in San Diegofor 30 plus years and it's fully
depreciated.
(11:24):
So he has no basis and he, let'ssay he has no debt to keep it
simple.
And let's say he finds a buyernamed George and George wants to
buy it.
And, George's Hutch, I can't getfinancing, and Hutch's that's
okay, it's, I'll finance you,just put a two million dollar
down payment, and I'll financethe other eight, that's known as
a seller carryback.
Now Hutch, you know that the taxthat you pay is only on that two
(11:45):
million that you receive, youdon't pay tax on what you
haven't received yet, that's ina deferral state, right?
It's known as a sellercarryback, so this is very
common, and so that's thefoundation of what we use, a
seller carryback, the differenceis, we say, George, Don't show
up with two million like I meango get a bank loan show up with
10 million bucks Like we don'tcare how you get the money, but
(12:06):
we're not financing you george,right?
But we will finance the trustand what we do is we set up a
trust that comes right inbetween Hutch the seller and
george the buyer and simply thetrust buys it from hutch for 10
million and asks Hutch tofinance 100% to the trust for 10
million bucks And the trustimmediately sells it for 10
(12:26):
million to George, who gets bankfinancing or whatever.
Smoke clears, and guess whatHutch?
You're in a deferral statebecause you have$0 received so
far.
And that 10 million is atCharles Schwab, and this is
where the magic happens.
You can invest into whatever youwant, whenever you want.
No timing restrictions.
You can put it into Bitcoin.
You can put it into businesssales.
(12:47):
You can put it into hard moneylending.
You can put it into a realestate development in Hawaii.
You can put it into stocks,bonds, mutual funds, money
market accounts.
But here's the best part.
There's no timing restrictions.
And so this is where we'removing and shifting the entire
mindset around this whole 1031exchange.
That's so archaic.
It's old, it's broken in manyways, and the people that it's
(13:08):
the most broken are seeing itnow that overpaid 2021 and 2022.
And now all of the loans, a lotof the loans are resetting,
their debt is shooting throughthe roof, and the whole ship is
sinking because they overpaidover, 1031 didn't think they
overpaid, oh, the music stops,and now they overpaid, they have
too much debt, their debt'sreset.
(13:30):
And so the mistake is thinkingthat the 1031 exchange is your
best friend when it's not.
The mindset shift here islooking at our strategy because
if you want time, if you wantflexibility, if you want
leverage on your side, right?
And then the last part I wouldsay is that the method is.
We have crystallized how to dothis.
(13:51):
and that's the key.
You want to find a team to helpyou execute this because it is
new for people, right?
If they haven't been in it, it'shard for them.
But that's the basics of what wedo and how it works.
Gotcha.
Now, you bring up a comparisonbetween 1031 exchange and DST.
Now, when you're talking to aperson who is considering
(14:11):
exiting the property, How do youstructure that conversation,
with the DST and also 1031exchange to guide them in making
the right decisions?
Yeah, it's a great question.
the first thing is you got toget clear and the second thing
is you got to get unstuck andthe third thing is you got to
get going.
Okay, so we've all heard of theRich Dad Poor Dad book.
We love the book, right?
(14:31):
And basically teaches us how toget financial freedom, right?
True financial freedom, right?
Our passive income is able topay for our living expenses,
able to pay for our lifestyle,and eventually our money's
working for our money.
Most people never get to thatbottom fourth quadrant.
And part of that is they're soconsumed with the day to day
(14:51):
operations of these deals andthey're not able to scale and
leverage.
The problem is they're runningout of time.
their time is getting shrunk.
part of our mindset here, a longtime ago was say, how quickly
can we get to truly passiveincome?
Where you don't have to tradetime dollars.
we don't trade time.
We don't have to trade blood,sweat and tears.
to be able to just get, be ableto just collect income
(15:14):
passively, right?
So I'll give you an example.
We had a client Warren andCatherine They had done a 10
multiple 1031 exchanges and theyended up with about a 2.5
million dollar apartment complexin Sacramento and so I sit down
with Warren and Catherine.
I say Warren and Catherine.
What do you really want?
They what we really want is Youknow less toilets less tenants
less termites.
I said why are they so painfulor is it really hard?
They know they're actually goodtenants and we have good
(15:36):
property management and theplace is 100% occupied and but
there's just always somethingYou know, and i'm like, okay.
But okay, so that's what youdon't want.
But what do you really want?
what we really want is the othertwo t's I go, what's that?
They go, our twin daughters.
I go, tell me more.
I go, we had kids a little bitlater in life and they're 10
years old and we realizing thatfrom 10 to 18 is probably the
time we have the most amount ofone on one time with our
(15:57):
daughters.
And we don't want to tradeWarren driving two, three, four
hours, every other weekend tothe property.
I said, wow, that's prettyclear.
I said, then let's look at thenumbers.
what's your NOI?
They go, it's about 120, 000.
I said, okay, what's your ROE?
Your ROE is return on equity.
What's 120, 000 basicallydivided by 2.
35 after closing cost is a basicway to do it.
(16:20):
Okay, what if we can increasethat ROE to about 190, your cash
on cash from 120 to 190, plus wecan remove that obstacle, which
is.
This property that's taking upyour guys's time and energy that
you could spend with your dream.
Your dream is spending time withyour kids.
It was a no brainer.
once you clarify those importantthings and they were free from
(16:42):
it.
Warren shares his story.
Catherine shared their story.
This is amazing, like we thoughtwe had to just keep grinding
through and maybe change the 15units for 30 units and then 30
maybe for 60 units and thiswhole thing and we didn't have
to go into these otheralternatives that are lower cash
on cash and so we're able to putthem into double digit, cash on
cash return.
Diversified assets.
(17:04):
A lot of debt is what we wentinto, which is really important.
Debt is paid much higher thanequity these days, generally
speaking.
And that's what they wanted.
They wanted cash flow as theirbiggest thing, plus time flow,
right?
They wanted multiple time.
Energy with their kids.
And so that's what I would sayto get really clear what you
want.
And then get unstuck on what'sblocking you.
(17:24):
And let's get going on that.
And I'll leave you with thisquote here, right?
This is probably the mostimportant thing.
I'm going to say this entireinterview, right?
That truly passive income is toyour freedom and impact as
compounding interest.
It's to your money.
Truly passive income is to yourfreedom and impact as
(17:46):
compounding interest is to yourmoney.
And this is a complete gamechanger, even though this was,
technically passive in thetraditional, real estate world
that we would think about Hutch.
Yeah, property management,you're 100 percent occupied
emotionally and even justheadspace wise, Warren was still
feeling drawn to take care ofthe tenants fix something on his
(18:07):
own versus the propertymanagement to save a few bucks
here and there.
He's got millions of dollars,like he's so in it because his
habits and his rhythm and his,that's, he's been the worker bee
for so long to get to this pointand then to be able to say, Oh
my gosh, I can harvest thisgain.
I can defer all the tax.
I can diversify my wealth and Ican make more income and I can
(18:29):
actually have more time.
Is it this easy?
I'm like, yes, this is whatwe'll do.
And so we did it.
And here we are.
It's completely transformedtheir lives.
So if I understand it they haveacquired a property through 1031
exchange.
Now, when you go from a 1031exchange to a DST, are there any
tax implications?
No, not if you properlystructure it.
(18:49):
And so on their sale, what wedid, we set up the trust prior
to the exit.
Then we had a buyer lined up.
I happened to broker this deal,so it was really neat.
We got to do the whole thing andkeep every step by step.
and the trust, Bought the assetfor, 2.
5 and sold it for 2.
5 to the buyer, right?
Yeah, it paid off a little bitof closing costs and then the
net was about 2.
35 and the seller got apromissory Note for 2.
(19:13):
35.
I think we wrote the interestrate at 9%, right?
It's a 10 year term and every 10years they can renew for 10
years and they can live up allof the interest or just partial
interest Kind of a key notehere.
They live in California, one ofthe highest taxed states, as we
know, in the country.
they're able to defer theirincome tax.
In fact, what they found is theydidn't need as much income,
(19:35):
especially the first coupleyears here, when we put this
thing set up.
And so they actually, theirtaxes went way low, because
they're not paying any tax onanything right now, because
they're not receiving payments.
So we can delay the payments,which is so important here,
right?
If you don't have depreciationleft and you're having to take a
cash flow What happens is youdon't have what's called tax
(19:57):
flow depreciation to offset andyou pay tax in this trust
scenario You don't have to takethe cash flow the trust itself
typically doesn't pay any tax atthe trust level and so they're
able to get another roi hereWhich is no income tax, at least
for a couple of years.
Now eventually they will takesome income and they will pay
some tax, typically in year twoor three.
(20:19):
But this is a dynamic structurethat I want you to catch here.
The mindset is not just ROE, notjust cash on cash, but also tax
flow.
how does that offset my cashflow?
And is there ways to structure?
We did another 8 million deal inPalo Alto and the client moved
to Nevada.
when he moved to Nevada, heestablished a residency.
And when he did that, the incomecoming in is based upon his
(20:42):
state residency.
0 percent Nevada, California,much higher.
We had another one that's,Pennsylvania sold an 8 million,
6 million, 6 and a half milliondollars self storage.
They're moving to Florida.
Same concept, right?
And so we do this over and overagain with clients and it's a
game changer.
You can partner with the trust.
(21:02):
And so if you're theentrepreneur saying, Brett, I
want to run my own deals.
My name is Hutch.
I buy and syndicate multifamilydeals.
Are you saying that I have to bepassive and just retired?
No, just the opposite.
You can be if you want to be.
but our best clients are theentrepreneurial ones that
partner with the trust.
And so it's real simple, Hutch.
You can set up an LLC postclosing.
We just did a 16 million exitfor a client out of Oregon.
(21:24):
They sold the whole dentalpractice.
And then they partnered with thetrust into an LLC.
And then now they're in theprocess of buying an office,
complex in, Washington.
With a new depreciationschedule.
and the trust puts up the moneyas a silent partner.
So this is huge here.
They're now able to getadditional, larger, much greater
(21:45):
upside than just a promissorynote.
They're able to run their owndeal.
They control that LLC.
They do the management just likethey would otherwise.
the trust just happens to be asilent partner.
they would have paid about 30percent of that 16 million in
tax, but now they're able to useall of that and more to partner
with them to do more deals.
(22:06):
If they want to start anotherbusiness, they could.
If they want to do lending, theycould.
it's truly, a Netflix version tothe old blockbuster, right?
So you could be an entrepreneurif you want to be as well.
that's some phenomenal stuff Ifyou, advanced while sitting down
with this episode, get a pieceof paper and a pen, and start
writing things out and drawingthings out, and I'm pretty sure
by the end of this podcast,we'll give you some resources,
(22:26):
as well to help you to get adeeper understanding of this
concept.
So the next one is going to addfor you Brett, and you touching
to just a little bit, right?
What type of real estate assetsor businesses are qualified for
this kind of transaction?
Yeah, we mentioned businessesalready.
We mentioned real estate.
Bitcoin.
We've helped multiple clientsexit Bitcoin and cryptocurrency.
(22:49):
I think we're up over 16 or 17million now.
And that's just across fourclients, right?
So if you're a capital raiser, Isay, don't raise capital, Hutch,
I say unlock it.
But just think about this for asecond, right?
Both commercial real estatesyndicators, operators, fund
managers, they go to theirnetwork, right?
(23:09):
They look for the people thatare selling real estate, all the
stuff that you said, they wantto be passive, they're tired of
the active, right?
They want to get scale.
They want to come with someonelike yourself, who's doing a
multi family syndication and allthe cool stuff that you do.
But they still focus on just thereal estate world which is 50
percent of our sales But a bigchunk now and it's really
growing because bitcoin's over ahundred thousand a coin these
(23:30):
days Is bitcoin they can exitand defer the tax out of bitcoin
and move it into yoursyndication or your fund all tax
deferred That's amazing.
Okay.
It also works for stock.
So if you have Nvidia stock orTesla stock if you have, a
private stock so we just did anautomotive sale for eight
million up and up inmassachusetts Yeah, it works for
(23:51):
land flipping, where people,they buy the land for 4 million
or 3 million and they sell itfor 10 and they do this,
entitlement play and we candouble close that within a short
period of year and we can deferthat tax.
so it works for business sales,it works for primary home sales,
so big luxury houses, it worksfor investment real estate.
and so really any asset of anykind, here's the key, needs to
have 1 billion net proceeds, 1billion gain.
(24:15):
So it's gonna be big enough,right?
If it's too small, it's not agood fit for us.
Now, if you had two at 500, 000each, we can make it work,
right?
We can combine them.
You can get one trust andmultiple promissory notes.
so the Mindset shift here is tosay, okay, how do I collect
promissory notes versus justselling assets?
first you're an owner and thenyou sell it on terms, right?
(24:37):
You become the bank and thetrust owes you the money.
It's like the, go bank onyourself, right?
Concept a little bit here,right?
Tax deferred.
And then you partner with thetrust into a new LLC.
And you buy a new asset and nowyou're a new owner again.
And so you're going from ownerto lender to owner to lender.
(24:58):
And you're just keeping thisover and over again.
And every time that you're doingthis, there's an extra 20 to 50
percent of the proceeds morebecause you're able to defer
typically a hundred percent ofthe capital gains tax and the
depreciation recapture, justdepending on what nature you
took there and if it wasaccelerated or not, and if you
have debt over basis, there'ssome caveats here.
Okay.
The point is.
(25:19):
If you can build a capital gainstax exit plan, spend a couple
hours with us, get the book, goto our website, start to learn
about all of this, like you'regoing to compound your freedom
and your impact, right?
And that's really what we'retrying to help everyone achieve.
Now, as you start building thismassive empire, of deferred and
collecting promissory notes, Atwhat point does the tax guy come
(25:44):
calling?
And if that doesn't happen, whatare some of the things that we
could do to really, to disruptthat process?
Yeah.
the trust will pay you back.
And you'll get, you'll payordinary income tax.
So let's put a 10 million exitback to your, San Diego deal.
Let's say you did 9 percentinterest on the note and let's
say for the first two years youdelayed all of those nine, the
900, 000 of interest, you let itjust accrue.
(26:07):
And say in year three, you starttaking, I don't know,$600, 000
of payments.
You're going to pay tax just inthat year on what you received.
Ordinary income tax 600.
Now, you might have done somestructuring where you JV
partnered with the trust,established some new basis, and
did some cost seg.
And since you're a real estateprofessional, you might be able
(26:27):
to wash all of that off.
Okay.
Check with your CPA, all ofthose things, a little more
advanced stuff here.
But that's what we're sayinghere, right?
So you will pay tax.
To the extent that you don'thave lost to offset it in the
given year, but to the extentthat you don't receive payments
from the trust.
You pay no tax.
No, we got to make somepayments, right?
We got to keep it commerciallyreasonable.
(26:47):
but a lot of our clients willset up interest only payments
starting in about year one ortwo.
It can be monthly payments, butthey'll take about half of the
interest.
So if it's a 10 million deal at,let's just say an 8 percent
interest, 800, 000, they'll takeabout 400, 000 starting in year
one or year two, and then let'slive off the interest and pay
tax on that.
But they can pass it to theirkids.
(27:08):
So every 10 years, the accruedinterest that hasn't been paid
yet and the principal thathasn't been paid yet can get
refinanced for another 10 years.
So let's say it's a 10 millionand you live off 400, 000 for 10
years, there's been an extra400, 000 accruing, So now it's
14 million that you canrefinance that 14 million for
another 10 years and then you dothat again and you do that again
(27:31):
and then your kids can pass thaton and so that's the idea here
is you can just keep kicking thecan and just living off the
interest and it goes back tothat truly passive income.
Your freedom and impact ascompounding interest is to your
money.
So you see we're using the powerof compounding interest.
By deferring the income and thecapital gains tax.
(27:52):
And we're building this wealthmachine that's diversified.
It can go into any asset at anytime.
And it's very nimble.
If you put a new illiquid asset,it takes some time to get out of
there.
Yeah.
We have one client to a 13million exit out of San Diego
car wash, and then you put alarge chunk of it into Bitcoin
at 40, 000 a coin.
And this is when real estatevalues are still hot before
(28:12):
interest rates shot upbasically.
And then the values of realestate have dropped.
And then we turned around andnow we're selling that bitcoin
and we're buying real estate sowe're selling high and buying
low and that's the whole conceptlike we give you this ability to
do this Dollar cost average stayliquid not being dead But guess
what now that values are downwhat's going on that even when
(28:35):
the interest rates are higher Ithink it's a good time to go
into debt now because valueshave dropped right?
But the other time was not agood time to go into debt
because values are so high soyou've got to use Smart debt,
there's smart debt and dumb debtbased upon the context of the
deal and the context of themarketplace.
We're the only flexible legalproven strategy that gives you
the leverage of all of these taxflow, cash flow, and debt flow.
(28:56):
And real quick on the legalpart, 48 year track record,
thousands of transactions, andthere's been about 30 audits,
all no change, never had achange, never had a finding.
Most of our deals have been donein California, never had a
change, never had a finding.
But here's the reality Hutch,most real estate agents, they
don't want you to know aboutthis.
They want to keep you in the1031 bubble.
(29:19):
And that includes the DelawareStatutory Trust, right?
which I call it Hollywood videoto the blockbuster.
It's just another 1031structured deal, which has its
place and we've done thosebefore.
But what we really want you toknow about is the Netflix,
right?
So you don't have to feel likeyou have to be forced into the
1031.
No, I got you.
so you talk about, a 10 milliondeal.
(29:41):
All right.
Having that promissory notes andthe, trust, how does the trust
generate that income?
Sounds like the 10 million isgrowing at about 4%.
Oh, so we're typically earninglike, 9%, 10% net of our fees.
but it just depends on how,where we invest the funds.
So like we have a lending fundthat's paying 10% right now.
Our fees are about one and ahalf to 2%.
(30:03):
So that'd be about an 8% totalreturn.
We have another one that we'relending at 16%, right?
And so depending on where wewrite the note at, we blend it
to different investments.
we have clients that went toNVIDIA stock and it shot through
the roof.
So we diversify, and where dothey want to put the money?
Like we have a lot of, David andJordan, their business partners,
they have 3000 multifamilyunits, they're clients of mine.
(30:24):
They've done at least five dealswith us.
over 120 million of exits, andthey put their GP interest,
right?
And so for them, they're goingback into their own deals.
They're keeping some liquidcash.
They're going into some debt.
They're going into some stock.
They're diversifying, right?
Every time they exit.
And they're glad they didbecause, had they just put it
all back into their own dealsall at once during that 2020
(30:45):
2022, a lot of that could begone.
And so some of the mindset hereis even though you're probably
doing your own deals, you'remaking your money.
It's good to build a team todiversify and get some different
perspective.
And that's what the DST kind ofnaturally allows you to do.
So you can do your own deals.
Or you can do others deals, oryou can do a little bit of both.
It just really depends.
We would actually ask you, Hush,where would you like to put it?
You go, I want to do it to amultifamily syndication.
(31:07):
Great! How much?
let's start with 3 million.
Awesome! You start the LLC.
Great! The trust puts up the 3million as a silent partner.
Go do the deal.
You're running that, right?
What do you want to do with theother seven?
let's say 3 million into a debtfund that's doing, 10% to 16%.
Great.
Let's do that.
But about the other amount.
I want to keep a little bit ofmy powder drive, maybe a money
market count at 4%.
Okay.
it's not like you have to do itall in one year.
(31:27):
It's think about a 10 year timeframe, Our goal is to try to
achieve, I get 8%, 9%, 10% netof fees overall.
But if we have an extra,especially Hawaii, Hawaii is
huge capital gains taxes, right?
If you have an extra 20% 30% 40%50% more proceeds working for
you, you have more margin towork within investing.
(31:48):
And if you have time on yourside, you have the best thing
for investing, which is time.
Time is the one thing you cannever get back.
Yeah.
And of course the trust allowsit to transfer seamlessly to
future generations.
you just pass it to thepromissory note inside of your
living trust.
So your kids can step into yourshoes.
We have a 2.
0 version where the children canbe the beneficiary of it and
(32:10):
remove it outside of theirtaxable estate without any life
insurance, gifting or charityrequired.
So if you knew someone on theisland where you live on that
has a 50 million mansion, right?
And it's all inside of theirtaxable estate.
it's the whole concept ofYellowstone if you've seen it
with Kevin Costner.
They own let's say 100 or 200million dollars worth of land
and they're like, Beth thedaughter's hey dad They're gonna
(32:33):
take the land when you diebecause the estate tax is gonna
kick in and we're not gonna beable to afford it or we could do
something different now, youknow That's just that's the
whole concept of the entire showAnd so this debt tax we need to
be aware of this that the 1031stepped up basis has not solved
for The DST Divert Sales Trust,we don't have a stepped up basis
(32:54):
in the sense of traditional.
The kids can step into yourshoes, but our 2.
0, we can remove it outside ofthe taxable state.
And then typically also thecapital is capital gains tax
free.
and the kids can be the heirs.
And so a little more complexhere, but for someone, has a net
worth of over 20 million.
you want to be talking to usbecause we can also structure it
(33:16):
to eliminate your estate tax.
No, that's game changing stuff,man, because most people who are
in real estate, that's one ofthe things we aspire to do, is
create the ease of transfer, toensure that our kids are not
burdened with extra taxeswhenever we built this estate or
this empire, great informationtoday, man.
And you touched on a couple ofquestions that I had coming, you
(33:38):
have helped people save millionsin capital gains, but I'm sure
that in some DST, it doesn'talways work out as planned,
right?
You talk about, you've beenaudits, but never everything
remained the same.
And what are some of the mostcommon mistakes that people make
when setting up a DST and howcan they avoid them?
(33:58):
Yeah.
The most common mistakes wouldbe working with someone who's
actually not proficient anddoesn't have the thousands of
hours.
in the trenches for over adecade, at least right anytime
you're if you're looking at anykind of new strategy or new
something, just realize that youwant to work with pros that have
a proven business model toexecute.
And so our background is we'vebeen working with it since 2009.
(34:21):
so it's thousands of hours.
So I think that's number one,like not working with the
professional or just relying onthe person who dabbles on the
side with it.
They might be a financialadvisor and they know about it.
They've never done it, but theyjust want to manage the capital
as a financial advisor.
Nothing wrong with that.
We work with financial advisorsall the time.
But if you're, you have a realestate person who's made all
their money in real estate andnow you're asking them to trust
(34:42):
into this new strategy thatthey've never heard of, or maybe
a lot of people don't hear aboutit until either watching a
podcast, doing a podcast 30 daysbefore they close.
So then I have millions ofdollars on the biggest sale.
And now this financial advisor'sinvested way that they get paid
is when they manage the capital.
And so you have these twodichotomies, right?
Now I'm a trustee and wedefinitely can work with
financial advisors and we do allthe time, but our clients, a lot
(35:05):
of them are business real estatepeople.
They want to go into business asa real estate investment advisor
that also works with financialadvisors to get a balanced team.
And that's the difference there.
And so I would just say.
When, if the person is, feelingpressure to go into some other
product type, like an assetclass, allocation that they
aren't as comfortable with and,yeah, that, that's not always a
(35:27):
great outcome because, theydon't understand it.
It's like a fish trying to climba tree, right?
They made all their money overhere and now it's over here.
the way we really succeed iswhen we give, we go back to the
client and say, Hey, Mr.
Client.
What do you know and trust,right?
Where have you made your money?
What is your risk tolerance?
What is your cash flow needs?
what if we diversify within realestate and our alternatives is
the stock market, right?
So it's the 80 20, but on thereal estate side of things, 80%
(35:51):
real estate with debt mixed in,including real estate.
20% the other side.
Okay.
So those are some of the thingsto really keep in mind.
The next thing would be just,letting your advisors talk you
into something different thatdoesn't really serve your needs
because their fear or theirconcern because they've never
done it.
So sometimes the person willshow up to the advisor who
(36:11):
didn't solve their problem inthe first place.
They'll show up to us.
I'm like, this is amazing,Brett.
Now I need to convince myadvisor.
I'm like, sure, bring'em on.
But sometimes they don't bring'em onto the call.
they just tell'em, and then theperson feels obligated to the
guy that they've been playinggolf with.
That was their college, roommatefor 20 years, a financial
advisor.
And I'm happy to work with thatguy, but sometimes that guy
(36:32):
works for this big, company.
That doesn't necessarily, workwith things that are outside of
their box.
Correct.
Yes.
So we had one client.
She sold a 8 million dollarmobile home park near Napa,
California and literally wasgoing to pay.
40% In tax.
And she was so excited.
The real estate broker was allabout it.
(36:52):
He told her about it.
He's this is the best thing.
Go for it.
She vets it.
Her financial advisor that shehangs out with and is a friend
of hers Talks her out of it.
And the advisor never showed upto a call.
Never came on and had a robustdebate.
And she just paid her tax.
And all the client could saywas, my advisor just says that,
(37:13):
she's not sure if it would holdup with IRS.
It's but we've been perfecttrack record for 28 years.
And She can work with that,right?
We can work with her.
So those are some of themistakes that people make.
and we would just say, we'rehappy to have these
conversations with your CPA,your FAA, anyone else, and let
us walk them through it.
9 out of 10 people, Hutch, thatshow up and have an hour long
conversation with us for 30minutes, they end up joining us
(37:35):
and sending us referrals.
But when they're not brought tothe table to sit down and
discuss it, sometimes it justfalls apart.
It definitely is a complexstrategy, right?
Especially, for long terminvestments.
And one of the things you talkabout earlier is being clear,
becoming unstuck, and thenmoving forward, right?
If we cannot get clarity, thenwe can't get unstuck.
And then the way we move forwardmight not serve the things that
(37:58):
we actually want.
So Brett, I want to ask you onemore question before we get into
focus round is, for high networkindividual who have access, to
elite tax strategy, right?
Where does DST fits with abigger picture of tax deferred
and how does it compare toopportunity zone and charitable
remainder trust?
(38:19):
Yeah.
So we'll start with, the CRT.
So we like to say that deferredsales trust is like the CRT, but
no charity is required.
Okay.
It's key, right?
So the charitable remaindertrust forces you to give to
charity.
Nothing wrong giving charity.
Most of our clients are verycharitable.
They're just not 100%charitable.
(38:40):
You know, mom and dad might havea heart for a charity today, and
they might irrevocably give upthe right to their asset upon
their death to this charity.
They might live for 10 or 15 or20 more years off the cash flow.
Problem is, there's a lot ofleadership that could change
(39:00):
within those 10 to 15 years.
And what mom and dad thought wasA charity that they really
believed in can switch.
And so we encourage, the controlto stay with the family.
And if you set up the familymission, vision values, and you
set up the trust in a way, yourliving trust, that certain
amounts are going to go tocertain charities that your
(39:21):
children, whoever you assign asthe trustee of that living
trust, the DNC works seamlesslywith that to be able to be a
flexible.
So we call this being greatStuart with the capital.
So you're not forced into justone charity.
There's also donor advised fundsthat are also a good alternative
to look at.
They're not going to prefercapital gains taxes, but donor
advisements are also anexcellent way to give and have
(39:41):
flexibility with giving.
as far as the opportunity zones,so I've yet to really find Hutch
except for maybe the first twoyears when this thing came out
Amazing opportunities.
I just haven't seen many of thepeople that I we run do these
deals 10 years is you know whereyou get the real benefit
typically ground up development,or just a major teardown
remodel.
So I just don't see him now.
(40:03):
Here's the cool thing with theDiverged Sales Trust.
If you find a great deal, youcan still go into that right
with a part of the capital.
But I think sometimes peoplethink the Opportunity Zones like
a 1031 mindset.
I'm going to trade my$5 millionand put it all into this one
opportunity zone.
That's going to be the onethat's going to be the thing.
But it's you really want to wait10 years to get the benefit of
that.
And once the cashflow starts,okay, so yeah, you get tax free
(40:26):
money at the end of the, the 10year thing.
just think through that for asecond, right?
Now, why not do a 5 milliondeferred sales trust, and then
if you want to put a millioninto that opportunity zone,
then, yeah, then let's put 4million in the trust, 1 million
there.
But sometimes we're doing apartial 1031 exchange, like a
client we had in Texas.
He did a partial 6 million exit,and did a 1.
5 million purchase in SouthCarolina.
(40:48):
He did a 2 million purchase inOklahoma, and then the rest of
it went to the Deferred SalesTrust.
So we have what's called theBest 1031 Exit Plan, which gives
you all three options.
So you're not just tied to justa traditional 1031 or just the
Delaware Statutory Trust.
You can also have the DeferredSales Trust, where most QI
companies, they just give youthose first two options, which
(41:10):
again, those are typically theless attractive options.
And then ours is a one thatgives you both, all three
options.
That's awesome, man.
Now, be mindful of your time aswe wrap up here.
We can do a fire round called afocus round.
What do you do for fun, Brett?
So I play basketball and jiujitsu, so jiu jitsu, two or
three times a week basketballjust once a week.
But I want to move that up.
(41:31):
That's what I personally do forfun and hanging out with my
kids, playing fortnight, ridingthe one wheels, coaching my son
in basketball, all those thingstogether.
That's great, man.
what is one opportunity that wasa game changer for you?
One opportunity that was a gamechanger for me is when I was 25
years old.
I joined a men's Bible study anddiscipleship group that had
encouraging confidentialaccountability and discipleship.
(41:53):
That was an absolute gamechanger for me.
absolutely recommend that toeveryone at all ages, but
especially when I was 25, whatwould you say is the most
important communication tip?
so I think be quick to listen,slow to speak and slow to become
angry, right?
It's in the Bible and then two,use mirroring and labeling with
Chris Voss, never split thedifference, the art of
(42:14):
negotiation where you label theemotion behind what someone is
saying and you mirror the lastfew words that they say, and you
learn that skillset to becomenot just an active listener, but
an emotionally connectedlistener.
What is one thing you wish youunderstood earlier?
I would just say, probably, Ithink a couple things.
(42:35):
really studying personalitytypes.
And strengths for myself, myspouse, my kids.
There's a book calledPersonality Plus that breaks
down, the four major personalitytypes and how we, how each of us
are uniquely designed it withthese personalities.
Like one, one strong one,typically a second, pretty close
to it.
or second one and the other two,opposites.
(42:56):
So just under understand justthe personality types and how to
communicate, so that, that pieceof it.
All right.
Last one to focus around to whatdo you attribute your success?
I would say two things, right?
having a mindset of stewardshipover ownership, meaning that
everything that's been given tome as a gift from God, my time,
my treasure, talents, the giftshe's given me and there'll be to
(43:19):
be used to be a blessing andhelp to others and to fulfill
the mission he has for my life.
So having that mindset moved meto gratitude.
Versus ownership, which, wasreally focused on the external,
getting the degree, getting thefirst job, closing the first
deal, making that first, bigcommission and all those things
that are really focused.
it tends to be more towardsentitlement.
(43:42):
It can lead to when you have anownership mentality.
and a negative ownership in agood way for Hey, I'm
responsible for my future.
But even more like I'm a stewardof what I've been given to be
able to pass on a legacy for myfuture.
So it's almost another level ofthe owner extreme ownership type
of thing.
It's like stewardship, right?
and although I do love extremeownership and everything,
chocolate talks, it's a goodone.
(44:04):
so that makes sense.
I think that'd be number one.
I'd say number two, I have anamazing wife, Melanie, married
close to 16 years, fivechildren.
They're my world, right?
my goal is to serve them, blessthem and, do.
my wife's been so good to me.
So I think those are two thingsthat really helped me to
succeed.
That is awesome.
And Brett, this has been anincredible conversation you've
(44:25):
given our listeners, pretty mucha masterclass on capital gains
deferred, right?
So are they deferred statustrust?
It's I know listeners, if youlisten to this episode, it's
going to be a complex topic andyou really need to sit down and
dissect.
However, you really need to getclear on what you want as the
best point so you can becomeunstuck and then you can move
forward.
Brett, if our listeners want toget in touch with you, how do
(44:47):
they go about doing that?
Yeah, two places.
BrettSwarts.Com.
That's S.
W.
A.
R.
T.
S.
so Brett 2 T's Swarts.Com orcapitalgainstaxsolutions.Com.
We have our YouTube, ourpodcast.
Build a Civilians podcast andCapital Gains Tax Solutions
podcast if you want to check outthose shows.
(45:08):
All of that can be found onBrettSwarts.Com and then don't
forget the book Building aCapital Gains Tax Exit Plan and
the best 1031 exit plan service.
If you're in a 1031 or knowsomeone who's going to be in
there, make sure you send themmy way so we give them all of
the options and they don't getstuck in the old Blockbuster
1031 only option.
(45:30):
Perfect.
Listeners, thank you again forlistening to another episode of
the Multifamily Real EstateExperiment podcast.
if you like this episode andfind value, Please give us a
fair review and of course a fivestar rating if you so desire and
Catch you on the next episode.
I'm Hutch the Marine Investorout.
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