Logan Freeman is a commercial real estate investor, developer, and broker. He is the key principal of FTW Investments which owns over $50M worth of real estate including over 700 apartment units, an 800 unit self-storage facility, 2 hotels, and two NNN retail shopping centers. He is also the host of the Compression Podcast.
He specializes in off-market and investment properties. He represents buyers and sellers of multifamily and commercial properties. He sources cash-flowing properties for investors through creativity, networking, and work ethic which has developed into a proven strategy to win.
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1st Secret of Transformational Exit Plan with Brett Swarts
Brett:
Welcome to a special episode of the Capital Gains Tax Solutions Podcast. We’re also streaming on Expert CRE Secrets Podcast. I’m here with my good friend and amazing real estate broker, owner, investor out of Kansas City. Logan Freeman. Logan, how you doing today?
Logan:
Doing great, Red Friday. So we’re getting ready to bring the Super Bowl victory back to Kansas City again, my man, so doing wonderful.
Brett:
You know, I can’t argue with that, you know, I can’t argue with I think the chiefs are gonna win. But I also can’t be unfaithful to our 40 Niner fans. And last year, you guys broke our hearts. When I was there live at the Super Bowl for three and a half quarters. I was the happiest, you know, cheered against your fans and then heartbroken but that Mahomes and then Andy Reid and the Tyreke Hill and the rest of that gang. They’re really amazing, amazing team.
Logan:
Yeah, man, you know, it’s they’re just a lot of fun. They bring a lot of joy to a lot of people. But you got to realize we are going up against the boat, we are going up against the one the only Tom Brady we beat him before we’ll beat him again. But mad respect to Tom, I’ve been writing about him on my blog recently. I really respect that guy and, and the way that he brings people up. Tampa Bay was not there last year. It’s the same system to the same coaches. But he came in and he elevated that team. So they’ve done a great job, and they took down the Packers. And so I really enjoy just following Tom Brady as well. I can’t say I like him just because you know, all the times he has beat us. But what I can say is I do have respect for him
Brett:
Absolutely. Well said, you know, when the leader gets better, everything gets better. And that is certainly what he’s been able to do with bringing the leadership to Tampa Bay. That being said, you want to kick us off today, we’re doing a kind of a clubhouse switch here where every other week, Logan will be interviewing me, and then I will be interviewing him. In fact, the last one, you can see that from a week ago, I interviewed Logan on really that three, the top questions to ask of any commercial real estate broker that you’re hiring. And so go make sure to take a look, check out that that one but in this episode, we’re talking about what Logan?
Logan:
We are going to talk about the first of three secrets to a transformational exit plan. And I’m super stoked to hear your thoughts on that, Brett.
Brett:
Absolutely. So where would you like to start? Logan?
Logan:
You know what? Well, first off, maybe you can just give us an idea of what we’re exiting from. So I think that’s the first piece the second piece is overarched all three expert secrets that we’re actually going to be breaking down and then the one we live in. And I know I got plenty of questions about that. But how about setting the stage first about what a transformational exit actually is?
Brett:
Absolutely. And so our context here is selling highly appreciated businesses investment real estate, primary homes, it could also be public stock, private stock. One that’s really been in the news lately with us is a cryptocurrency. And so essentially, if you buy something low, let’s say you bought a stock for $10. And now that stock is worth $100, right, you have a gain there, about $90. Now let’s say you own X amount of shares, and total, it’s $5 million worth of a stock, right? And you say your basis was 100,000. And now it’s, wow, it’s 5 million bucks, whatever that number may be, well, that’s a gain. And what happens is the government says, Hey, if you sell that and capture that gain, and take all of those funds right away, guess what we want 30 to 50% of that depending on depreciation recapture, depending on what kind of acid it is, depending on what state you live in all of these things. And so that’s where we’re focused like a laser of helping people get a transformational exit plan by deferring the tax, and then using the funds for things that they enjoy, right, like maybe starting another business venture, starting another real estate professionals are another real estate deal. Developing real estate could be a number of things or just being passive and just being able to live off the income. So that is the stage and let me also give a little context as well. This is according to the American Bankers Association is about 17 to $20 trillion. It’s gonna pass from one generation to the next in the next 20 years. This is known as the largest wealth transfer in the history of the planet. So think about that Logan, why are parents built their wealth for 20, 30, 40 years right blood, sweat, and tears, and that whole generation, it’s the largest wealth transfer in the history of the planet. In fact, there are about 77 million baby boomers in the US alone. And there’s about 10,000, every single day turning 65. And what are they challenged with Logan? Well, they’re challenged with toilets, trash, liability, eviction control, rent control, highly appreciated assets that they want to sell that they want to be, you know, enjoy their wealth, spend time with their grandkids, travel, relocate, maybe just sell that business, right, whatever it might be for them, they have a big, big challenge. And us, as investment professionals, and real estate professionals, and tax professionals, we have an opportunity to help them navigate all of that change.
Logan:
Absolutely, man, I’ve kept talking to a lot of people about what we’re calling the silver tsunami, which is basically and you know, there are more and more people turning that 65 age and above every single day. And so that’s been a big piece is understanding where that wealth is gonna go, how to make sure that that, you know, transfers the right way. And, you know, I think that brings me to a question is an opportunity, right, and for younger folks, maybe 30s, 40s, 50s, to really capitalize on some of, these opportunities. So, Brett, I’d be curious, you know, with your involvement in these transformational exit strategies and plans, you know, how do folks find those opportunities to maybe if somebody is looking to exit? How do they pick up those opportunities? Are there marketplaces for this? Or how does that usually work?
Brett:
Yeah, so the first thing is the strategy and the vision for what they’re looking for. Right? So we’re going to help them map that out. A lot of folks have an idea of what that is. But it’s nice to have a guide who’s maybe done some deals with similar clients. And similarly, you know, the life stages and amounts of wealth that they’ve built. And so we’re going to help them map out exactly what they want, right, and then try to use the tax laws that are in place, such as IRC 453, or IRC 1031, or even a Delaware statutory or an opportunity zone, we’re going to try to find out which one of these helps you best, reach the vision for your wealth and your life, your lifestyle. So once we’ve set that stage and help them envision that we’re just going to draw a line down a piece of paper, we’re going to say, Okay, what strategy gets you to where you want to be right now?
Logan:
Sure, right.
Brett:
And which one is maybe going to help you create and preserve more wealth? Now, there are two reasons to really sell assets, highly appreciated assets, right? Typically, there are financial reasons, you’re going to capture high value. And there’s, you know, perhaps even income reasons or lifestyle reasons. And that’s really kind of the second thing is kind of your personal reasons, right? It could be a partnership separation, it could be I’m ready to retire, it could be a divorce, it could be death in the family, it could be a number of things. So there’s personal and there’s financial. And really, we’re going to encourage our clients, potential clients to say, Hey, I’m not sure if the personal ones, but those you have to clarify with is a good time, good motivation to sell. And then the financial ones, and we’re going to kind of model and show you what options you have. And that really leads into our first secret, which is selling and deferring hundreds of 1000s to millions of dollars in capital gains tax, how to legally break free from capital gains tax and find the freedom to buy and sell your business or property or other highly appreciated assets without ever worrying about the 1031 exchange again. And I know his commercial real estate brokers, because we both are ourselves, right? Hearing that going Whoa, what do you mean, don’t run away from the 1031. But hear me out, hear me out here. A lot of clients, you know, when you relieve that pressure of that 1031, you can essentially free them up to actually list and sell and do transactions. But remember, the 1031 only applies to investment, real estate. In fact, with the Trump recently a few years ago, when he had his tax overhaul, part of that was more restrictive. And in fact, the 1031 has been under attack for many years. And essentially, it’s been narrowed down to investment property. And it’s also being challenged right now by potentially the Biden ministration did take it away or limited as well. So realize that the 1031 is only for investment property. Now. How about a high-end primary home? Well, we just did a deal in Palo Alto for $8.3 million. For a seller who had a high-end primary home, he lived there since 2006. Number 1031 does not work for a primary home, but a deferred sales trust does. So we want to actually bring out those strategies such as the deferred sales trust to say, look, what you can defer hundreds of 1000s to millions of tax. Wow. Okay. The second part of that would be a saving of failed 1031 exchange. Okay, so, one of the biggest objections a lot of us as commercial real estate brokers receive is, Hey, I love to sell but I don’t have my 1031 lined up, or I love to sell, but none of these deals make sense, right? I’m afraid if I get out into my 45 days, you know, window here, I’m gonna run out of time. I’m gonna be setting a forced marriage we called a shotgun wedding. We’re getting engaged and 45 days married 180. So we want to relieve that pressure. And then, by the way, give them time to go back to the real estate when they want which is part of that secret, which is buying without having to worry. So any thoughts on that Logan?
1st Secret of Transformational Exit Plan: “Successful investing professionals are disciplined and consistent and they think a great deal about what they do and how they do it.” Benjamin Graham
Logan:
Yes, I do have a question. So, you know, obviously, you know, in the commercial real estate world First, I want to make sure that people understand that Brett and I are both real estate brokers. So you know, somebody that’s talking about deferred sales stress, we are real estate brokers. So we have nothing against a 1031 exchange, we are in the business of adding value to our clients looking at their specific, unique scenarios, and figuring out the tools that we have to provide them. And so that’s, you know, I think this is very timely and unique that real estate brokers are talking about different types of, of opportunities, because most of the time, or some of the time you can get folks really, you know, that are in the real estate profession, you know, they’re just salespeople, so to speak. And, frankly, that’s what we’re trying to elevate against. And yes, there are just salespeople, and a lot of them are on the residential side of things. And that’s okay, you need those types of folks to do those types of transactions. We’re really trying to take a consultative approach and understand what somebody is trying to accomplish. So my first question around this is, you know, deferring those sales, or that that appreciation in that equity. That’s the first secret that we’ve talked about, but like, break that down just a little bit more. So somebody that might not understand what a deferred sales trust is, and how that affects their unique scenario because you touched on a chord there Brett that I really stuck with me is it’s not just investment, real estate. So this is a huge opportunity for a larger market, I would say instead of just the niche market of, you know, some sort of business or investment property. So let’s break down deferred sales trust, and actually how we go about taking care of that deferring of those capital gains.
Brett:
Absolutely. So first of all, deferred sales trust is just an installment sale, a lot of listeners are listening, it’s known as a seller carry back or land contract something where essentially the seller becomes the lender in order to make a transaction happen. And this is based upon IRC 453, which is, which is a tax code that goes back to the 1920s. And so your CPA knows about it, you probably know about it. But instead of let’s say, I’m buying it from Logan, let’s say a $10 million multifamily property. Let’s imagine he had no basis and no debt. And I said, Logan, look, you’re gonna pay about 4 million of tax, let’s say even here in California. You know, what, how about this, I’ll give you a million dollars down when you carry a note for nine. And that scenario, Logan has become the bank and he’s only received a million. Well, guess what the IRS says until and if you receive the cash, you don’t owe any tax. It’s in a deferral state. Well, he received the million so he’ll pay the tax on that, but the other nine million and then deferred sale, it’s an installment sale. Now in a traditional song sale may pay him back in a few years, now he’s gonna pay the tax. Well, the difference here in the deferred sales trust is we say, Hey, you know what, tell the buyer, let’s say it’s me come with a full cash payment there. Okay, come with the full 10 million. And instead of Logan financing, the buyer will ask Logan to finance the trust. So it’s a third party that we introduce here. And Logan, we ask you to carry back 100% financing. So Logan, if you receive back a note for 10 million a promissory note and you take a zero down payment, nothing’s in your hands yet, how much tax is due today? Well, the answer is zero, right? You haven’t received any. Now on the other side, the buyer puts the 10 million into the trust, he actually ends up buying it from the trust. So we do it kind of in that exact order. And when we do that, guess what? The smoke clears, the buyer is gone. He takes the property. And the money is sitting in this trust. And this is where the blue ocean opens up. Logan, you mentioned that right because other asset types such as primary homes, again, stock cryptocurrency businesses, of course, investment real estate can be put into this trust all one trust and just kind of consolidate everything. And then you can go out shopping for real estate. But here’s the neat part. We call this the Netflix versus the blockbuster. There’s no timing restriction. See the blockbuster is 1031 you have the 45 180 which often means you’re selling high and buying higher. Right. And so our parents taught us to sell high and buy low, not sell, sell, sell high, and buy higher 180 days later. The deferred sales trust we can sit on the sidelines, which one of the best stories of the Monday morning quarterback talking about the Super Bowl on Sunday is the gentleman in Minnesota, okay. And near actually the stadium, he sold a $20 million asset in 2006. Okay, and that property was worth about 20 million to this guy. He just loves commercial real estate has he’s an amazing person and making money there. And instead of doing a 1031 because he couldn’t find it. He used the deferred sales trust for the first time. And then five years later, that same property that he sold was foreclosed on. And guess what the bank called him and said, Hey, do you want to buy it back? It’s in foreclosure?
Brett:
Well, maybe what’s the price they said well, 40% less than what you sold it for. He said that sounds like a pretty good deal. And he used the deferred sales trust money to get all tax-deferred By the way, put it into an LLC and then bought this asset. And when I heard that story, that’s when everything changed for and that’s what we call transformation right? transformation is taking time and making it be your friend. Not your enemy. Transformation is selling high and buying low. Right transformation is getting on the side. Lyons keeping your powder dry and waiting for this market to shift. So if I can give you unlimited time, unlimited tax deferral until you if you receive the funds, right, guess what Logan can do, he can diversify. He can get liquid, he can get debt he can get out of debt. And he can wait. And we believe right now liquidity, diversification, and the ability to to to buy real estate at optimal timing is transformational for clients. So any questions or thoughts there?
Logan:
No, I mean, I agree with a lot of those notions that you mentioned, I think that, in my mind, at least, where were folks get? We’re focused, losses complexity, right. And that’s your, your expertise is to make the complex, easy to understand. And I love your stories that because they always make these things very real, right? Because you’re in there doing them. And, you know, the question always becomes, to me, when we have these sessions is, Hey, you know, I haven’t really heard anybody yet doing deferred sales trust. And I always like to use your story, I steal your story, Brett and I said, Well, have you ever talked to somebody when they did their first 1031 exchange? And I’m like, how did that go, you know, probably not as smooth as they would have enjoyed because it was new to them. And you know, you guys have enough experience taking care of these types of transactions and setting these things up for people to be successful. So I don’t necessarily have a question on that.
Brett:
Just a thought on that. When I first did my first 10th, on my first real estate transaction, or the first time I bought a property, or bought into a limited partnership, or any of these things where it was a first and there was uncertainty, it took a level of trust in the guide, or the person or the partner or the broker, right? To overcome what was called a false belief, right? It’s like, I don’t know if you heard the story of the four-minute mile, right? For really, there’s hundreds and hundreds of years, 1000s of years, nobody believed that the form of a broken, right, that’s right. And in fact, it was this thing where doctors would say, if you do this, your artwork will explode. I mean, they’re the medical, the science, everything. They looked at it and then finally somebody broke it. And then I think next 12 months, and other seven people broke it. And so the key is finding that guide, who’s a few steps ahead of you who’ve actually helped their clients close, and do either a 1031, you can cost segregation can be false beliefs, of course, the deferred sales trust. Now the key, of course, is the track record with 1000s of closes 25-year track record billions under management last year alone, over $2 billion gross asset sales have gone to the deferred sales trust. Your company, our company alone did about 90 million gross gross sales last year, we just closed the $5 million deal last week in Colorado for a multifamily owner. And they were really trapped because they’re frustrated, they’re in their 70s, they have a huge huge estate tax. And in fact, they want to move it outside the taxable state. So we saved them 40% on deferred sales trust, which is pretty cool as well. So until you have that guide until you’re working with someone who’s closed it, you want to I guess reserve judgment, right, or until you’re there. So that’s why we wouldn’t just get educated to find out. And then we course we want to give the folks that have actually talked, we’ve actually used the differential stress, right, who actually are our clients? So those are the key things there.
Logan:
Absolutely. You know, I couldn’t agree more and in the fact that, that those numbers are staggering, right? I mean, when you look at and that’s just that, I don’t know, you know how large the company is, per se, but that those numbers are, that’s a lot of real estate.
Brett:
A lot of real estates, a lot of business sales, a lot of you know, stock a lot, you know, so it’s there. And exactly why so we just and the other thing is the IRS audits over, you know, over a dozen no change IRS audits, no pending litigation, which is very important. Because there are some competitors out there that have some pending litigation going on, are you going to go and how many audits have they survived? And what are the outcomes? Who did that? So you always want to make sure that whoever’s offering you this new, you know, strategy, or whatever it might be, you know, what, who’s backing this right, who’s gonna protect me if the IRS so the DST, audit, defense lifetime, no pending audits, the last one was 2019. No change, no issues. So we’re literally batting 1000 it’s like Mahomes. Baby, we got Tyree to kill, you know, on a post route this Sunday? You know, I mean, he’s probably hitting him, you know, 100 out of 100, wide open, right. I don’t know. What do you think?
Logan:
Yeah, it’s probably 99. I’d say maybe one time, he misses him, but probably 99 out of 100. Here’s one question Brett is, you don’t have any pending litigation. But you mentioned there are some, you know, firms out there that do so maybe where is one of the breakdowns that happened on some of those transactions or walk us through a kind of a scenario where it wasn’t done correctly or a pitfall that happened in those transactions and how to avoid those.
Brett:
Yeah, great question. So one of the ones, in particular, it’s called a monetized installment sale. In fact, if you search deferred sales trust, it’ll pop. They have a website and they say don’t use a deferred sales trust, use us, here’s why, you know, and, and they’re like, Wow, this looks like it’s just like the same thing. But they give all this other flexibility, which is amazing. And the biggest thing that we have found when we studied it, and why we don’t provide it here at capital gains tax solutions is the fact that they say, Hey, 93, and a half percent of the funds upfront is just Here you go, we’re gonna get this bank to give you all the cash and do whatever you want with it. And we think that’s a constructive receipt. In fact, part of what an installment sale, the essence of it is not putting the actual funds in, let’s say Logan’s hands, but of course, it’s attracted to go, Oh, I can get all of it upfront. And I’ll just pay this, you know, six, six and a half percent fee at closing, and then I’m just free to go wherever I want. And that’s the part where we go, we think that’s taxable actually learning, right? kind of think of like a 401k, or an IRA, like, right, what do you do sure you forego taking those funds in your personal account, you put it into this other tool. And until you start receiving payments, do you actually pay tax? Well, that’s the same to the deferred sales trust, we’re doing 100% into the trust and not to you so that the foundation of the structure is what’s called constructive receipt by like, This is also why the 1031 exchange to be very cautious, you want to make sure you set that up before closing of escrow. Because if you don’t, an escrow accidentally sends the funds to your personal account, guess what, game over, it’s too late. It’s taxable. You can’t just send it to a QA company now and say, well, well, I’m still in my 45 days. No, no, it’s over you. You just lost, you’ve gone down the wrong road there. So the key is keeping the funds outside of your taxable hands. So it’s not a constructive receipt. So that’d be the next biggest one there. But again, I think for farmers, it definitely works, right, because this was set up for farmers. So if you’re a farmer, I think that’s it could be a good solution. But most of the commercial real estate owners that I work with and business owners, they’re not farmers, I don’t know maybe in Kansas City, there’s a lot of farmers out there, there could be but you just got to be very cautious. And I even more than that is does the attorney stand behind their work? Right? You know, if you’re gonna go get ACL surgery, I got two ACL surgeries, my basketball college, and I asked the surgeon who helped me? Oh, well, I helped some of the Sacramento Kings. People like Chris Webber. Oh, okay. Well, if Chris, whoever said yes, I’m gonna feel pretty good, right, though, and you actually do the surgery? Yeah, I actually did the surgery. Okay. So wasn’t an intern Oh, wasn’t an intern. Okay. Excellent. So you want to make sure that professional is rock solid?
Logan:
Yes, 100%. Absolutely agree with that. If it’s like the Amazon and Google effect, when they pick a new market to go into and build a new headquarters or a new facility, you just see the spiderweb effect, kind of, you know, on the outskirts of that all of the real estates around their businesses start moving there. It’s the same thing here. If somebody already used a certain provider, and they did the due diligence, to go through that, you know, that’s, that’s a good indicator that it’s a good vendor to work with, and a good partner to kind of hang your hat on. So I couldn’t agree more on that front. Hey, Brett, do you want to tease the second secret? Really quickly, because so maybe, you know, do a recap of the first secret. Let’s tease the second one, which we will be talking about for two weeks. Next week, we have a different topic. But let’s go back recap the first secret of the transformational exit and tees that second one for everybody.
Brett:
Excellent. Yeah, so today we just talked about the first secret to a transformational exit plan on the sale, highly appreciated business real estate, cryptocurrency, or stock. And this first secret was selling different hundreds of 1000s to millions of dollars in capital gains tax, how to legally break free from capital gains tax and find the freedom to buy and sell your business or property, primary home, investment real estate, save a failed 1031 without ever worrying about a 1031 exchange ever again. So that’s the first secret. Now in two weeks, like Logan said, we’ll be talking about the second secret and this is called the optimal timing, transformational wealth plan cloning, how to clone a proven wealth plan with capital gains tax solutions in less than five hours and become time energy and debt-free. And then perhaps go find a deal whenever you want, right? Whether that be tomorrow, they want to be one or a couple of years from now. So that’ll be secret number two, and Logan, how about you tease what we’re going to be talking about next week?
Logan:
Absolutely. So next week, we are going to be talking about the three investments to insulate your real estate portfolio from a market downturn and how to think about 1031 exchange and using a deferred sales trust to accomplish that goal. So again, three investments to insulate your real estate portfolio from a market downturn. Brett with all of the different opportunities, challenges, and concerns in the space. I wanted to kind of bring my thoughts on 2021 and where we see some opportunity to you know, grab some market share and make some sound investment decisions.
Brett:
You know, I couldn’t agree more and I’m excited about that Logan for people who want to get in connect with you right now the best place the find you
Logan:
If you’re active on LinkedIn, just search me up on LinkedIn, Logan Freeman. I’m there every single day but also over at our website ftwinvestmentsllc.com. I can be contacted there. We write weekly blogs there as well. If you’re on BiggerPockets check me out there. I’m a contributor on bigger pockets and writing a lot of great articles over there for folks that are interested in the commercial real estate space. How about you Brett?
Brett:
Thanks, Logan. Yeah, I can be reached at capitalgainstaxsolutions.com you can learn about the deferred sales trust and how it compares in contrast to some of the other tax deferral strategies out there, as well if you are a business professional, commercial real estate broker syndicator you know, we just did a strategic alliance with the Joe Fairless. And, and we’re looking for to grow that out as well as we have here with the Logan Freeman out of Kansas City, Mr. Kansas City, you can go to experttaxsecrets.com to learn more about that. Hey, thanks, everyone for listening. We so appreciate you out there. And with that, we are at the top of the hour. wish everybody a great weekend. And hey, go Tom Brady. Go and go bucks. What do you think Logan?
Logan:
Absolutely, man, I think we’re gonna bring it home. I’m very excited about it. One thing I did want to tell people to is where we can work next week, we will actually drop because we are live streaming this and we’re on the clubhouse. So if you want to actually join via a different medium and see Brett and me on camera, we are on camera, we will drop those links into the next graphic that we put up on social media guys, we want to try to get the word out about 1031 exchanges. So please, please tell people about this room. We want to grow this room. Brett and I have applied to the Clubhouse to own the 1031 exchange room. This is our fourth week consecutive you only have to do it three weeks in a row. We’re still learning this platform. So hopefully we can grab this room up. We can continue to grow it and continue to bring you guys value on 1031 exchanges, deferred sales trust, and commercial real estate. So that’s it goes chiefs and looking forward to next week, Brett.
Brett:
Thanks, Logan. Good to see you. See you next week for now.
Logan:
Okay, guys. Talk to you soon.
Important Links:
About Logan Freeman
Logan Freeman is key principal, co-founder,
and Chief Development Officer of FTW Investments. Mr. Freeman oversees the company’s acquisitions and investment strategies. He also personally selects all key investment markets and asset classes to meet the goals of investors.
Mr. Freeman brings to the company over six years of real estate investing experience. Prior to FTW Investments, Mr. Freeman was the Director of Acquisitions for a fund where he originated the concept, developed the operating plan, and created the company’s products worth over $50M. He also acquired over 225 doors in a little over a year and completed a portfolio refinance, returning all of the investors’ capital as well as maintaining positive cash flow.
Prior to working with the real estate investment group, Mr. Freeman worked as a director of sales for Service Management Group. This position involved working with a startup, medium-sized service, and consulting companies in and around Kansas City.
Prior to his entrepreneurial activities, Logan was an All-American collegiate football athlete at the University of Central Missouri, where he graduated in 2013. After his final season in college, he was picked up as an undrafted free agent by the Oakland Raiders.
