“The thing that people forget about is time, that’s that flows in continuity, and it goes only one direction, I can make money and I can lose money, I can gain it and lose it. I can come up with a creative way to do more or do less, I can gain real estate and I can lose real estate. What I can’t gain is time. And so time is the most critical element that we have.” Dr. Gurpreet Padda is a physician by trade, but he’s had real estate in his bones in his blood since the young age of 14, he’s gonna share that part of his story. And he wants to he’s in it. He’s on a mission to help create and preserve wealth for himself and his family, his partners, and also help people to understand real estate as a whole.
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How Time is More Valuable than Money and How To Use it to Negotiate with Dr. Gurpreet Padda
Brett:
I’m excited about our next guest. He’s a physician by trade, but he’s had real estate in his bones in his blood since the young age of 14, he’s gonna share that part of his story. And he wants to he’s in it. He’s on a mission to help create and preserve wealth for himself and his family, his partners, and also help people to understand real estate as a whole. And so please welcome to the show with me, your free product. Gurpreet, how are you doing?
Gurpreet:
I’m doing great, thank you for hosting me.
Brett:
Excellent. And also Gurpreet has his quick background story. He has over 2 million square feet of ownership management of commercial space as well as hundreds of hundreds of multifamily properties, units, multifamily units properties, and so Gurpreet gives us a little bit more about your backstory, and your current focus.
Gurpreet:
I started in the construction world, when I was about age 14, I started mowing grasses and cutting people’s lawns. And then I quickly realized that they needed more services and a grass cut, they needed their gutters fixed, they needed patches on the roof. And eventually, at the age of 14, I realized that I could hire people to work with me. So I started hiring construction crews, one or two people at a time. And they were much older than I was, I was 14, and they were in their 20s and 30s, I was able to get them to do the work. And then I figured out that I could make money on the Delta, between what I was charging for their labor, and what I was getting paid. So by the time I was 14, 15, 16, I had crews of between two to five people at any given time, and I was going to high school. And I couldn’t drive yet. So my construction crews would have to drop me off at school in the morning, and then pick me up in the afternoon and their pickup truck. And I would be calling them on the phone during the daytime from the cell phone from the payphone in the cafeteria to see what they were doing. So it gave me the experience to figure out how to remotely manage and how to leverage my time upfront and understand even at that young age, what it was to make a profit and how to deal with your profit. And I eventually figured out that I had to pay taxes. And that was a rude awakening. For me. I didn’t realize that taxes were such a big component of what I was going to have to do. Eventually, I went to medical school, and I went to a six-year program in Kansas City. So I went through an accelerated program. I have a horrendous ad. So I typically will look at 16 shiny objects and four squirrels at the same time and try to figure it out. I went through general surgery, anesthesia, interventional pain, and then addictions onboarded in three things, and have you know, I’ve enjoyed that. All the while though, I’ve enjoyed commercial real estate. And I’ve been trying to educate myself about commercial real estate. And I concluded that it’s two different worlds. Real estate is the physical object of real estate. It’s the building. It’s the components of the building. It’s all of those things that go in the cleaning of it, the renting of it, the positioning of it, the branding of it, all of those things of the building. And that’s important. If you don’t do that, well you lose money. But just as important is how to do your acquisition and dispose of and look at the lifeblood of that building. The lifeblood out of the building is the capital that flows into it and out of it, you could lose if you did a construction project, and you thought it was gonna be $100,000. And at the end of the day, somebody you’re getting ready to pay $100,000 at but they hand you an extra bill for an extra $80,000. You go, oh, my God, that’s too expensive. Well, all the time, in the lifeblood of what we deal with, we make $100,000 a profit. And then the federal government takes away 80,000 or 40,000 or 50,000. And so I figured out that those taxes are a very significant impediment. That’s not new news to anybody that’s in this business. But the thing is, how do you avoid it? And how do you align your behavior with the behavior that the government wants you to pursue? Because taxes are an incentive, they’re an incentive for you to do the things that the government cannot do efficiently. They want you to produce for them, the thing that they can’t do. It gives you an example, in San Francisco, they tried to build housing. And they tried to build low-income housing, and the cost of low-income housing done by the state and the federal government was between 250,000 to $400,000, a unit. And we both know, we all know that that’s a ridiculously high amount of money to spend for subsidized housing. And you would never make sense of that. And so, you know, in effect, it’s much less expensive to have the private sector do this, and incentivize them to do it. And so once you realize that there are incentives, and these are capital creation incentives, then you have to navigate How do you best align yourself. And so that that’s kind of my long and short story of how I got to where I did.
Brett:
Well, it’s a great story. And I love how you connect the medical world and the body and anatomy with the real estate world. And to make sure I captured it well, and an audience maybe heard it as well. Like the structure, the physical object of real estate, let’s say, the multifamily building, the roof, the AC units, the ground, and all of that is the first part. But the lifeblood that’s going to feed this body, if you will, is the capital that’s flowing in and out, whether it be income and expenses, whether it be refinancing it, whether it be buying it, disposing of it, and at any point, you can get a leak, and if that leak is flowing out, right? There goes your entire investment, it’ll die, or likewise, if you can keep it flowing well, and in and out, making sense of that keeping the blood intact. Is that a fair summary that you’re going to do in the investment?
Gurpreet:
Yeah, those are the two main components. And then the thing underneath it, the thing that people forget about is time, that’s that flows in continuity, and it goes only one direction, I can make money and I can lose money, I can gain it and lose it. And I can do, I can come up with a creative way to do more or do less, I can gain real estate and I can lose real estate. What I can’t gain is time. And so time is the most critical element that we have. And what I always was trying to figure out was, from a physician standpoint, physicians make a lot of money, but they pay ridiculous amounts in taxes. And they’re so busy, that they never spend the time to educate themselves about all of the other elements that there are to maintain their wealth or to or to maintain their financial status or to help them retire. And so they’re the one thing that they can’t get back in time. But they can make money. And so I’ve always looked at it all of this as the lifeblood is the money, the structure is the real estate. And the underlying current of all of this is the time pressure. And once you recognize that, that hidden time pressure is something that’s going to, it’s going to either benefit you or hurt you, that’s going to be the biggest thing that you have to keep paying attention to.
Brett:
Amazing. We’re gonna dive into that in just a minute here. I want to take one other step back to maybe the days when you were, in medical school, in high school, maybe even junior high in your entrepreneurial starts. And the question is this. I believe we’ve all been given certain gifts in this life. And these gifts are God-given gifts and these gifts are given to us that we can be a blessing to others. So I’m curious, what was the one maybe two gifts that you believe you were given? And how do you use those gifts to help others today?
Gurpreet:
I think and this may seem contrary. So I was born in North India. I grew up during a time of war, and I grew up in the pack Indo Pak wars. And so I had the feeling of fear of death. And it started early because I didn’t want to die in an aerial bomb attack. I had friends that died in mustard gas attacks. And so I grew up in North India and I had that urgent sense of fear. My parents when they relocated to the United States, it was important for them to educate us so that we could go forward. And so I have this constant background awareness of how things can go wrong. But that, I think, is an incredible gift. And it gives you the hackles to know when stuff is not going like it’s supposed to go. And it also allows you to be firmly grounded in real situations. And so I don’t mind going into areas that are C and D grade areas, because I know what it is to deal with those situations. I’ll give you an example. So I was doing rehab, and I was in Chicago. And I was this during my general surgery residency. And it was the weekend and I was meeting one of my crews, and there was a building in a not-so-nice part of town. And we were looking at a window that was on the third level, and I was up on the ladder. And my construction manager was on the ground, I was up in the air, I was looking at a piece of trim. And I was trying to figure out whether what we could do with it? Do we need to cover it with aluminum? Or do we need to replace it? And all of a sudden, one of the windows right below me exploded. And I thought, well, this is the strangest thing, how did you guys put this in. So defectively I’m yelling at the contractor below. I’m like, hey, what happened to this window, what’s going on here? He goes, I don’t know. And then all of a sudden, the window next to that exploded. And I was like, this doesn’t make sense. Either the building is settling, or we have a major problem. And by then we realized what was happening because there was a dumpster next to us. And you could hear the ricochet bullets hitting the dumpster, we became sniper targets. And I quickly jumped off the ladder, but I got grazed by a bullet on the way down. And we were in the Southside of Chicago. So, you know, you get into those situations where you have to be hyper-creative and deal with those situations. They figured out where the sniper was, and they ended up dealing with that issue. And this was a chaotic time in Chicago, it was probably 1988, 1989. And there was a lot of gang violence, and people were doing a lot of stupid stuff. And so he, for that particular building, I figured out that I had to make nice with the local folks there. And sometimes you have to deal with people that are in gangs, situations that you may not normally deal with. But you have to work with them creatively to figure out how they can be stable, and they can keep you safe. And so we figured that out, we figured out a way to have picnic parties. For the local folks in that area. I hired people that were street people and gave them places to stay temporarily while we rehab the building since the other issue that we were dealing with is that while we were putting kitchens in through the front door, people were breaking in through the back door stealing the kitchens as we moved to the next unit. So we fence the entire building. And I had some local folks stay there and paid for their food and paid them to observe and watch. We had a watchdog at one point, but they poisoned the watchdog and killed it. And so you know, you have to be creative with your solutions. And you have to constantly look at it and see what the right solution is. I know that’s kind of tangential. But that’s the ability to adapt and to and to have some degree of stay away from the bang, stay away from situations that can get you in trouble. I think those are the gifts that I have.
How Time is More Valuable than Money and How To Use it to Negotiate: “Time waits for no one.” – Folklore.
Brett:
That’s an amazing gift and what a story and I can’t wait for the book to be released. Because there’s so much there. We don’t have time to dig into everything. But wow, growing up in a war-torn country and the fear of death. And I don’t know if this is because I don’t wanna put words in your mouth. But once you start there and once you’ve overcome that, right? And once you made this big transition to another country, and then had it look like probably amazing parents, right to help encourage opportunities and growth. And then to be on the other side of that. It’s sort of like, oh, I’ve already dealt with fat. I’ve already been through that I’ve overcome. I can overcome this. Is that a fair summary?
Gurpreet:
Absolutely. Both my parents are amazing people. I mean, my mom is a mathematician. My dad was a physicist. And they’re super smart. And their whole thing was, you can set your mind to learn anything, you just have to spend the time to figure it out. And then create models in your head of solutions, and then test those models and figure it out. And then the faster you can iterate, the faster you can create a different model and test your model, the better off you’re going to be. And so I look at everything, as you know, what’s the right answer? What’s the wrong answer? How do we make sure that we don’t do the wrong answer? And then how do we iterate that to get better at it. And so that’s why I look at real estate as the mechanical aspect. And then the electrical or the flow aspect of the capital, I have to figure out both to make it work.
Brett:
Excellent. So now let’s dive into that exact topic here. And understand that he said, the current underlining everything is the time pressure. So walk us through that concept of time pressure. And walk us through how when you’re looking at deals and the velocity of the flow of capital in and out of that, and how what’s the best way you’ve been able to iterate and create the models to make sense of investments?
Gurpreet:
The number one thing you have to realize is your time is limited. And it is accentuated when you realize when you look at the profit that you’re going to make on a deal, or the loss you’re going to take your time is limited. And you have to, you have to use the time to your advantage. And I teach by example a lot with my folks, and I’ll give you the classic negotiation technique that I taught my baby cousin, I said, Michelle, look, the more time-limited somebody is, the better deal you’re going to get. So let’s go through McDonald’s drive-thru, and try to negotiate for the price of a hamburger. And you’re going to find out that you get this burger for free if you can, if your time is on your side, and time is against them. And so we did that, what he did was he delayed and delayed and delayed, and through the drive-thru, and people were backing up, and then the McDonald’s workers getting pissed. And eventually, we got to the fraud. And he ended up getting extra food for free because he just threw it at him to get them out of the way. And so time is your friend. If you’re not worried about it, if you go into buying an air conditioner at the air conditioner store, and you spend 30 minutes, 40 minutes trying to buy that air conditioner, and the average person only spends four, by the time that they’ve invested time with you, they’re going to do whatever it is to get that price down. So time is your friend. In that situation. Time is your enemy when you’re on the other side of it. So let’s say that you do it, let’s say that you’ve purchased a piece of real estate, you’ve sold it, and you’ve made $100,000 on it. And you can reduce your taxes by doing a 1031 exchange, and rolling it over into a new project. But you can’t find another project right away. And then time is not your friend, because you’re gonna overpay. After all, it takes you to identify your next project or group of three and 45 days, you got to close in the 180 days. Time is not your friend, you’re gonna overpay, just like the McDonald’s example, they’re gonna throw you’re gonna be the McDonald’s worker throwing money at somebody, you know, I got to get this deal because I’m My time is not my friend. And so once you realize that time is such a critical element, then you have to figure out how to surf time and how to expand time. And that’s why I’m looking at delayed sales stress because I believe that that’s a way to enhance my time and I can open up the ability to not be time-pressured. And that’s kind of why we’re chatting.
Brett:
By the way, it’s a different shell show us but delayed sales trusts are probably a better name for it, right? Because exactly what it is the essence of what it is, is taking away from IRC 1031 which is the 1031 exchange time restrictions 45 days to identify 180 days to close we call it the shotgun wedding, right? And not so good versus IRC 453, which is an installment sale when there are no restrictions, right? You don’t have to identify. You don’t have to close on anything and you can sit on the sidelines all tax-deferred one of the most prolific deals storage is actually out of Minnesota for a gentleman who sold in 2006. And he looked around for his 1031 property and couldn’t make sense of the deals, knowing it was a seller’s market since the prices were at all-time highs. And instead of overpaying 1031, he moved into the deferred sales trust. He waited five years and five years from there. He bought back the same property when the bank called him who had foreclosed on that same property. He said do you want to buy and he said well maybe what’s the price and they said 40 cents on the dollar right you know or 60 cents. Some that are 40% less than what you paid for it. He said, Sure. He bought it back through his deferred sales trust all tax-deferred, which is the big elephant in the room, right? And they say, great, great, well, we want to make sure we defer our tax, which is about 30 to 50% of the gain, depending on the depreciation recapture, right? That’s what the government’s going to take for their cut. So the key is time, and if you can buy it, optimal timing, things are on your side. Any thoughts there?
Gurpreet:
That’s people who run out of money because they run out of time. When you go into a project, you have to have enough resources. And those resources have to be there for enough time, given enough time, every deal is a good deal. But most of us run out of money. Because we run out of time, you have to be able to, if for example, if you were, if you’re buying in a rural community, and you could hold that property for 200 years, that’s going to be worth something over time. But nobody looks at it that way. And we shouldn’t because we’re not gonna be around in 200 years, but you want to use time as your friend. And I believe that is one of the critical elements that makes the difference. I’ll give you an example that I just went through. So there was a piece of property in St. Louis, it’s I just closed on it a week ago, we can half ago. And it’s right next to the airport, it’s on a road that’s perpendicular to the airport, the original group that bought it paid over 5.6 million for it, it’s a 29,000 square foot office center that’s 20% occupied, that throws off a net cash flow at 20% occupancy of $6,000. net. So technically, it’s throwing about 6000 net, it should be throwing 36,000 that but the problem was one of their partners died. And the other two partners didn’t understand how to run it, and it became vacant. And now they’re under time pressure. Because it’s undergoing foreclosure, the bank is also under time pressure, because they don’t want that thing on their books. And they want to get it off. So I approached them. And it’s a $5.6 million-plus deal. We did an appraisal on it, the land value is 800,000, the reconstruction prices over 5 million in an open market give it enough time, it would probably sell in the threes. I ended up getting it because I was willing, I had capital laying around, I got it for 365,000. It’s ridiculous. And even my real estate agent’s jaw dropped when the bank accepted it. But I knew that they had a limitation on time, they had to get it off their books because they’re getting audited next month. And so they don’t want a bad piece of real estate on there. So I used their time urgently to help me.
Brett:
I was off for a second here. So I want to make sure I captured it because that’s just an incredible opportunity. So when you’re approaching the bank, and maybe you’ve already had a prior relationship with the bank, we’ve already closed deals for the bank or with the agent. You’ve established that track record, right of performance. And then, of course, you’re probably gathering the facts gathering information. What’s your motivation? What’s your motivation, right? What are the time constraints is that essentially, the first thing is you’re setting up the chessboard of all the different pieces and it’s moving? And because I imagine you didn’t probably didn’t say 365 within the first 24 hours, right? Of course, he did the appraisal, he went through it. So walk us through just how you’re approaching that to be able to do that deal. Because you’re right, most people that are unbelievable don’t even have the courage to offer something like that low. Can you help us with that?
Gurpreet:
Yeah. My business partner and I kind of laugh about this a little bit. I feel like if I’m not embarrassed by my offer, it’s not low enough. And that’s just the reality if I can’t, if I have to, if I can’t get embarrassed by the offer, I didn’t offer low enough. I should feel inferior.That’s a low offer. I would never take that. But let’s try it. And so that’s one of the elements. And I’m gonna diverge for one second, and I’ll come back to this. So we were standing in a YWCA, my business partner and I, and they wanted about 360, 400,000 for it. And I looked at it and it was about a 15,000 square foot building. It needed a lot of work. And I turned around and I talked to him, I said, look, we will buy this, but I’ll pay you 85,000 and I’ll close in two weeks. They took me as I was flabbergasted that they took it. I turned around, painted it on the exterior, and sold it for 350,000 it was in six months, and I had the convenience of knowing that I could handle it, I was embarrassed to give the offer. But I was like, I gotta do it. And my business partner looked at me when those words came out of my mouth, she just turned beet red and walked out. And so you kind of have to, you have to train yourself to negotiate. But back to the original issue. So the sequence that happened with this property, the office complex, is that I found it, we’re all deals go to die, which is loop net, I found it as a derelict property that was way overpriced. And I had watched it sit there and sit there. And so I approached the real estate agent that I didn’t know, I approached the bank that I did know. And I said, look, I’m willing to do this. But these are my conditions. And I gave my price exactly upfront before the appraisal because I already had, I already knew what it was worth. There’s a variety of tools that I use to determine the value and also have experience in the market. I don’t think that we should be doing deals in markets that we don’t have a lot of experience at. And so I know areas and neighborhoods well. And if I can probably visualize what that block looks like. And give you an idea of what I think the stability is and crime rates. And I can tell you what schools they are, I think you should know, your community well. Where do you plan to invest? I think if you’re going to invest in a community that you don’t know, then you better have somebody on the ground that does know, I think that that’s a mistake to invest with somebody that’s investing remotely themselves, and you’re trusting them, I feel like you have to have feet on the ground in the community that you invest may not be you, then you should be a little bit passive and let the other person takes the active lead.
Brett:
I want to connect the dots here and correct me if I’m wrong, but I’m thinking about like your physician mind, which is so inquisitive and so smart, that you’re saying you need to be a doctor or have a doctor who’s already performed the surgeries who’s already gone through the medical school and as well as has owned and operated on these properties before you invest in either you’re the operator or someone else needs to be the operator because otherwise if you don’t know the anatomy of the physical parts of the building and the structure, the characteristics, the streets, right, how are you going to have capital blood flow into this thing, right? You might have an arm that’s fallen off the blood just kind of flow out. Is that a fair summary?
Gurpreet:
Yeah, if you had liver cancer, you’re not going to trust somebody that’s never done 500 liver surgeries, and they probably have been under the tutelage of somebody good. And they’ve learned from them. But you’re not going to trust that liver surgeon to go up and do surgery on your brain. They probably know the tools. But it’s a different neighborhood. It’s a different characteristic. And so each area, you better really know that area, you’re not going to trust your liver surgeon to do your kidney surgery, you’re not going to trust somebody that does bladder work to work on your feet. Each neighborhood is separate and distinct. And you have to understand the specialty of that area. And if you don’t, you’re gonna bite, it’s gonna bite you.
Brett:
Absolutely. So well said. And I’ve had a second thought. And I also think about a 10th titanium spine, you have to have a titanium spine when you go to negotiate. And if time is on your side, and you’ve been patient with your capital, and you know the market, you know the area, and you’re watching deals that have you know, gone to the loop net to die. I like the way you put that. Those are the positions you have the opportunity to negotiate the best in having titanium spine to be patient, and methodical, and not in a rush that I think brings the whole time part together. Any other thoughts on time?
Gurpreet:
Yeah. I’ll give you another example. That’s classic. So look at the auction model. Time is not on your side in the auction model, when there’s more demand than supply. In the auction model, there’s a supply of one item. And the demand is all the bidders. And so they’re competing against each other so the price goes high. So if you look at a lot of the commercial real estate auctions right now, the demand is very high, and the prices are unreasonably high. And a lot of times those birds fall through because people have buyer’s remorse. They weigh overbid, they weigh over price. And these commercial auction sites are getting ridiculously high prices, but the prices don’t stick because the buyer has remorse. And that’s because there’s a very limited window to examine that product. And that’s the classic time it was not on your side. So I do buy it in an auction, but in auction situations where the supply is high And the bidding is less. So I bought a lot of buildings and assets at auction, but where they had 500 things for sale, and there were 10 people in the room bidding, I tried to find that asymmetric area where my supply is greater than my demand on the entry. On my exit, I always try to figure out how to get a higher demand and less than the supply. And so I try to find as many buyers as I can to increase my price. Because it’s not just me buying it, that’s when I make my money. But I don’t realize my money till I sell it. And so I have to make sure that there’s adequate demand when I sell it, and I want to be on the other side of the equation. I want to create time pressure at that point.
Brett:
Excellent. So let’s dive into a little bit now on the tax side, because we understand that the acquisition, the purchasing the time, and now we talked about the big thing, it has to do with taxes, right? Which is also a big part of the lifeblood of the capital flowing in and out. And so we talked about inflation and taxes. So let’s dive into that a little bit. And what your thoughts are on that, and how you best be able to use the legal loopholes, such as cost segregation, the 1031 exchange, and now I know you’re looking at the deferred sales trust, walk us through that, your thoughts on that?
Gurpreet:
With regards to taxes, you have a couple of different elements, you have the property tax itself. So every property that we acquire, because we’re acquiring at a much lower price than the previous owner, we go and we fight the tax rate on it, we try to figure out how to fight the tax rate because these properties are publicly listed. And we were the successful purchaser. And so you know, it used to be a 5 million dollar basis, and we got it down to 365,000. That’s going to save 70% of the property tax. And so until we get it fully occupied, we can get that property tax reset. So that’s element one. Element two is, how are we going to maximize our depreciation? And can we get a cost segregation study done at a reasonable price, get the land value excluded from it, and then figure out what the depreciation is on the individual elements and how quickly we can depreciate them. And at the same time, always monitor those things that we can expense and those things that we have to depreciate and capitalize on. And so that’s, that’s part of the ongoing dialogue that we have with our accountant. And with people that do cost segregation studies, so we’re always trying to figure out, how, what is the most efficient way to get a cost segregation study done for each project, and then on the exits, you’re hoping you’ve made good money, if you if you’ve lost money, then you don’t have to worry about it. Because you can take that loss and take it against your income as you take it against your passive income if that’s if you’re not a qualified real estate professional, the issue that if you’ve made a lot of money, though, is how do you roll it over without losing half of it to the federal government and paying taxes on it? Because at the end of the day, you’re going to pay taxes? The question is when you pay taxes, and if you can defer the payment of taxes as long as possible, and you can transfer it to your heirs, their bait cost basis is going to get reset. And you never really have to pay taxes that you walk out by death. And that’s a whole different estate planning tool. But that’s a tool that you can utilize. Because they’re going to be on a stepped-up basis when you die. And so there’s an advantage to that. And there’s a lot of nuances, I’m not giving legal or accounting advice, I’m just these thoughts that go through my head when I evaluate stuff. So I’m always looking at how I can maximize my time and defer the payment of that tax. And then still acquisition on the other side at the lowest possible cost. And then sell at the highest possible level. And always balancing, always riding that wave of time, because, at different times, some property is going to be worth a lot and some properties can be worth a little. And also look at the geopolitical events. That I think that that is a huge impact. And if you bury your head in the sand and assume that everything is going to be the way that it was, I think you’re gonna make a huge mistake. And I think the geopolitical events have a very significant impact on real estate, even though real estate is hyperlocal.
How Time is More Valuable than Money and How To Use it to Negotiate: “Lack of direction, not lack of time, is the problem. We all have twenty-four hour days.” -Zig Ziglar
Brett:
Excellent. And so now I want you to tie in, I know you’re looking for listeners who don’t know, but looking at the deferred sales trust, maybe for the first time in-depth and he’s had a chance to spend some time with a tax attorney in the deferred sales trust myself and my business partners. So just curious what compared to the cost segregation, and 1031 which is what most folks are familiar with. What about the deferred sales trust, Gurpreet, that has captured your interest and curiosity and potentially is a good solution for you?
Gurpreet:
Cost segregation is the ability to deduct a certain amount of the value of your project today, while you own it, and on your current taxes, and it reduces your payment right now. 1031 is a way to shelter your income when you sell the thing. The DST is a way to avoid the 1031 and not have to suffer the time penalty and free up your hand to negotiate it whatever time you figure is appropriate. And it allows you to sit on the sidelines, or allows you to accelerate when needed, and accumulate your capital. So let’s say that you sold something, you got a million dollars for it. net, and you haven’t, but you got that now. And your next proceeds are not coming for nine months or a year. But you need $3 million for a project. And then your next proceeds aren’t coming for another six months from another project, you could accumulate all 3 million. But you can’t do it in today’s dollars. The DST is a way to accumulate that over time. And then take advantage of it when you have all of the money that you need for a bigger project. It allows you to maximize your leverage, accumulate your capital, and then deploy it when it’s appropriate for you.
Brett:
Yeah, very well said. And also add to that, is a brand new depreciation schedule, because one thing about the cost segregation is that you’re accelerating the depreciation in front, instead of like a 27 and a half year for multifamily. You may be doing it in 15,10,7,5 year increments for different components of the property. And then and then the next property to do a 1031 year depreciation scheduled travels, right? Which is not so good, right? Which is, you could let’s say you had a $10 million deal fully depreciate it, and you bought the same $10 million deal equal or greater value, well, you have no depreciation schedule on that new deal, you need to buy a bigger deal such as like a $15 million deal, now you have an extra five, whereas the deferred sales trust is powerful, then that once you’re in the trust, you’re not doing 1031. Therefore, if you use the funds to go buy that new property, it’s a brand new depreciation schedule. So walk us through the power of a full depreciation schedule versus a partial or none.
Gurpreet:
Yeah, and that’s one of the things that I’m intrigued with because the only way if you hold your property for a long time, and with the accelerated depreciation, a long period may only be three to five years. Because accelerated depreciation allows you to get a lot more of it depreciated right upfront, but you have to win when you take when you use 1031. And you’re rolling that over that depreciation is rolled over. So the classic example is if you bought a million if you made a million dollars on the project, and you’ve already depreciated million dollars, so it’s $2 million total projects, you’re, you’re going to depreciate a million dollars, and you’re carrying a million in a new project, you only get to restart again, at that 2 million points for the depreciation, and that’s a big problem, you then you can’t actively depreciate that that initial component, you pretty much have to triple your product deal. Every time to maintain your depreciation, you don’t have to do that with a DST, you could be about the same value or a little bit higher a little bit, in that same range, and still take advantage of that. That deal. And the other thing that I like about it is, I tend to find a good deal, I tend to sell a good deal, and then buy multiple smaller deals that are equally as good, but didn’t cost me as much. Why do I want to overpay if I can buy a $5 million building for 300,000? Why would I want to buy $5 million for 5 million? Why not buy for 300,000 and get it to 5 million. I just sold the building simultaneously, as the week before that I bought for 2.2 million for 3.4 million that I bought the previous year. So I made 1,000,002. And I was able to put that aside and not even tap that money and hold on to it until I can find the appropriate deal for it. I think that flexibility is what people should recognize. And if you’re a real estate entrepreneur, because I don’t think that we should even use the word real estate investor. I think that that’s a misnomer. I think investors are people that live on the edge and kind of look in. And I think entrepreneurs, which is what we are when we deal with real estate, we’re living this thing, we’re swimming in it, we’re eating it, where we’re just embedded in it. If you’re an investor, you probably need to be passive. If you’re an entrepreneur and you’re the deal engineer for this. I mean you’re This is all the time You can you’re swimming in this environment, you got to know everything about it. So it’s just a side note that I just I, it always bothers me when people tell me that they’re real estate investors, like, but you’re doing everything you’re having to deal with every single element of this, you’re running a business, there is no real estate investment unless you’re passive. And I have passive people that invest with me, and they’re my investors. But I’m the person at the front line and the GP making sure that it’s done the way it’s supposed to be done.
Brett:
Well said, I think when your book real estate entrepreneur comes out, I’ll be the first one to buy a copy because there’s so much wisdom and so well said words do matter. I want to ask one last thought, on something with the deferred sales trust as it pertains to the estate tax and estate tax in general because we kind of touched on the stepped-up basis, which is a neat part about 1031. It maintains the stepped-up basis. And your kids, if they inherited correctly, can receive a stepped-up basis and just tell them walkway tax-free. However, it doesn’t take it out of the estate tax, right? You’re still if someone’s worth $50 million, and all 50 million inside of the taxable estate, right? They may get a stepped-up basis to 50. But they’re gonna pay 40% on whatever the above and beyond the exclusion, which is 22 million married right now at about 12 million single sets to expire in 2025 we’re looking at 12 million, probably about 6 million single the deferred sales trust another hand you can take it all outside the taxable state. So a lot of my clients before they find us there, they’re doing some gifting, Gurpreet, they’re doing some family limited partnerships, they’re doing some, some life insurance to offset it offset some of that, but they haven’t been able to take it all out because they can’t get it out fast enough. Whereas the deferred sales trust in one single deal, one transaction one day, and only can you sell, let’s say that $ 30 million assets, but move it outside your taxable estate. Talk to us a little bit about maybe either estate taxes you’ve had or challenges that you’re looking at, or potential friends and family, you know of? And what that would mean, if indeed what I just said all can be done.
Gurpreet:
I’ll give you an example that I dealt with, with somebody that was co-investing with us, they were putting in some money. And their biggest fear was, how am I going to transfer my assets to my kids, and he was trying to shelter about $5 million that he wanted to transfer. And it was very specific. And right now that wouldn’t be a problem. But it could become a problem if your underlying basis is high. So if you right now, if you got 20 $30 million, you know, over 22 million, you could have a problem. And he particularly had $5 million, that he was trying to shelter because he owned a very large company. And there was about $5 million that he was going to have to pay. And he’s older, he’s in his 80s. And he was worried about it. And so he had gotten a life insurance policy that was costing him $15,000 a year to shelter that $5 million. And at that point I was looking at it, like, look, you’re paying $15,000 every year, and it’s gonna keep going up, you’re in your 80s, at one, you’re going to be paying 20,082, you’re going to be paying 25,000 because the life insurance company knows you’re not going to live forever. And they’re going to keep charging you more and more and more. And even though you have this incredible plan, it’s still going to cost you a fortune. Why not eliminate it and come up with an alternative tool. And before I had learned about DST’s, we were trying to figure out different ways for him to creatively do it, put it into trust, do it into a family trust, and do it in other ways. So after we find out about DST’s, I’m like, look, you could have one clean swoop and get all of this out and not worry about it. Why would you do it that way? And so that’s that that was the conversation that we ended up having is why pay an annualized fee of 15 $20,000? When you could make a clean sweep of it and get it out and not have to worry about it. And you could add more money to it.
Brett:
So well said and also to the other thing that a lot of folks overlook is within six months of the estate tax and the assets, the assets must be sold or refinance the tax must be paid. And so the timing thing comes back in the case, who knows by the time you pass in your state passes if the value didn’t be high or low, or if your kids are going to know you have the sophistication to be able to negotiate properly to sell well or to refinance well and to pull the cash out but within six months, whatever that amount that 40% must be paid. So why not just eliminate all of that headache now, sell the assets before moving them outside the taxable state, and also full disclosure? You do not do forgo the stepped-up basis when you do that with the deferred sales Trust has full disclosure however, your kids can step into your shoes and they continue to just receive those payments and keep it in the deferred sales trust corpus, right. And so they’re there but at the same time, they got a brand new depreciation schedule. So there are several ways to look at this, right? And that’s why we have capital gains tax solutions.com, you can go to get a free consultation to learn more about this talk with the tax attorneys and myself to kind of help guide you to see if it’s a good fit. Also, we don’t charge them less than if you do the deal. So that being said, Gurpreet any last thoughts on that before the lightning round?
Gurpreet:
No, I think that the key thing is, what you guys do is provide time, you provide a time that you can’t get on your own. And I think that time is more valuable than money, I can make and break money. But I can’t make time. And so I have to rely on other people’s leverage to get that time. And so that’s why we came to you guys because you’re providing us leverage on time. That it’s, it’s like, sudden new time travel. It’s a whole different tool. It’s not going to make me look any younger. But it’s gonna allow me to have more time flexibility that I can’t create on my own.
Brett:
Thank you. I couldn’t say better myself. Thank you so much for sharing that. So you’re pretty ready for the lightning round. Here we go.
Gurpreet:
Sure. Let’s go.
Brett:
Knowing what you know. Now, if you could go back to your 25-year-old self, or maybe it’s your 14-year-old self, right? Because you got started so early, and I love that what’s the one Golden Nugget, you would make sure you would do?
Gurpreet:
Get deeper and more niche early. And so I love learning everything about everything. And sometimes chasing too many squirrels all at once is a problem. And I wish I had gotten more niche early. I relish the experiences that I’ve had, I’ve owned five restaurants, do you know how to make a million dollars in restaurants, I’ll tell you to start with $10 million and open a restaurant, you’ll end up being worth a million. And so it’s, I have to tell you that there are a lot of projects that I’ve done because I was intrigued by them. But I wish I had niched down faster and figured out my highest and best use of my time and my money and understood it better earlier. That’s what I would tell you.
Brett:
Beautiful, great answer. Thank you so much for sharing that. What’s the one book you’ve recommended or gifted the most in the past year?
Gurpreet:
There’s not one particular book I read, a ton. The Pumpkin Plan is one of my favorites. But there’s a whole host of tools that you can find, I tell you, I almost find more value in looking at YouTube and looking at some of the channels on YouTube. Peter Schiff is somebody that I respect. And I think he’s a great economist. There’s a minority mindset, just pre is a really good nuts and bolts person. It depends on what product or project I’m working on. I’ll deep dive into that area. And I’ll use YouTube because it has useful and contemporary information. I still read a lot, but not as much as I’d like to read. And so a lot of books I find are fluff. And so there’s usually solid nuggets of maybe 10% of the information is unique and special. So I try to figure that out quickly. And so that I don’t have to read the entire book because 80 90% of it’s usually fluff.
Brett:
Well, it really will set in the back to the time aspect to, perhaps you can get through a YouTube video. And in 10 or 15 minutes, that whole book might take you two or three hours. And you’re going to find the golden nuggets quicker. And it’s also interactive, right? You can see the body language, the tone of voice is such so I think that’s well said. I like that a lot in the pumpkin plan too. I think that’s Mike Michalowicz?
Gurpreet:
Yeah.
Brett:
Excellent. Give me the mobile or digital resource you recommend for your business.
Gurpreet:
I do a lot of analytics. My favorite resource right now is prop stream. I have no relationship with them. But if you’re looking at doing analytics, and you’re trying to find a property, or you’re trying to identify who owns what, or you’re looking at it prop a stream is an amazing tool. I use that tool every day. I certainly use a whole host of electronic tools, but prop stream is one of my favorites. It allows me to narrow down and niche down. And then the other tool that I love is something called mindnode. My node is on my laptop, it’s on my iPad, it’s on my phone, and it’s how I take notes for myself because I’m very visual. And so it allows me to create diagrams of projects for myself and connect all the parts. It’s really good for people that you know, have flights of ideas and quickly take a note and remind themselves of it later. The concept of some of the technology we carry around in our heads’ hands is amazing. To me, but that technology is coming at a cost, it’s coming at a cost of the future of jobs. And so we, you know, we, it’s something that we have to think about consciously, which is going to impact real estate eventually. So I constantly am looking at the global pictures, and then narrowing it down. And so I use my, the other valuable tool that I use constantly is just my phone because it has everything in it that I need. We all do.
Brett:
Beautiful. Mindnode, that sounds great. Fantastic. Impromptu stream. Love that. Next question, favorite leadership quote, or theme that you strive to live by?
Gurpreet:
Who was it that said this, he was a boxer, everybody has a plan until they get punched in the face, it was Mike Tyson who is one of my favorites? Because we all have a plan to get smacked in the face hard. And you go, oh, well, that didn’t work. And so the quickest thing is to expect that punch and to move out of the way because you can’t stop the punch. And so you have to adapt before you get hit, or at least roll with the punch and absorb the energy and get up. So everybody has a plan until they get smacked in the face unexpectedly. And I think that that’s, that’s one of the things that I live by.
Brett:
So well said I love that quote. Favorite negotiation tip?
Gurpreet:
Time. Don’t let them see your hand in terms of time. If time is on your side, that’s an amazing thing. The other thing is to be good at reading people and sit back and read people. One of my favorite negotiating courses is a guy named David. David Finkel, F-I-N-K-E-L, runs a group called Maui millionaires. He has a negotiation course that I kid you not is probably the best that I’ve ever been to. And I went to that course, to refine my skills. My mom is an amazing negotiator. Because you know, we grew up in India, and you negotiate for everything, you negotiate for the vegetables, you’re gonna buy it, you’re gonna negotiate for the clothes, you’re gonna wear, everything is negotiable. She would go to Target to negotiate, you know, she wouldn’t negotiate everywhere. And so she was a great resource for me. But those, you know, you have to have some of these other tools in this society. And so neuro-linguistic programming, and your ability to connect to people and use Word skills to convey meaning beyond the words that you’ve said. And to create it with an inflection tone is valuable. But all the time, keep time as your friend, time is your biggest, most valuable asset. If they don’t realize that, you’re running out of time, your price will go down. If they realize you’re running out of time, your price goes up.
Brett:
So much wisdom. Can’t wait again for the next book to come out with that Gurpreet two more questions, and we’ll be all done. What are you curious about right now?
Gurpreet:
A couple of things, I am learning more about section eights, I historically have never used section eight. But I suspect that we are short 20 million housing units. I also suspect that we’re entering a time that we’re going to have inflation later. But deflation now, I also suspect that we’re going to go toward more of a universal basic, basic income with a high degree of unemployment. I believe that COVID is a significant factor in this. But I also believe that our technological leaps have created opportunities, where we’re not going to regain our manufacturing plants in the US. So we’re going to have a pervasively high unemployment rate for a long time. And so we’re going to have people that are not going to have a regular income, and I believe that subsidized housing is going to become more and more important. And so I’m trying to figure out how to align myself with the federal government providing housing and shelter for people because I believe that those housing subsidies are going to be preserved, because I think we’re short 20 million units. And I think that nobody’s going to build, those kinds of units right away. It’s going to take a long time. And so it, but there, the need for them is coming up now. And so we’re short, and no one no one’s going to be building those. Yeah, I want to figure that out.
The number one thing you have to realize is your time is limited. And it is accentuated when you realize when you look at the profit that you're going to make on a deal, or the loss you're going to take your time is limited. Click To TweetBrett:
Makes perfect sense. Thank you for sharing that. I am now more curious about section eight. Now that you said that last question. This is my favorite question. And it centers around, essentially, your entire life story, your success, and all of all, what you shared with us and where you’re headed. But in the meantime, how do you stay centered with your values and then stay encouraged to charge forward to reach new goals given, you know, all of the pressures of, call it the world, call it your businesses, your deals, right? How do you stay centered on your values? And how do you stay encouraged and charged forward to reach new goals?
Gurpreet:
Again, it’s about niching down, I have a very tight family, and very close friends, and not a lot of them, I probably have two or three people that are my close friends. And I have my immediate family. So that pod of people and these are the people that I see every day, every other day, constantly. And we have lunches and dinners, and it’s a very narrow group of people. Now, that doesn’t mean that I don’t associate with people in the bigger world. But that narrow pod, it’s kind of like the COVID pod. Those are the people that I’m associated with. Those are the people that I’m connected to. And those are the people that you know, I work out with, and I hang out with and those people I have dinner with. And that’s it. It’s my immediate family and the few friends that I have. And that’s it. And then there are people that I know, and there are people that I know that are beyond that. And certainly, I’m going to be friendly and appropriate. But I only really niche down to just those few people. I don’t think that it’s really important to be able to trust the people immediately adjacent to you and to know that they’re there for you. And they’ll do anything. And so that’s the neuro pod that you live with. And then you have the other people.
Brett:
Yes, thank you so much for sharing this. So rich. I want to just thank you for not just all of the answers, but so much wisdom and so much inspiration. Man, that’s probably my favorite interview, I think I’ve had and I’ve interviewed, maybe 70 people, that’s been amazing, but you’ve been fantastic. So thank you so much. I want to encourage you to keep using the gifts, the talents you’ve been given to bless others. Any last words for our audience, before we let you go and where again, also where they can find you?
Gurpreet:
Where they can find me is redpillkapital with a k.com info@redpillkapital with a k.com. And the only wisdom that I could impart on people is he realized that we’re not here forever. And so use all of your skills to benefit the people around you. And you will get rewarded in that process. And that’s what I try to do, I try to educate people expecting nothing in return. I take phone calls from people all the time, they hit me up and not because they’re going to be part of my deal. I don’t offer our deals because it’s not something that we would necessarily do unless it was a bigger deal than we needed to raise a lot of capital for. And so I always share information openly. I think that it’s not going to hurt you to share that information. And that couple of pieces of information that you have may make somebody’s situation a lot better. And so that I always look for information from other people as well and try to change my model internally. So I think that being inquisitive is one of the keys to doing well.
Brett:
Thank you. You’re free and at the go-giver mentality, right? Just give and expect nothing in return. If it comes it comes in and just use the gifts you’ve been given to bless others. Thank you so much. And for our listeners for listening. Thank you 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 struggled to clarify their capital gains tax deferral options. Not having a clear plan is the enemy and using a proven tax deferral strategy, such as the deferred sales trust is the best way for you to grow your wealth if you’re considering selling a highly appreciated business. Commercial Property primary home It can even be cryptocurrency public stock, private stock, go to capital gains tax solutions.com to learn more about the deferred sales trust and how it can help you create a transformational exit plan and give you back that time that we’ve been talking about in this entire episode. And so we thank you please review, rate, and subscribe and appreciate you listening to the show. Thanks, everybody. Bye now.
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About Dr. Gurpreet Padda
Dr. Gurpreet Padda, MD is a Doctor primarily located in Saint Louis, MO. They have 33 years of experience. Their specialties include Addiction Medicine, Anesthesiology, Physical Medicine & Rehabilitation.
He had real estate in his bones in his blood since the young age of 14, he’s gonna share that part of his story. He’s on a mission to help create and preserve wealth for himself and his family, his partners, and also help people to understand real estate as a whole.
