Can I Invest 1031 Exchange Funds Into Multifamily Syndication? Yes With a Deferred Sales Trust With Brian Burke
Brett:
10 years ago or five years ago when I was really focused on multifamily brokerage and was calling a lot on cold calls. I don’t think you were you were buying or whatever that was at that point. I spoke with a gentleman, his name is Dave. He’s actually a co client of ours now. About a year and a half ago, I sit down with him, he’s like, “Yeah, Brian Burke”. Remembered the name because I’ve invested with practice capital at the time, he told me a little about that. So he’s kind of actually been a long term client of yours. But fast forward, he’s selling a $7.6 million dollar property in Georgia 128 units, and his exchange is failing, and he can’t make sense of the numbers, and COVID-19 hits, and so he’s past his 45-day identification, and he’s like, “You know what, this Deferred Sales Trust looks a whole lot better now that COVID-19 is not here”, and he’s done hundreds of sales and numerous 1031 exchanges. So for the first time ever, he did a Deferred Sales Trust, he put 3.1 million into this trust, and the cool part was he’s like “Brett, there’s a place Praxis Capital remember?” “Yeah” A big percentage of that went with you guys, and he was getting the 6%. For him. He wasn’t like a stockbroker guy. He doesn’t like stocks, bonds, mutual funds. He’s not big on that, and but he is big on real estate, right, and so he was able to people might think is not possible self sale, fail, 1031 Exchange, pay off all the debt, and then move it into something that’s a little more predictable, a little more diversified. Also very passive for him, he literally has to do no more toilets, no more trash, no more liability, and it’s been a real nice, seamless fit. So would you just speak to a little bit about that, and maybe some misconceptions when it comes to people not thinking outside the box or what is a way that you vet things to make sure that people are asking the right questions about things that are new and maybe have never heard of?
Brian:
It’s interesting because I get a lot of questions from people wanting to know if they can invest 1031 Exchange funds into our syndicated offerings? The answer has always been no, you can’t do that. It’s not like-kind exchange real estate, for shares in an LLC. It’s always been a bit of a challenge. In fact, I’ve had two people just today ask me this question, if they can invest 1031 exchange money into a syndicated offering, and, I’ve heard about a variety of ways that 1031 exchanges can be utilized and manipulated to invest in things you wouldn’t think that they would be able to invest in, and I’ve always dismissed it essentially, as a bunch of bunk, that somebody’s got some black box that, who knows if it’s even legal. But I’ll tell you, you made me a believer when we got the wire from our mutual client who made this work, and it was a real eye-opener to see that there are ways that people can, can use the regulatory framework, if properly structured, to invest 1031 Exchange dollars in things that you would not think were like-kind to what they exited from. So it was very impressive. I gotta say, you are the first one I’ve seen pull this off, and I’m pretty hesitant to believe in a lot of these kinds of things? It’s a major feat for me to say, “Wow, this actually really works”, and it was really cool.
Brett:
Well, thanks for sharing that. That means a whole lot coming from you and your background, and, and likewise, when I was doing 1031 Exchanges with clients multifamily properties, and I still do, it took a while to like, Does this really work? I liken it to riding a bike or the first time you ride a bike, it was a bit wobbly, but once you ride the bike, it becomes comfortable. A lot of my clients the first time they did a 1031 Exchange, even in the 1980s people were like, is this thing legal? Does it work? You know, and how does it work and scepticism. But now fast forward? There are so many exchange companies educating people, it’s second nature now, and the last part about that, just to clarify to so we’re actually not doing 1031. You’re absolutely right on your structure, especially in California dropping swaps or trying to do, fancy ways to trade real estate, and then non-like kind of two shares of an LLC. We also believe those don’t work, and that’s why we’re not using that tax code that’s IRC 1031. We actually use a different tax file, which is called IRC 453, which is known as an instalment sale, and so we liken this to the old blockbuster is like 1031 into the Netflix and as a seller carry-back as soon as you go into that mode, you no longer have to do like-kind, you can put it in stocks, bonds, mutual funds, hard money lending into a business develop real estate, we just closed a deal in Alabama $2.6 million sales $600,000 of a liability deferred, and these guys were in the marketing business They actually want to be in the multifamily development business, and guess where they’re developing real estate, they’re developing ad units with the Deferred Sales Trust funds that they would have paid to the government in Tennessee. That’s where they identified as a great market to develop. So it can be done, it has been done, and we just can’t get the message out fast enough. I appreciate that. Any thoughts on that or any follow up on that?
Brian:
Well, my thoughts are that’s just really, really cool. It opens up a whole world to people, and this may not have mattered in 2009 10, 11 and 12 when people weren’t selling highly appreciated real estate, they either weren’t selling it because they had no equity, or they weren’t selling it, because they didn’t feel that it was a good time to sell. But for about 2014 on, when we started to notice an increase in people looking at 1031 exchanges, as a result of the fact that they had equity in their real estate and were realizing their return on that equity was infinitesimally small, they are earning nothing, they had millions, and they were earning like a half a percent on the equity when it’s sitting there in this highly appreciated real estate, and they needed a way to unlock it, and 10 years ago, it didn’t matter. They didn’t need a way to unlock that, and they wouldn’t want to even if they had been away. It’s very timely, what you’ve been able to put together for people, and as I said, it made me a believer when the wire hit our account.
Brett:
Absolutely right until the deal closes. It’s not there, and it’s not real, but it’s cool as 1000s of closes now 25-year track record, and we literally have some of the best tax attorney CPA and financial advisors we work with. But that being said, I want to put this stat to you to just think about Brian, it’s the baby boomers, it’s according to the American Bankers Association is about $17 trillion. That’s going to pass from one generation to the next in the next 20 years, and it’s known as the largest wealth transfer in the history of the world. Think about 17 trillion is probably upwards of 20 trillion now with the way the stock market’s gone. But all of that wealth is going to transfer and talk about government regulation, and what that could mean if people are actually paying tax on that, which is massive, or using a tax deferral strategy. So that includes primary homes, that includes highly appreciated stock. I 1031 only works for investment, real estate, and we just did a deal in Cupertino with $3.1 million sales, and we helped her for $400,000 above her 121 exclusion. can you speak to just if what we’re saying is true, which I’m a believer and you’re more belief every day, but just outside of the commercial real estate world, a lot of folks are just focused on people 1030 Wanting to their syndications as an as another deal, which they may or may not be able to do? But if you can open up like, for example, we’re going to Bitcoin case right now $5 million Bitcoin case, we’re doing a $1 million Tesla stock sale, we’ve done Netflix, okay, stock sales. But if you could open up all of those other asset classes to essentially sell, move into a Deferred Sales Trust, and then either fund into your LLC or fund into your hard money lending. What would that mean, when it comes to the $17 trillion wealth transfer?
Brian:
Well, my joke would be that it means you’re going to bankrupt the US government by withholding all their tax money, but you’re certainly going to empower the people that otherwise would have paid to make some significant investments, that’s for sure. Maybe that’s one of those, what goes around comes around kind of deals.
Brett:
For sure. Why did why does the government allow this right? Why don’t they just cut us off? And with the 15, IRS audits, they’ve gone through that? Well, it’s a study of macroeconomics, they actually spur economic growth, which spurs job growth, which spurs more tax revenue. So it’s in their favour to do that, and also to, Joe Biden, I don’t know if you saw this, but recently, he’s campaigning or announcing that he may take away the 1031 exchange. I’ve got a number of texts from people, and they’re like “Brett, you’re in a great position if he gets elected, and this goes through”, and I’m like, “Yeah we’ll see”. But to that point, IRC 453, goes back to the 1920s. In the recently put it in as part of the depression, everything was going on, that they wanted to make the people have the ability to be the banks. So IRC 43 is a seller carry-back, and so when you do that, you can keep the economy going, thinking like 08, when the banks were everything was kind of collapsing. If the government has to become the bank, guess what happens? It’s not good for anybody, like everything kind of stops. They, they want to incentivize private companies and private banks, and then also people in case something like a COVID-19, or like, the 2009 crash, right happen, that people can still do commerce, and they’re still incentivized to sell without getting wiped out by the tax by carrying paper. Does that make sense, Brian?
Brian:
In fact, we used to talk about this back in the late 80s and early 90s. When I first started investing in real estate, I remember the whole installment sale method to try to convince a seller to sell their home because they could sell it to you and carry back the loan and they wouldn’t have to pay tax on the wholesale at the time and gosh I mean that’s been around forever because I used to use it back in the day when I was just trying to struggle to be a real estate investor.
Closed Deal Story
Can I Save Capital Gains Tax When Selling Cryptocurrency? The answer is, “YES.”
Silicon Valley Technology Expert Finds A ‘Deferred Sales Trust’ To Break Open A Clear Path To Sell Cryptocurrency To Defer Capital Gains Tax
Can I save capital gains tax when selling cryptocurrency? The answer is, “yes.” About 7 years ago, Peter and his wife purchased their first Ethereum. Who would have anticipated that the value would have increased by thousands of percent in just a few years? Peter, who has worked in the technology field for more than 20 years, saw a great opportunity to sell in late 2017, however, without a clear legal plan to defer the large capital gains tax, found himself feeling trapped by the consequences of selling.
Peter held on to his belief in the fundamental value of ethereum and the potential business opportunities it brought to end-users during the 2018 crash when the value of ETH fell from $1,432 to below $90. “That was a tough pill to swallow,” Peter continued. Fortunately, everything returned in 2021, and much more. In early 2021, Peter met Jessica Lanning of Lanning Financial who told him about the Deferred Sales Trust and introduced him to Brett Swarts of Capital Gains Tax Solutions. Then in May of 2021, ETH reached an all-time high of $4362. “I knew it was time to sell at least a big portion of my stock since I didn’t want to miss this opportunity again. Let’s just say it’s been a long three years since the high in 2018.”
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