Learning about the Deferred Sales Trust for the 1st time as a CRE Broker with Marty Hall

Learning about the Deferred Sales Trust for the 1st time as a CRE Broker with Marty Hall

If we’re at the top of the market, which I think we can all fairly assume that is the case right now, you can move the money into the trust, mitigate the issues with the timelines.”

Marty Hall is a seasoned investment real estate broker from the original Silicon Valley in Northern CA. He has been involved in multiple asset types in commercial real estate. And also an expert in the 1031 exchange. He is the Founder and Owner of Marty Hall & Co. They enhance the valuation of our properties via a combination of value-added amenities and onsite renovation improvements. Their investor network is growing due to the unique investment opportunities in Arizona. We invite new investors to contact us to discuss our program and to answer any questions about the local market.

 

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Learning about the Deferred Sales Trust for the 1st time as a CRE Broker with Marty Hall

 

Brett:

Marty, give the potential people who are listening right now your background and a little bit of your current focus.

Marty:

Absolutely. Well, I’ve been in the real estate land development and billing business, since the middle 1970s. I grew up, cut my teeth in the business, in Santa Clara County, more specifically Menlo park or South Sunnyvale, Cupertino, San Jose, and those particular areas, long before they ever referred to it as Silicon Valley. Back in the day, there was nothing but avocado and cherry orchards. So I’ve been in the business for a long time, and I have explored a number of different niches anywhere from land development, building, of course, from investments. I worked with a lot of private investors looking to improve in their investment situations, moving from their assets from point A to point B. Very familiar with 1031 and the inherent challenges with 1031s. On the surface they’re great, but they don’t always materialize in a fashion that you would like them. And one of the points that you make a note of, which is absolutely true is, once you close escrow and you place your money with a 1031 administrator, you’ve got a timeline by which you have to perform. And unfortunately, that puts you in a kind of a precarious situation, because sometimes you’re having to make decisions to make acquisitions that don’t particularly meet your criteria, but you’ve… again, the timeline dictates that, so that’s what kind of triggered my interest in what it is that you’re providing. And I know there’s a lot of variables to the concept of trusts and estate planning, so and so forth, which certainly isn’t where my knowledge sits. But I thought this was very interesting to me. And what really inspired it was, one of my clients, who I’ve been working with for a number of years, owns in concert with our ex-wife many, many years ago when they weren’t married, they purchased this mobile home park. I do not know what the acquisition price was at the time, but in this conversation, let us assume it’s around $500,000. It consists of 62 spaces here in Phoenix, the average monthly income, I think, it’s around 365 to 375, and they’ve owned it since 1992. I’m sure that whatever depreciation allowances are they’re probably no… very little of it is left to them, if at all, other than capital improvements along the way. And it’s been a great little cash flow for the two of them. And so, one of the parties manages it, and the other party, who I work with, more specifically with, is more the passive participant. But he has since remarried, and she has since remarried, they do have two daughters together, and so they’ve been, I think for the last number of years, kind of characterizing this as something they’re just going to pass on to their daughters. But I do know that if there was a way or an option available to them where they could relieve themselves of the responsibility of owning and operating this mobile home park, that would be certainly a consideration. Because one of the things that have prohibited them or discouraged them from doing so is due to the capital gains because they have significant capital gains. My estimation would be the valuation would be probably somewhere in the neighborhood of three and a half million. So if their original basis was 500,000, which would be less than that, of course, due to the depreciation they’ve taken over the course of the years, they’re looking at a substantial capital gain consideration. And so, this is what led to us having this gathering is to entertain what options are available to them. And I have a number of questions to ask of you as a result. 

Brett:

By the way, thank you so much for that background and that story, that’s going to help everybody who’s about to see this training. And likewise, I’m a commercial real estate broker myself by trade, started 13 years ago at Marcus & Millichap, and the same thing, clients faced with 1031 exchanges that they probably wouldn’t have done if it wasn’t for the tax and/or they’re challenged with low depreciation schedules, and they’re looking for ways to offset the income that they’re making, or just retire from it all, toilets, trash, and liability, and just be finished. And so this truly is an amazing way for them to accomplish what we call a transformational wealth plan, not just a transactional wealth plan. Well, let’s dive into the specifics and make sure that we answer any questions you have Marty. So what… Go ahead, back to you.

Marty:

Well, you and I’ve had a chance to, and I’ve reviewed many of your videos to probably gain some insights on your background, your partner’s background, a little history of deferred sales trust, and some of the interviews you’ve had with some of your clients as well. And on the surface, it sounds almost like a… From my perspective, I’m thinking, wow, this is really a great opportunity or a great advantage for people to consider. And so that would lead me to a couple of questions.

Brett:

Sure.

Marty:

So one would be in essence, what this trust provides, or one of the benefits it provides is deferring the capital gains tax somewhere in the future.

Brett:

Mm-hmm (affirmative).

Marty:

My understanding is as a general rule of thumb, these trusts are set up in 10-year term increments.

Brett:

Correct.

Marty:

And if I understand correctly, they can roll over from one 10 year term to the next 10-year term.

Brett:

Correct.

Marty:

My question would be that somewhere in the future if some event triggered the disbursement or the cancellation of the trust, the capital gains are based on the valuation at the original sale of the property, or based on what the value of the trust is at the time of the disposition?

Brett:

Great question. So let’s walk through a deal that we just closed last week. It’s a seven-point-six-million-dollar property. And this gentleman sold a multi-family property, and he owed one point one million in tax liability. So he sold today, in 2020, and now he paid off all of his debt on the property, so he had about three million or so in the trust, okay, but he’s deferring a one-point one. And so right now it’s earning some interest and those interest payments or having it grow, the overall value of that three million is growing. And let’s imagine, fast forward, it grows to six million. Let’s say it earns seven percent on average after all fees, and he let it all compound, it’s at six million dollars. If you were to cash out at that six million mark, 10 years from now, he’s looking at the interest that’s been earned as ordinary income, and he’s looking at capital gains tax of the original, which is the one point one. So to answer your question is if he were in 100% stocks, bonds, and mutual funds, and it was all interest, it’s going to be taxed as ordinary income for what it’s been earning. Now, if he goes into investment real estate with that amount, and he uses the three million to purchase, let’s say, another multifamily property with a brand new depreciation schedule, and that asset appreciates, well, guess what? And it went from, let’s say, he bought it at five million and it got to 10 million and he had put a two million dollar down payment. Well, what’s really unique about the trust is that we established a new LLC and we funded the trust or we funded the LLC with the trust money. And because we did it in this nature as a JV partnership, he’s able to get to capital gains tax treatment on the appreciation of that property. So, the same thing, if you were to cash out of that property, well, remember he bought it at five, he sold it at 10. Well, that five to 10 is a five million dollar gain, that’s considered long-term capital gains tax, right? Now-

Marty:

Right.

Brett:

… if you cashed out of everything, he’s still paying that one-point one on that original, but most clients would just roll that other five back in. But to answer your question, it just depends on how and where the funds were invested, and what the nature of that initial investment was. Does that answer the question?

 

Learning about the Deferred Sales Trust for the 1st time as a CRE Broker with Marty Hall

Learning about the Deferred Sales Trust for the 1st time as a CRE Broker: “That is what learning is. You suddenly understand something you’ve understood all your life, but in a new way.” – Doris Lessing

 

Marty:

Yes. Well, let me ask a question. So I understand the gain on the new asset acquisition, what about the gain that led him up to the original transfer into the deferred sales trust?

Brett:

Okay. So back to his deal, three million in the trust, if you would’ve paid the tax of one point one, we’ll just call it a million, he would have two million, but now he has three. So three is that number. And now it’s doubled in price, right?

Marty:

Right.

Brett:

Inside of just stocks, bonds, and mutual funds, so not a new asset type, that’s all interest payments. So if he were to cash out, he’s going to get hit with ordinary income tax on all of that interest. And then the other portion is going to be capital gains tax, see, so that’s the way that works. Does that make sense?

Marty:

It does. Yes. So really what this vehicle provides is that rather than, or in lieu of utilizing or hoping to utilize a 1031 option, and I love the term that you use is take advantage of your… if we’re at the top of the market, which I think we can all fairly assume is the case right now, you can move the money into the trust, mitigate the issues with the timelines… I’m sure there’s a, which I want to ask you about, a number of vehicles where they can move the money into, but when the timing is right and they want to move it back into real estate when it’s more amenable to move your money into real estate, say that there’s been a correction in the market, which we’re all anticipating, they’re able to do so. So this provides them a vehicle where they don’t have to be constrained by the timelines that 1031 offers.

Brett:

You nailed it. Yeah. I don’t know if I could say it better myself. In fact, Dave, who did that deal, that seven-point six-million-dollar deal, the way he put it was, you don’t want to buy right now. You don’t want to be in debt right now. You want to be on the sidelines in diversified, liquid assets, cash, and you want to wait for the sharks to feed, and the sharks are going to feed, and there’s going to be blood in the streets with people who are in distressed debt, and you might buy that property if you want to be more aggressive and to time the bottom. But for his strategy, he doesn’t want to time the bottom. He just wants to get out, be safe, he wants to wait for all the sharks to feed, and then he’s going to jump in. And that could be six months, 12 months, it could be 24 months, but the deal is going to hit him over the head. And so that let’s say he bought a five million dollar multifamily property. Well, that deal might’ve been worth seven million today, but he waits a year, a year, and a half, and it’s worth five. So he’s buying it at a discount because he has no timing restrictions. And again, it’s all tax-deferred.

Marty:

Got it. So let’s talk about trust. Once the money is moved into the trust, let’s talk about what particular parties would be responsible for managing this trust as compared to the party to transfer the funds into the trust.

Brett:

Great question. Yeah. So that’s our role at Capital Gains Tax Solutions, we’re the third party, unrelated trustee, and it’s key here those words. Unrelated, meaning I can’t be a family member of the person who’s selling. Second, I’m in it for business purposes. We actually make fees and we can actually make a profit. That’s important. Third, we’re separate from the tax attorney who actually sets this up, and we’re separate from the financial advisor who actually manages the funds. So it’s kind of like a separate but equal power, if you will, in a way. It’s protection for the client. Our focus is to make sure that the advisor is doing his job to invest the funds properly based upon the note holders or the ultimate client’s wishes and based upon their needs and wants for their financial plan, so I’m going to oversee that. We’re going to file the actual tax return every year on behalf of the trust. The note holder client is going to receive 1099 based upon the interest they’ve received in a given year, and they’re going to report that on their personal tax return, but they can surely become passive completely. Of course, the tax attorneys are going to create and do the… I called it, they’re like the brain surgeons, they’re going to do the surgery, put it all together. And we’re also going to advise and help the commercial broker or the realtor or the business broker or the M&A attorney to understand what we’re doing and put all the proper language and help with the transaction coordination. As well as the CPA, who has any questions about installment sales. All of that’s covered in the upfront costs. And then the financial advisor is going to do his job by managing the money. So in the Dave scenario, it’s three million in the trust. That’s how our fees are based with the trustee and for the financial advisor, it’s going to be like management, it’s about one and a half percent per year on average. No matter how and where the funds are invested, whether they go into real estate, or whether they go into stocks, bonds, and mutual funds it’s going to be about one and a half.

Marty:

One and a half.

Brett:

And the goal though is at eight percent target, where most of our notes are based upon, net of the recurring fees over any 10 year period of time. So around nine and a half percent or so. And the net of those fees, they’re going to net eight, which is pretty good. Most of our clients are happy with that. There’s a tax return fee of 1200, that’s charged for the trust, and there’s, what’s called DACA account protection, direct access control agreement, it’s $1,500 for a multi-billion dollar bank we use in Southern California. But most of the time the funds are held at TD Ameritrade, where you have 24/7 access to view the funds and go online and get a sense of where everything’s at and how it’s performing. Or it’s in an investment real estate deal, where a lot of our clients like investment real estate. They can take 80% of that principal balance and go into an investment real estate deal. The other 20% needs to stay liquid, diversified at TD Ameritrade, invested. And it could be their own deal, it could be a deal with a partner. A lot of our clients are getting older and they don’t want to do the active part, so we have professional partners across the US multifamily, senior housing, and mobile home parks are our favorites, but we also have industrial partners, you can partner with as well. Really, anyone you want to partner with, as long as they have a track record and its investment real estate, we can do that. And then you can also put it into hard money lending. You can put it into… You can do it to develop real estate from the ground up. You can use it to start a brand new business or put it into a business venture. Really, what can’t you do? Well, you can’t put it into a primary home, because that’s considered constructive receipt. And you can’t use it for personal property, like a plane or a boat or something, that’s considered taxable. So as long as it’s investment purpose or business purpose, we’re good with the IRS, and you’re good with the trust. And then we can just keep this thing going.

Marty:

So let me make sure the moving parts or the active participants in this concept are, you have the trustee, which capital gains solution is the trustee.

Brett:

That’s us, correct.

Marty:

You’ve got the financial advisor, who essentially is taking direction from you as the trustee.

Brett:

Correct. I’m his actual client. And the client of mine is the note holder. And by the way, the financial advisor, we have thousands across the US, and if you want to bring in your own, you can, it costs you a little bit more to do that, but you’re welcome to bring that person in. Or we can just kind of match an allocation. You say, “Hey, I like the way they allocate.” Great. Well, let’s kind of mirror that, and let’s move it over here. But if you use the strategic partner that helped create this whole structure, you get a little bit of a discount, but keep going.

Marty:

And then of course you have the original client who is… What is their actual participation? How do you describe their participation in that trust? What is the term?

Brett:

So they’re the lender or the creditor. They’re like the chairman of the bank. So they’re switching from an ownership hat to a lender hat. So they’re becoming the bank, and they’re lending 100% of the net proceeds at close of escrow to the trust in exchange for the promissory note, a promise to pay them, and a specified rate of return, not guaranteed return, just specified. The goal is for us to do that together as a team, with the financial advisor, and with the note holder. But essentially they’re the chairman of the bank they approve or disapprove. So what happens, Marty, is an allocation is presented to them, and we say, “Hey, what do you think about that?” “No, I want to be a little more conservative.” “Okay.” “I want to be a little more aggressive,” or “I want this.” “Okay. Okay.” And we just adjust that framework. And along the way, there could be some adjustments and they can also say how much they want to receive per month. And if they receive interest, it’s ordinary income tax, they receive principal, they’re dipping into capital gains tax. But the idea is to keep that three million that would have been two workings for them, then they can pass it onto their kids and the kids can step into their shoes, so this also has some nice estate planning aspects to it. Also, it has some additional kind of built-in asset protection too, that’s kind of built-in, which is nice, depending on how we structure it. So there’s a number of ways to skin the cat. The key is they can be passive or active. They can be diversified and liquid. They can be in or out of the real estate. They can be in and out of a business. They can be in and out of development. It’s kind of like a Swiss army knife. A Swiss army knife can do a lot of things versus 1031, which is like the hammer, it really just kind of hit the nail. And so if you’re looking for something that does a little bit more, we’re your solution. If you’re looking for just the hammer and the nail, then keep using your hammer.

 

Learning about the Deferred Sales Trust for the 1st time as a CRE Broker with Marty Hall

Learning about the Deferred Sales Trust for the 1st time as a CRE Broker: “If you want to earn more, learn more.” – Zig Ziglar

 

Marty:

So they have a variety of different avenues they can entertain, and they could be in multiple positions, like…

Brett:

Yes.

Marty:

… so when opportunities are brought to their attention outside of those that you bring to their attention, then I have the option to entertain those ideas. And if indeed, they want to move money out of the market into real estate development, what have you, those options are available to them.

Brett:

Precisely. Exactly. You nailed it.

Marty:

How is the… Let’s say that they’re in strictly an interest bearing situation, you can structure it where the monies can be simply transferred on a monthly basis, whenever allocation is dispersed and sent directly to them on a monthly basis, and they could just act in a passive environment if they so desire?

Brett:

Correct. Exactly. So most of our clients are part of the baby boomers and they’ve made enough wealth and they’re just tired of the toilets, the trash, the liability, the debt, the headaches, the rent control, all the changing laws. And they’re like, “You know what? I don’t want… just put it in a conservative portfolio, if I earn five or six or seven or eight, that’s great, over a 10 year period. And I don’t ever have to worry about getting a phone call, again, from a tenant or a challenge.” And they can do that. So that’s entirely up to them or put it with a proven operator, who does all of that leg work themselves. And they get a brand new depreciation schedule when they do it with us when they buy it through the trust. And so they get that additional tax optimization going for their wealth. It does all of those things. That’s why we really believe it’s the best way to grow and create and preserve more wealth because you’re doing it optimally. And then it’s also, it’s transformational for your time and your energy and your stress. So you get the best of both worlds versus just having to be in, what’s called the… I call it the 1031 rat race, where you’re always just chasing another deal, another new toilet, new trash, new management, new debt, new everything, all within this. You just always chase it, but at a certain point, a lot of our clients just want to retire. They want to be done. But even for the active multifamily guy, who’s younger, or gal, we also say, “It’s still good for you too, because you can take some chips off the table.” You know when it’s a seller’s market, we know the last five years before this was basically a seller’s market and every year was becoming more and more of a seller’s market as these prices and inventory… prices went up and inventory went down, and so you should have sold. And we still think there’s time to sell today, but as the market continues to deteriorate, potentially, with this distress situation with COVID-19, it’s going to be harder and harder to make as much of a profit. So we say, “Take your chips off the table now, get out of debt, get liquidity, get diversification.” So once you’re sold on the solution, then the question just becomes, who’s the legal part? How are my funds protected? And can I talk with clients who’ve done that? And that’s the second part. We don’t charge anything unless and if the client closes the deal. So we’ll provide the education, we’ll set up the trust, we’ll get everything in order, and if for some reason the deal falls apart, the seller or the buyer walks away or the lender won’t lend, or you just say, “No,” no problem, no pressure. You don’t owe us anything, so we take all the pressure off of you on there. But you’ll talk with our clients. We’ll give you a whole list. You’ll talk with the bank that’s holding the funds. You can go down and meet the bank in person if you want to do that. We’ll set you up with the TD Ameritrade account, once the deal closes, so you can view the funds. You can talk with the legal team. You can have your legal team come in and talk with them, whatever you need. Thousands of closes over 24 years, we have it, we’ve done veterinarians, we’ve done optometrists, we’ve done dentists, self-storage, multi-family, car dealerships. We’re working on a Bitcoin case right now. We’re working on a horse case in Kentucky. You name it, we’ve done it. And we can probably put you in touch with that person who has as well to get you comfortable.

 

Marty:

I love the idea. A couple of things come to my mind. I had sent you kind of an estimate in a spreadsheet. And I run into this quite often with clients who have been sitting on a lot of equity in their property, and they’ve held it for quite a number of years. And the actual rate of return that they’re getting on the equity as compared to their original investment, a lot of people mistakenly, always kind of entertain their rate of return based on their original investment, and they soon forget about the equity that has grown as a result of ownership. So in many instances, the actual rate of return on their amount of cash that they actually have, or equity tied up in the property is normally considered low, ranging anywhere from one and a half to three percent. So when I did just a quick analysis of your program versus their current situation, that if they were to move all their equity into an interest-bearing account, based on the interest rates that you’re recommending or suggesting, that they can increase their cash flow significantly in this particular example.

Brett:

And that’s transformational, you’re nailing on the head. So they can go from all the blood, sweat, tears, liability, debt, employees, toilets, trash, all of it, and they’re making one to three percent on there, let’s say it’s a three million dollar property, right?

Marty:

Mm-hmm (affirmative).

Brett:

And they can trade that for none of the negatives, none of the toilets, none of the trash, none of the debt, none of the liability, and they can double or triple their cash on cash return. And then you add in a brand new depreciation schedule for someone who has no depreciation and is even worse, one to three percent, and none of that’s being offset by depreciation because they’ve depleted it. So not only do you, let’s say, get six or seven or eight percent on the cash on cash, but then you get another, let’s say, point and a half on the depreciation alone. So that’s where this thing goes through the roof. And in fact, that’s a deal we just closed in Sacramento. We sold for $270,000 per unit in December for a client of mine. And I actually was the broker. I sold the property. 1031 buyers out of the Bay Area had to buy, “Great, perfect. We want you to buy our real.” Bought it for 270. And that’s the exact analysis they did. They were about to buy a 21 unit for four point three million, but one of the partners actually had an emergency in the family. His mother-in-law passed away, and so all of a sudden the family was splitting the deals over here that the other family had, and so he had to take his half of the money and bail out on this 1031. But my client, they’re both my clients, but this one client, he says, “Oh. I’m stuck now.” And then this client says, “Sorry, I’m out.” But even then I said, “Let’s look at the deal and let’s see what you think on the numbers.” He goes, “Yeah, the numbers are basically like three to four percent cash on cash. I think I’m buying at the height of the market. I’m taking on a bunch of more debt,” and he goes, “it doesn’t make any sense.” So he did the deferred sales trust, and he’s happy he did because obviously, the market has shifted. And so it saved his partnership because the other partner was able to go ahead and go their separate way, he went his way, and now he’s waiting. And who knows where that property will be in a year, it could be worth four million. And he can go buy back that same property at four million on his own timing, and when it makes more sense, and that’s the power of this. But now he gets a brand new depreciation schedule. Whereas before his depreciation schedule would have traveled, so he would have less write-off. But since he buys it through the trust, it’s the full four million versus the four million minus the basis that he moves over, if that makes sense.

Marty:

No, I understand. What is your recommendation for whether or not you offer these services or not for the client who wants to make sure and do some strategic estate planning, for instance, when they transfer it into a trust? So they can delve a little bit deeper into what may unfold in the event of the passing of one or more of the clients.

Brett:

Yeah. So the first question to ask is, what’s the estate value? So what’s the overall taxable estate? So right now, as it stands until 2025, if you’re married, the first 22 million are exempt. So, Marty, if your clients are worth $52 million, that first 22 is exempt. But if all 52 million’s inside the taxable estate, there’s still 30 million that’s not exempt. Meaning, they’re going to be hit with a 40% death tax. So think about that, that’s $12 million. Now, if they maintain the 1031 and just keep doing that, they get what’s called a stepped-up basis, but this is the part where people get confused. They think, oh, I got a stepped-up basis, therefore I’m tax-free. No, no, no, no, your capital gains tax-free, so you did get a stepped-up basis there, your kids did, 52, but you’re not estate tax-free, you still owe that 40% above that 22 million, which is $12 million. Ouch, right? So that’s the first thing, so we want to clarify what’s your net worth? And how much is inside of the taxable estate? And the intent is to get all of it out of the taxable estate, as soon as possible. The challenge is most high net worth people before they meet us, what they do is what’s called FLPs, these family limited partnerships. And they do these gifts and they slowly give, but they run out of gift exemptions per year. Or they’re like one of our clients that we’re working on a deal right now they’re worth 126 million, and they’ve been able to get out 26 million outside the taxable state with a 100 million still sitting there. And they go, “We’ve given enough to our kids. We don’t need to give any more to our kids. And we don’t want to give all of it to charity, because we don’t know if that charity is going to be a good charity 10 years from now or 20 years from now. We’d like to do the deferred sales trust, and move it outside of our taxable estate. Can we do that?” And the answer’s yes. And so, as each asset is sold, they’re going to simultaneously move it outside their taxable state, which is going to save them that 40%, which they’re going to put into their trust. And then, when it passes, it can pass to their kids or that income stream can be sent to a charity. But here’s the cool part, the trustee over the overall estate can say, which charities it could go to which it can’t go to. So if a charity is not doing a good job, they can say, “You know what? You’re not living up to our family’s values or legacy. Thank you, you were great for 10 years, but we’re going to stop paying you that million a year. And we’re going to send the revenue over to somebody who is,” until they clean up their act. So the key here is accountability. What we want is accountability, transparency, and flexibility, and that’s what the DST gives you versus the charitable remainder trust, which is basically you’re in there, you die, it all goes to the charity, it’s gone, there’s no turning back, so that’d be the first thing. Now, the second thing would be, well, I have multiple kids, I don’t want all my kids arguing about my stuff and who to sell what. I have a client who’s in San Francisco and he has a house that looks over the ocean, and guesses what? He has four kids, one kid, he wants to move into the house if they inherited. The other one wants to renovate and sell. The other one doesn’t care. And the fourth one, I’m not sure what they think, but the point is if he dies, he passes, he’s going to know that his kids are going to be arguing about it. They’re already arguing about it before he passes. So what can he do? Well, he can sell the asset now. He can put it in the trust, and then what’s neat is, right as he passes, the trust just gets split four ways. So let’s say it’s producing a million a year, well, 250 goes to one kid, 250, the second, third, fourth, there’s no arguing. And the parent oftentimes is the one who made the wealth, and they know how to sell it best. The kids often are not, or at least one of them might be because they followed in dad’s footsteps or mom’s footsteps, but the other ones are out of sight out of mind. And so it helps to simplify and create a legacy where the kids don’t have to argue over stuff if that makes sense.

Marty:

Right. Well, this is all great information, Brett. I do have one last question and I appreciate your time very much. In today’s market, needless to say, I think we can all agree that it’s rather precarious to say the best, to say the least, and you’re talking about a return on an investment in the neighborhood of say eight to nine and a half percent. Where are you discovering those types of returns that you’re feeling comfortable and confident about that you can sustain that year in and year out?

Our focus is to make sure that the advisor is doing his job to invest the funds properly based upon the noteholders or the ultimate client's wishes and based upon their needs and wants for their financial plan, so I'm going to oversee… Click To Tweet

 

Brett:

Great question. So the first answer to that is, it depends on how and where the funds are invested, and it depends on the client’s risk tolerance. But we work with some of the best financial independence and wealth advisors in the world. We really do. For example, one of the interior teams for the deferred sales trust is a group of individuals who used to work at a PIMCO. So PIMCO is one of the largest wealth advisors in the world, and they helped take it from, I think, it was 90 billion or 80 billion to one point two trillion. So they’re a big, big group, lots of success, and they started a boutique firm and there are one of our kind of our inner financial advisors that you can use. And so that’s important. The second part of it is diversification. You can put it into some real estate and some stocks, bonds, and mutual funds. We can’t guarantee the performance, and past performance is never a guarantee for future results. But we can say, “Look, where were you going to invest the money? You would have had two million. Okay. Where would you have put it?” “Well, here, here, and here.” “Okay. What would you like to put three million minus some fees here in the same places?” “Yeah.” “Okay, great. Let’s do that.” So it’s not so much where, although that’s important and we have the advisors to do that, it’s how much you’re starting with to start with. And I liken it to a race, imagine we’re both going to run a marathon and what is it 26 plus miles, right? And I could start with, call it, an eight-mile head start, 30 or 40% head start right? Guess what? I can be a lot more conservative with my stuff because I can run it a lot slower than you and just take my time. You’re going to have to catch up with me, and so that’s the key, the time value of money. And then second, some of the top wealth advisors, and then third, we adjust along the way. So it’s important to understand that it’s not just a set and forget it, we’re working as a team. Just like if you took it to your financial advisor, he’s probably not going to stick you in the same stuff the next 10 years, he’s going to make adjustments along the way. As they specialize in looking at numbers, looking at financials, looking at business opportunities. And that’s what the wealth advisors are going to do. You’re going to get some of the best in the world. I’ll give you two examples. In 2008, one of the groups we work with, when the market was down 37 and a half percent, they were only down four and a half percent. And the next year they were up 25%. And what they do is they do what’s called heads and they buy these put options, it’s kind of like shorting the market, but it’s kind of like buying insurance in case you have these big drops. So a lot of our clients are in situations where they just want preservation. I don’t want you to lose my capital, but I also want to make something. That’s a lot of… We take a conservative approach. So what this group does is they say, “Great, we’re going to hedge against losses greater than a certain amount,” and let’s say that amounts to 10%. “So if it goes down by 10%, we’re going to buy all these shorts. And as soon as it goes down there, we’re going to exercise these shorts, and we’re going to buy it back at a discount.” Because what happens is like the rubber band, it stretches and it comes back, stretches and it comes back. Now, if the market just stays pretty steady or goes down just a little bit, you’re paying for that, so you’re not making as much as someone else would be, who’s not paying for that kind of insurance. But they’re also not protected. So fast forward to COVID-19, what happened? We’re down another what, 35, 40%, in the midst of it. They were only down at max eight to 12%, depending on what fund you were in. And now they’re basically all the way back where people are still down by 10 and 15%. So they’ve been around for over 20 years and they have a proven model to show this. And that’s one of the types of advisors that we use. Personally, I love commercial real estate, mobile home parks, senior housing multifamily. But what does the client want? It’s not about us. It’s about what they want, but you’re going to get a team of professionals to help you execute this based upon your risk tolerance in your liking. Hopefully, that answers the question.

Marty:

Very good. I appreciate your time. Some great insights, and as we conclude, what is the very next step in setting into motion with you the introduction and consideration for working with you folks?

Brett:

Yeah. Great question. And I appreciate you asking that too, because for those who might be listening to this. So the next steps are just simply to go to capitalgainstaxsolutions.com and you can apply for a call. And then, if you’re an owner listening to this, you can just apply for the call. If somebody brought you this video, just work through them. We always want to work through who brought the structure and the strategy to you. And then let’s all get on a conference call. And it’s a no-cost conference call after you apply for the call. It’s free. We just want to answer some digital questions at first. So go to Capital Gains Tax Solutions at the top right corner, apply. If you want to just kind of learn more, we have a Capital Gains Tax Solutions Academy. We also have our free ebook, Sell a Business or Real Estate Smarter. And you can read and download that, but that is essentially it. A couple of housekeeping things, we need to do this before the closing of escrow, and if you’re going to be in a 1031 exchange, we can save a failed 1031, but you need to work with the QI company who will allow both options. But get to us early and just give yourself a chance to get educated and prepare in advance, so that you’re not caught off guard, or you’re not rushing anything if that makes sense.

Marty:

Great stuff, Brett. Thank you so much for your time.

Brett:

Thanks, Marty. My pleasure.

 

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About Marty Hall

earning about the Deferred Sales Trust for the 1st time as a CRE Broker with Marty Hall

He is a seasoned investment real estate broker from the original Silicon Valley in Northern CA. He has been involved in multiple asset types in commercial real estate. And also an expert in the 1031 exchange. He is the Founder and Owner of Marty Hall & Co. They enhance the valuation of our properties via a combination of value-added amenities and onsite renovation improvements. Their investor network is growing due to the unique investment opportunities in Arizona. We invite new investors to contact us to discuss our program and to answer any questions about the local market.

 

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