“I believe that collaboration and working together where everyone is working for the same outcome, everybody has the interest of each other in mind and the best interest of each other in mind where there’s a true alignment of interests.”
Thomas Braegelmann is the founder of GCA Secured Investments and the Kensington Fund. He also mentors and helps a lot of people who are trying to get into investment and real estate. He’s also participated in more than a hundred million dollars in real estate transactions nationwide in under 18 months, and 30 years of experience in real estate investing, commercial construction and land development, and private lending.
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Finding Secure And High Return Deals With Thomas Braegelmann
Brett:
I’m excited for our next guest. He is out of Puerto Rico today, but really is from Minnesota and has spent a lot of time helping people all over the US. He is the founder of GCA Secured Investments and the Kensington Fund. He also mentors and helps a lot of people who are trying to get into investment and real estate. But then, in particular, he has an eye for finding deals that perhaps have higher returns, but also that is very secure. So he has some lending that he helps people do. They can invest in his lending business and/or real estate opportunities. He has been a speaker and has hosted multiple groups, in particular in the Bay Area. I’ve found that if you’re anywhere near San Francisco, over 1,600 members of REIA private investment club, as well as another 400 passive investors that he has a group that he leads and mentors investors across the country. He’s also participated in more than a hundred million dollars in real estate transactions nationwide in under 18 months, and 30 years of experience in real estate investing, commercial construction and land development, and private lending. So please welcome my guest, Tom Braegelmann.
Tom:
Great. Thank you, Brett. Thank you. Appreciate that.
Brett:
Yes, Tom. You’re welcome. Welcome to the show. So let’s talk a little bit, Tom. Tell our listeners a little bit about your story and your current focus.
Tom:
Yeah, so my focus, what I really like doing in real estate is structuring real estate transactions, structuring deals. I was a contractor developer, like you mentioned, for quite a few years and I know what it’s like to be on that side of the fence, where I find a great deal, but then I need to find the money to help fund it, to get the deal funded, get the work done. A lot of times, it would be either a fix and flip or new construction projects. So I feel really comfortable from that perspective of wanting to find money partners to do deals with. And so now over the last 10 years, I’ve been on the other side of the equation, nearly 10 years, where I am the source, or I helped source money for the active investors that have the deals. And so I like bringing those two parties together, the active investor with the deal and the passive investor with money, and help facilitate those projects to get the deals done in a way that’s safer, more profitable for everyone. It’s a very collaborative approach that we work with and it’s been very successful for us.
Brett:
Excellent. Before your success as an educator and a connector with active investors and passive investors in commercial real estate, who was Tom growing up? And what gifts were you given? And how did that shape how you help others today?
Tom:
Well, you mentioned I’m from Minnesota originally. About 10 years ago I moved to California, but I grew up on a small family farm in central Minnesota, learned how to work. Dad always seemed to have plenty of work for us. There were six boys and one girl. Seven boys and one girl, including myself, and a big family. And he always had plenty of work for us to do on the farm. So I had a great life, a great childhood growing up that way. From there, from very early on, I always wanted to be an entrepreneur. I liked putting deals together. I liked making things work. I started real estate investing while I was in college. I bought my first home. The very first home was a mobile home and then from there, I went to a duplex and eventually bought another duplex. But yeah, that was that’s pretty much what it was. Like I say, I had a pretty decent childhood growing up and learned how to work.
Brett:
I’m curious. Out of the seven, eight total of your brothers and sisters and yourself, what number were you in the order?
Tom:
I would say I’m either seven or eight, either the last or second last because I have a twin brother.
Brett:
Oh, you have a twin brother. Wow. And are you guys opposite in a lot of ways and are more the same? What is it like?
Tom:
I would say we’re very similar in a lot of ways. Pete was his name he did pass on, but super, super wonderful guy. But we were definitely best friends growing up, and enjoyed doing a lot of things together.
Brett:
Sorry to hear about the passing. Yeah. Sorry to hear about the passing. Were you guys connectors? I’m trying to connect what you do now with what you were a kid. Were you guys connecting the brothers and sisters growing up or negotiating whatever kids might negotiate on a farm growing up? Were you guys kind of the entrepreneurial younger brother?
Tom:
Yeah. No, I think that’s a good description. In my book, I talk about how we started out. I remember the very first thing that I did was I helped dig worms for selling. In Minnesota, there’s a lot of lakes. And so therefore there were a lot of weekend fishermen and fishing people that would come in for vacation and they wanted to buy worms. And so, we would dig worms up in the garden. And we did that for a couple of years to the point where eventually we were able to buy a bicycle from the proceeds of the selling of the worms. And so that was really my first endeavor. Then I got involved with growing sweet corn and raising sheep and different things like that. So yeah, it’s always been in my blood I guess.
Brett:
Excellent. So you’re empowering the fishermen to actually close the deal with the fish, right. Kind of like how you empowered the active investor with the passive one now. So tell me, after helping countless investors, business owners, interviewing many financial experts on your own podcast, by the way, what is the single best practice that you’ve really found or you encourage people to implement, to be successful in real estate investing and building wealth?
Tom:
I would say that I believe that collaboration and working together where everyone is working for the same outcome, everybody has the interest of each other in mind and the best interest of each other in mind where there’s a true alignment of interests. That to me has proven to be one of the most valuable things and important things, when either working with investors, helping them put deals together, or doing deals ourselves. It really makes for a much smoother, more enjoyable, and more profitable, safer outcome.
Brett:
How do you ensure that your team or the people you’re working with have that clear vision, have that team togetherness, or are looking out for each other? How do you best ensure that happens on your deals?
Tom:
Well, very early on in discussions with people, for instance, if we have a borrower that comes to us that’s looking for short-term funding and they have certain ways of approaching, whether it’s the information that they give us or the way that the communication is done. There are always small signs that indicate whether it’s something to dig deeper if there might be a concern or if it’s really presenting itself well as somebody who is of that abundance mindset where there’s plenty out there for everybody, rather than kind of nailing, trying to get as much as one can for oneself. Those are little things that over the years, I’ve definitely been able to hone my ability to find, to discover things about people, to tell whether they’re going to be good team players or not. And so often, whether it’s real estate investing or other business endeavors or things in life in general, so much of it is about our attitude and about how much we’re willing to put in ourselves to make it work for us and for everyone around us.
Brett:
I think that’s really well said. And I actually read a book recently, Tom, called The Ideal Team Player by Patrick Lencioni. I’m not sure if you’ve seen that, but he talks about three traits that he’s looking for and that he encourages every business owner to look for when they’re looking to hire or bring on a new team member. And the three were humble, hungry, and smart, right? And the humble has to do with just being coachable, being willing to get feedback, also knowing your strengths and not diminishing your talents, but really just knowing your strengths and being coachable in those. The second one had to do with being hungry, just wanting to work harder and loving to work, and being one who just really has a focus on achieving and is self-motivated, versus having to have external motivations motivated, kind of have the inner drive. And the last one was smart and it talked about not necessarily just IQ, but more so EQ and the way that you connect with people emotionally. And typically each of us has one or two that are our strengths. If we have all three, we’re really an ideal team player, right. But if you’re lacking one, two of these three, it could also be a challenge, especially if it’s the humble one. So in your experience out of those three, would that be the one that you see? If they don’t have the humility, it may not be a good fit, and it kind of stops everything at the start.
Tom:
I would say that would be the one, because of some of the other traits, we can strengthen some of those traits a bit more with team members. But if we go in with an attitude that is not conducive to a collaborative win-win structure for everyone, that’s where the will can fall off. And unfortunately, in some cases it does, which just makes it that much tougher to get through a project or to get through the endeavor that we’re working on.
Finding Secure And High Return Deals: “Price is what you pay. Value is what you get.” – Warren Buffet
Brett:
Excellent. So shifting a little bit, now we’re getting a little more to the tactical here. I’m curious, how do you help? And our podcast is Capital Gains Tax Solutions. So how are you helping yourself, your partners, those you coach, to defer or eliminate capital gains tax and grow their wealth when they do. So what kind of strategies are you using or have you used in the past that really have worked well?
Tom:
Well, the one that comes to mind, well, first of all, the deals that we do, when we fund deals, a lot of times they’re going to be shorter term. They’re going to be six months, eight, six to 12 to 18 month period because it’s a timeframe where work is being done. There’s what we call forced appreciation or forcing the value up. And so there can be gains brought in through that. The one thing that I’ve noticed that our investors really see the benefit of is when they’re doing it through self-directed IRAs where they have control of their funds, but it’s either tax-deferred or what’s the other one I’m trying to think of? Text deferred or…
Brett:
Just more efficient in taxes, right. Or they’re saving. I think the way the self-directed IRA, corrects me if I’m wrong, but essentially it’s like an IRA or 401k where as long as it’s invested, you may not have little or no capital gains tax to pay because it’s an IRA. And as long as you don’t take it before 60, you’re looking at a really nice solution to build some wealth, versus some of the more traditional ways which would be with a financial advisor, which may not be as high of a return, right. It’s subject to the ebbs and flows of the big, big market swings and stuff. You can diversify a bit, get into some real estate, especially with the higher returns that can really do wonders for you. And each of them has their little nuances for their tax. Okay. So self-directed IRA is a good one that you use?
Tom:
Yeah. And I think this model tends to work quite well for the busy professional, the investor who doesn’t really want to get their hands dirty or doesn’t have the time, or wants to spend time with family, wants to travel, all those types of things. That’s really where this can come out of it. But yeah, the tax-deferred or tax-free investments is really where I see the most.
Brett:
Excellent. How about 1031 exchanges? Have you used any of those for your deals? Or tell me, because you mentioned short in nature. So my understanding is 1031 typically needs 12 months or greater to qualify as long-term capital gains tax deferral. Do you see the same thing on the deals that you put together typically because they’re short in nature that 1031 is not an option?
Tom:
That’s right. We have had investors that we’ve worked with that have done the 1031 exchange. But generally speaking, because this is a short-term, forced appreciation, forced increase in value play, that typically is not part of what we do.
Brett:
Makes sense.
Tom:
Monetized installment sale, that’s another one. Yeah, there are different strategies. But typically, because we’re shorter term, we don’t get involved with those as much.
Brett:
Got it. That makes sense. That’s great. How about accelerated depreciation? Have you ever worked with that at all or using that strategy for any of your deals?
Tom:
We haven’t, not that I’m aware of. Chuck, my business partner, may have had some dealings, but so far not. We really haven’t.
Brett:
Okay. That’s fine. Yeah, that’s great. So I consider you a wealth advisor. You’re helping people advice particularly in real estate and investing in investment real estate. So I’m curious, what do you think some of the biggest mistakes that other wealth advisors are making, perhaps ones that aren’t in investment real estate? And what advice would you share with them to share with their clients? In other words, what are they missing? What should or could be sharing with their clients?
Tom:
One thing that comes to mind is those two things, actually. One is fee-based. I like the idea of investing where there’s fewer fees upfront. The other thing is, what was the second thing? I’m having a brain…
Brett:
That’s okay. So fee-based, right. So, whereas it’s more consistent, straight fees, fewer fees upfront, right, which is going to give more growth. But what about the real estate part of it? Maybe those who aren’t in real estate, what should they really be sharing with their clients?
Tom:
Well, I think what I like about the strategy that we work with is it has a profit-sharing component to it. So if there are investments that people can get involved with where they’re able to share in a potentially higher upside, because of some sort of profit-sharing being included in that investment strategy, that’s worked out well for us.
Brett:
Right. Kind of like an employee, if they can get stock options or be a part of a percentage of the ownership of the company, the company does really well. They’re invested and they get the profits and the upside. So the same thing here, whereas you’re not just invested in a stock per se and getting it maybe, or a dividend or a small return on an annuity or a fixed instrument, you’re actually investing in a real estate deal, which has higher chances of appreciation and more profit sharing.
Tom:
Yeah. And with that alignment of interest with everything coming together and everybody working to get better profits, being able to share in those profits is also a nice little bonus for having been a part of that collaborative effort and collaborative approach.
Brett:
Excellent. That’s great. So shifting a little bit more here, when you’re meeting with some of your clients, what were some of the potential partners? What are some of the questions you’re asking to see if it’s going to be a good fit for the service that you provide?
Whether it's equity or it's a loan, it really depends on how high that equity or loan to value is on the property as to what keeps it safe. And then it's in the details of how the deal is structured so that the investor is kept safe. Click To Tweet
Tom:
So with contractors and developers, that is really going to be, of course, the numbers, the deal structure, the strategy, the type of investment strategy that they’re proposing. That’s very important, but we’ve already touched on how important it is for them to be good, solid team members, people who are going to work, and really be supportive to get the whole project done in a collaborative approach. From an investor’s perspective, from a passive investor’s perspective, I just recommend that the investor understands that they know what questions to ask either the active investor or the facilitator or the broker, whoever is brokering the transaction or the deal that’s happening. So a lot of times there’s going to be, we act as a facilitator between the passive investor and the active investor. So we’re helping put that together. So having the right questions answered, so the passive investor understands what questions to really ask and understand the answers to. I think that’s really important.
Brett:
Yeah. Creating clarity between both the passive and active investor and the money in between. So essentially, you’re brokering in one sense, the money to the active investor and then managing the expectations so that everything is clear and also looking out for both sides of what each should be doing and what they should be expecting. And with that, knowing what questions to ask and making sure they understand that. Can you share just maybe a couple of deal stories where what kind of returns you’ve been able to achieve for some of your clients?
Tom:
Yeah. I’m only apprehensive about that because I want to make sure that I’m not overstepping my bounds of what I should be sharing on what potentially can be done for investors. But that being said, because it’s a profit-sharing model, the way we set it up a lot of times is we’ll set it so that the investor can get a monthly return on investment because that project or that borrower is paying a monthly fee for the use of the money, but then there can also be a kicker or a bump at the end, a bit of the profit-sharing at the end. And so I mean, I think it’s reasonable to think anywhere from 8% to 15% annualized return with this model is certainly a doable thing.
Brett:
Excellent, so 8% to 15% analyzed return. And the average deal may take six to 12 months. Would that be fair to say too, to get that return?
Tom:
Yeah, I would even go up to 18 to 24 months.
Brett:
18?
Tom:
And it’s an annualized return is what I’m referring to. So even though it might run longer, it’s still with an annualized return.
Brett:
Yep. That’s great. No, I think that’s excellent, right. Versus some of the traditional investments might be five to seven, give or take. And then of course it is the depreciation. Do they get depreciation to offset as well, your investors, because they’re part of the actual ownership of the groups? Or how does that work for the passive investor?
Tom:
It depends on the structure. In some cases, we structure the deal so it is truly a lender relationship. And if that’s the case, then there wouldn’t be. But if it is equity participation, there are two different models that we work with, then there could be. Yes.
Brett:
That makes sense, right. And for the listeners, right, if you’re lending, you’re not part of the ownership, therefore you don’t have the opportunity to get the depreciation and offset. And typically that means there are going to be some maybe better returns or higher returns to lend on the money versus maybe the preferred return on the equity side which might be lower, but you have an opportunity to make more as well and get that depreciation. So you’ve kind of got to balance that. But that’s good to hear Tom, that you have both options, right. So maybe that gives a little bit of diversification for your passive investors. And okay, great. That’s great. Anything to add on that diversification part and how do you balance the one versus the other?
Tom:
Not really. Just for clarification on that, when it is a loan, the way we typically will do it, it’s done by way of what’s called a shared appreciation mortgage, which just means that the lender will be able to share in the appreciation. So it’s not really considered typical interest. It’s more of an appreciation value rather than regular interest.
Brett:
Yeah, okay.
Tom:
So maybe just…
Brett:
Is there any difference between the shared appreciation mortgage and just having interesting ownership? Or is that just another way of saying you truly have ownership in it?
Tom:
Yeah. So equity ownership would be different than a shared appreciation mortgage. So it’s really like an alternative to interest, but it’s still done by way of proceeds. It’s a different classification of interest.
Brett:
Okay, okay. So some nuances there. And does the shared appreciation mortgage include the depreciation or no?
Tom:
No, that one does not.
Brett:
Okay, okay. Excellent. What would be the upside of doing the shared appreciation mortgage versus just the equity ownership? Or in other words, why would someone choose that over the other?
Tom:
It’s really dependent on what the investor’s perception of value is because when you think about it, an equity position and a lending position can be structured almost identical. Some people feel better if they are actually part of the ownership of the property or of the transaction. Others feel that they could be better off in a lending position or as a lender in the transaction because lenders always get paid first, but it’s still all relative to the amount of money invested. So whether it’s equity or it’s a loan, it really depends on how high that equity or loan to value is on the property as to what keeps it safe. And then it’s in the details of how the deal is structured so that the investor is kept safe.
Brett:
Okay, great. Thanks for sharing. So shifting to our last question here, how do you stay centered in your values and keep from being discouraged? We’re in a world where there’s a lot of noise, a lot of negativity, a lot of moving parts with technology and change. And some would say we’re at the height of the market, and there are lots of challenges ahead. But circling all that back to yourself, how do you stay centered in your personal values and keep from becoming discouraged?
Tom:
What helps me is when I can really have clarity and stay focused on what my core business is. If I can stay focused on that and then find the balance between that and family, that and social life, all of the other things, traveling. To me, it starts with having clarity and focus on what is the core business. And from there, the rest tends to be a lot easier to manage through.
Brett:
Excellent.
Tom:
So that’s a lesson I got to learn the hard way quite a few years ago, but the focus is very important, very critical.
Brett:
So clarity and focus on core business and balancing family and work life. And when you lose that, it could become discouraging or you can get distracted, right, which can become discouraging. And perhaps you’re not getting as much traction as you’d like to have, because you’re not clearly focusing on the core business of what you’re doing. Hopefully, that captured it correctly there.
Tom:
Mm-hmm (affirmative).
Brett:
Great. Well, I want to thank you, Tom, for being on the show. I want to remind everybody that you can find Tom at gcaequitypartners.com, and he also mentors and helps a lot of people. So check him out there. If you’re looking for education, looking for opportunities to invest in passive deals, especially like you mentioned, your self-directed IRAs, what a great way to build additional wealth through real estate with short-term six to 18-month opportunities somewhere between potentially 8% and 15% on your money. Tom, last thoughts for the listeners that you want to leave or anything else you want to plug? Go ahead.
Tom:
Thank you. Yeah, just the book that I finished. It is Mastering Real Estate Investing with Private Money. And my goal with that book is to really teach the active investor with a deal, how to work directly with a passive investor with money and vice versa. So they don’t need a facilitator like us, or they don’t need a middleman. They can do it on their own. I wrote it as though I was writing it to myself when I started out 30 some years ago, or my son who’s starting out in real estate right now. So hopefully people would see some good value in that. That’s on Amazon in case anybody’s interested.
Brett:
That’s excellent, yeah. Thanks for sharing that. Check out that book. I want to thank our listeners again for listening to another episode of the Capital Gains Tax Solutions podcast. As always, we believe the highest net worth individuals and those who help them struggle with clarifying their capital gains tax deferral options, not having a clear plan is the enemy, and using a proven tax deferral strategy is the best way to grow your wealth. We look forward to seeing you in the next episode.
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About Thomas Braegelmann
Passive Real Estate Investing and Trust Deed Investment Mentoring is Tom’s passion. He shares his experiences and lessons learned from over 30 years of real estate investing. Tom facilitates and teaches collaborative real estate investing in a group of more than 480 passive real estate lenders and investors around the country. As Founder and Leader of The Bay Area, Private Money For Real Estate Meetup group Tom collaborates with over 4,100 members.
As a Certified Fund Manager and co-founder of Kensington Fund, GCA Equity Partners, Tom facilitates the funding of residential and commercial real estate renovation and new construction throughout the US, including Puerto Rico.
Tom and his team have developed the “National Construction Lending AllianceTM“ program, which has been responsible for the funding of more than $300 million in real estate transactions nationwide.
If you’d like to schedule a call or to learn more on how you too can achieve double-digit returns on your money safer and with less work visit www.MasteringRE.com or email Tom at tom@tombraegelmann.com
