Reimagining Real Estate Wealth with Dave Levenson

CGT 4 | Real Estate Wealth

Most people go into the real estate industry in order to generate wealth and be financially secure, but oftentimes forget that in order to create a self-sustaining community, they also need to give back. Dave Levenson joins this episode in order to remind people about the values of real estate. Having been a part of the industry since he was fifteen years old, Dave shares his knowledge and the values he’s learned throughout his years in the business. Learn when and how to use the deferred sales trust effectively in order to get your timing right in re entering the market after the Coronavirus pandemic. He also gives emphasis to the importance of having corporate social responsibility and instilling this into the youth as the leaders of tomorrow in hopes of creating a better and healthier society.

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Reimagining Real Estate Wealth with Dave Levenson

I’m excited about our next guest, Dave Levenson. Dave is a client of mine. He is a Deferred Sales Trust client. He is a multifamily expert and he has some amazing wisdom, deal stories and inspiration to share with us. He’s going to talk about timing, when to buy real estate. It’s not only buying low but it’s specific about how to gauge when is the best time to buy real estate and when to lower your risk for buying real estate. Also, he’s going to talk about not going into too much debt via a 1031 exchange. He’s going to compare and contrast his Deferred Sales Trust versus the 1031, and why he decided to use the Deferred Sales Trust. He’s going to talk about ways to give back, which is the best part of this conversation. It’s using our wealth, resources and gifts we’ve been given to give back and help those who are most in need. With that, enjoy this conversation and share it with somebody if you find it a value. Thanks so much.

Our next guest is a good friend of mine and a client who closed on his first Deferred Sales Trust. He’s a long-time real estate investor who has lots of wisdom, knowledge and a heart for giving back. He’s using real estate wealth as a way to help other people and to effect change in a positive way in communities, which is what we’re about here at the show. Would you please welcome to the show, Dave Levenson.

Thanks a lot, Brett.

Would you give our readers a little bit about your story and share about your focus especially amongst all of this Corona crisis going on? Go ahead. The floor is yours.

I’ve been in real estate since I was fifteen years old. I’ve made my first investment with my father at fifteen years old and have been doing real estate stuff ever since then. I used it as a vehicle to support myself and my family and move on to doing things to help the community. That’s what I see real estate’s value is. It’s to create a system for us to be able to establish our financial security and start giving back. By financial security, I don’t mean billions and billions of dollars to get there. Comfort and stability are important for your family but using it to move forward with helping the community is an important part of my career.

Tell me about some of those first deals. You mentioned working with your father in real estate, but maybe tell us about one of that some of the first ones that you did personally and what was that like getting started?

CGT 4 | Real Estate Wealth

Real Estate Wealth: Making your money on the buy is key. Anybody can make money in an up market, but that’s not really good for risk protection.

 

The first big one I did was a fun story. I was living in Hawaii at the time. I got a $500 lease option on a half-acre of commercial property near the Mauna Kea Beach Hotel. I had a one-year option and took that option. I went out, got some renderings and sketches for what I could build there. I went around the state two times trying to get people to sign agreements to lease if I were to build it, they would come. I got enough of those compiled to be arranged for financing. I built the building and filled it up over time and after fourteen years, I sold it.

What island was that? I know our readers who may have gone to Hawaii and maybe they’ve driven past the building before. I’m curious, where is it located at?

It’s north of the Mauna Kea Beach Hotel called the Kawaihae Center in Kawaihae Harbor. It’s down the hill from Kamuela where I lived with my four kids before I moved back here to California.

What brought you to Hawaii? When you did move there? What was that like? I imagine your kids are forever grateful growing up maybe on the island.

It was typical like a lot of people. I went there for three months and stayed for twenty years.

There you go and you kept doing real estate building, buying, developing and owning. Was that your focus?

The real estate value is to create a system for us to be able to establish our financial security, and then start giving back. Click To Tweet

Yeah, I built on four or five different towns in a state. I did a historic preservation project in Downtown Hilo. I have a property still in South Kona and Kona Coffee Country. I have a restaurant there, Annie’s Island Fresh Burgers, which my children started and won several awards and with the virus, we are shutting it down. Nothing lasts forever. We had a ten-year run there, but there are no tourists in Hawaii and they’re not even allowed to come to Hawaii.

It’s a wild time and I’m sure readers are curious. For someone who has so much experience in real estate with the bull markets and the now bear markets and what’s happening, I’m curious what’s your overall take on this crisis?

The value of a DST is for times like this. You don’t want to buy it right now. If you’re selling, you have a choice of taxes or a DST. A DST provides you with the opportunity to wait and you don’t buy at the top of the market and you don’t buy at the bottom of the market. One of my rules is I let the sharks feed. The bottom happens, foreclosures happen and the sharks come out and start picking up the foreclosure. You have lift offs and stability that is 10% or 15% off the bottom and you know the market is finally going up. You jump in and make your buy. The reason for that is you don’t want to be trudging along on the bottom for 3 or 4 years holding your property. The DST is a great vehicle for right now.

I appreciate you sharing that and I have such wisdom to let the sharks feed. We call it the Blue Ocean versus Red Ocean Concept, not necessarily we, but there’s a gentleman who wrote a book on that. Essentially, the Red Ocean is where all the sharks are feeding and all the blood is in the water. Everyone’s at a frenzy and everyone’s going to get hurt there. The Blue Ocean is the wide-open place where you could fish. It’s peaceful, calm, and has lots of opportunities. That makes a whole lot of sense. Walk our readers through a little bit about it. This is about a year-long process. Before the DST, what was the idea of even looking at it for the first time? This is when the market is going great and things are going well. What made you think, “Maybe I’ll look at this for the first time?” What caused you to consider it?

Even though it wasn’t a strong market, I’m older and I was looking at retirement. I didn’t want to keep on the treadmill and trade up. I was looking at doing a DST and that’s when I vetted your company. My accountant got involved too and we talked to your attorneys and everybody in your group that was important. It all checked out quite well and I was thinking that I wasn’t going to find another deal necessarily that I wanted to trade into. I would do a DST to give me some flexibility in doing other things, not having to trade up with another bigger mortgage and things like that. It turns out we found an amazing deal anyway. We own that deal for seventeen months. We made 250% on that and we put it into a DST.

Walk us through your 1031 experience in the past or even different deals where you would sell, buy add value or build something. I imagine you’ve done a lot of those over the years and compare that against the Deferred Sales Trust. A lot of our readers are reading this for the first time. They don’t know the main differences. They get them confused with the Delaware Statutory Trust, which we’re not. We’re a Deferred Sales Trust. Could you walk us through what you liked about the pros and the cons of a Deferred Sales Trust versus 1031?

CGT 4 | Real Estate Wealth

Real Estate Wealth: You don’t need hundreds of millions of dollars to be secure. You need the society to be healthy, to be secure.

 

In 1031, if you don’t want to have mortgage relief, you’ve got to keep getting a mortgage, either the same or bigger with every time you trade up. I’ve done trade after trade where the mortgage has gone up every single time and the opportunity gets bigger. All of that is good if you’re not thinking about retirement mode, which is where I’m at right now. My first significant exchange was a funny one. I was a realtor at the time. My broker got a Rolls-Royce out of someone’s yard in Hawaii, fixed it up and promised to give this fellow $15,000 once he sold it. This is a 1982 recession and no one had any money anywhere so we traded the Rolls Royce into a lot.

We traded a lot into a house for a house and another house. It was eight different legs in the exchange and it wound up where the last house was traded into an acre parcel right in the middle of the town of Kamuela, Hawaii, but the parcel had three Hawaiian graves on it. I had to move the three graves with the whole Hawaiian ceremony with the permission of the owners that wanted to do this to close eight different legs of an exchange. That was pretty exotic. A Rolls-Royce all the way through to moving three graves for everybody to get paid.

I don’t know if I’ve ever heard of anything crazier than that. A Rolls-Royce to graves, especially in Hawaii which is not easy to develop real estate, as far as I’ve heard. It’s challenging. To do eight legs of exchange is incredible. You mentioned mortgage relief. The concept that I’ve found to help me and my clients over the years is taking on debt when it’s smart to take on debt and you’re not taking on dumb debt when it’s not a good time to do that. I found that the best time to take on debt is when the markets either low, recovering or there’s some value add. Force appreciation opportunities where you have a clear picture of buying the real estate at a decent price per square foot and you have the ability to add value to such an apartment complex.

That’s the time when you want to take some leverage on, but the time that you don’t want to do that is when the market is so high. Walk us through this last deal. You sold the apartment complex, you had significant debt on the property, and essentially the Corona crisis hits. Your funds are sitting at an exchange company and you could still complete a 1031 but you’re looking at the scenarios. Walk us through when that moment hit and everything shifted from doing another 1031 to doing a Deferred Sales Trust.

It was exactly like that. We had an opportunity to exchange into an apartment house in Raleigh, North Carolina with a known entity, a fund. We were going to be their tenant in common, TIC partner and we have a small interest in a big project. I got a sense that that wasn’t going to work out too well for us. Twenty-four hours after we said we want to do it I said, “We’d rather not do it after all,” and we decided to do a DST anyway. The biggest rules I have in real estate are the two main ones. The first one is you make your money on the buy. Anybody can make money in an upmarket where you buy something. The whole world is going up and you get lucky and all that stuff, but that’s not good for risk protection. Making your money on the buy is key.

The second rule, which I live by is there are three main rules of real estate. Everybody knows them and they know I’m not wrong. It’s called timing, timing, timing and not location, location, location. With the Coronavirus, there are locations that are fabulous in Manhattan but you couldn’t sell them to anybody right now. It’s about timing. The DST allows you to time your entry back in the market. I believe that the entry point to get back in the market could be 3 or 4 years from now to make your money. As I described, our last apartment house and we only owned it for seventeen months and made 250%. That’s a lot better than owning it for seven years and making 250%.

You need to change the way business is done and be more socially responsible. Click To Tweet

I couldn’t say better myself. Walk us through that because now the next question is, you’ve made all this money in real estate and now you’re going to the Deferred Sales Trust. Are you going to be out of real estate completely or do you plan on investing the money? What would be a good place to park on the sidelines, out of debt, tax-deferred, waiting for those deals to come up in 2 to 3 years? What is your approach there?

We have a few opportunities now with other companies. One is Praxis Capital in Santa Rosa. Brian Burke is a great guy. They have some opportunities there for a limited amount of time for some returns. No depreciation or anything else. There are some carefully chosen stocks that are offered through your company that make some sense as well and also waiting for the right opportunities to come along whenever they might. The main thing is you don’t want to lose money right now because the market is going to be going down. You have to wait for the sharks to feed and make your move.

I’m not intending to buy any real estate for a while, although I do have a ranch I bought in Montana. We’re doing a glamping experience there. It’s called Camp Satori at CampSatori.com. That is where I’m going to be investing some of the money. It’s going to be an exciting opportunity for us to not only improve the property with people glamping on it, but also we’re going to have leadership training there. We train Millennials to have a more corporate social responsibility in their workplace. It’s close to my heart to be able to change the way business is done in our country to be more socially responsible.

Tell us a little about the website and tell us more about why you changed plans.

Basically, when I make some money in real estate, I take time off to do something that is socially responsible. In Hawaii, I started a program called Adopt a Classroom, Stock Our Schools for the public school classrooms. The realtors donate their money from their sales to local public school classrooms.

Walk us through a little more of that. That’s great. It’s a way to give back. For a lot of my clients and in our company, our goal is to help create and preserve more wealth so they can give more back to those most in need. I was reading about it and from my research, this was one of the largest public school fundraisers in the state to its day in Hawaii. You started Stock our Schools, Adopt a Classroom for realtors to give back to local public school classrooms. Walk us through what that looks like and what exactly happened for that big fundraiser.

CGT 4 | Real Estate Wealth

Real Estate Wealth: Make a difference and have more corporate social responsibility as your core values going forward in your career.

 

The way it worked was I tried to link realtors to public school classrooms because public schools improve rent and add to property values and make some realtors more money so it was a logical connection right there. The realtors were to donate $75 a month or $900 year directly into the public school classroom. The principal of every school has a receipt book. She can give you a receipt for your donation and you can write it off without even setting up a nonprofit, which is cool. Every public school is part of the government. You can give them money, can get a receipt, and a write-off. We went around the island and got several schools and realtors involved as well. It was a good program.

One of the things that people may not know is that public school teachers still to this day are buying supplies out of their pocket while they’re trying to teach your kids or your community’s kids. It’s a shame and a crime. We got the business community back involved in the schools again by donating their money and checking on seeing what was purchased with it. One of the sidebars is some old tenured teachers who weren’t any good or didn’t want to learn anything new, decided they would quit rather than learn something new. That could have been more valuable than the actual money itself.

That’s close to home for me too. My brother is a public school teacher in 7th and 8th grade. He’s also the activities and leadership director as well for the school. You are right. For what they do and for the work they do, they should never have it come out of pocket to pay for extra supplies for the kids. This is a unique story. Walk us through the overdose, the doctor’s handwriting error and how that started to help people as well with medical records.

I was living in Hawaii and my doctor scribbled a prescription on a piece of paper. I read it to a pharmacist who misread it and I got overdosed. Refills after refill, I was continuously overdosing which didn’t cause me to go to the hospital or anything but it didn’t help me in any way. It was the wrong dosage all the way through. Several months later, I went back to the doctor. I said that I’m no better. He said, “What are you doing?” I found out that I was taking the wrong dosage through a long amount of days in a row and things like that. I said, “This is ridiculous.”

I was also taking a course called Business and You at the time, which is based on Buckminster Fuller’s principles and philosophies. I got inspired by the teacher, David Nieman, and Bucky Fuller to try to give back. I decided that I’m going to do it. I’m going to participate. I’m going to do what I’ve got to do. I moved to California and started a company that became iScribe, an electronic prescribing for doctors using what was in those days of PalmPilot, and that was a precursor of the electronic medical record. If you boldly go where no man has ever gone before and do what you have to do, as Bucky would say, “The only failure is not to participate in solving problems for our society.”

You took a challenge where somebody made a mistake or scribble too tightly, which led to an overdose, which could potentially be dangerous, but luckily it was not and you said, “I want to try to make a difference and help somebody else out and change something.” What if it was fatal or what if it did cause something serious? That’s incredible, so it’s helped to lead to the electronic medical records. That’s amazing to have that fortitude and courage to do that. The last one I want to touch on is you started Hotels that Help for hoteliers. Walk us through that idea for the homeless and the food bank.

It's not how much money you made. It's what you did to help other people with your money. Click To Tweet

The idea was to link an industry, hotels in this case, with homeless and food banks, so I created a program called Hotels that Help. My first break was with Chip Conley, who is a terrific guy. He gave me 25 hotels in San Francisco. With those, I tested the program out and it became a successful program in San Francisco. Chip was giving away about $30,000 a month to local nonprofits, some of which were food banks and homeless shelters. I spent ten years on that full-time until I almost went broke and I went back to real estate. I started making money again to take on my next challenge because real estate, for me, is a vehicle to be able to give back once you’ve established security for your own home. I hope our readers will think of it that way. You don’t need hundreds of millions of dollars to be secure. You need for society to be healthy to be secure.

I couldn’t agree with you more and that’s part of adding freedom to the world and being able to free up your time and your energy to use the best gifts you’ve been given. You’ve been given the gift to see a need and take practical steps to solve a problem to help more people. I’m inspired by it, to say the least. We’re going to the lightning round. What’s your favorite business book or leadership book that you’ve read over the years or a few of them that come to mind?

Chip Conley did Peak and the book about the modern elder that he came out with which I read. I went to MAE, his Modern Elder Academy. Malcolm Gladwell did Outlier, which is fabulous and it is encouraging for people that want to be entrepreneurial. He says, “When you put in 10,000 hours at it, you will be a master.” If you’re starting something fresh and new, like I did with iScribe, Stock our Schools and Hotels that Help, I needed to put in 10,000 hours. I knew that’s what I had to go after to feel like I was a master at it. I did put in 10,000 hours on all three.

The next one is what are your favorite podcasts that you find helpful for you?

CGT 4 | Real Estate Wealth

Peak: How Great Companies Get Their Mojo from Maslow

I like Bigger Pockets. They do a good job there with a lot of programs.

They do an excellent job and they have great guests on there. How about a leadership quote that comes to mind?

Bucky Fuller, “The only failure is not to participate.”

That’s not to give the effort, not to use the gifts you’ve been given and not use the finances you’ve been blessed with to help other people. If you don’t participate, that’s when you fail. You mentioned not buying condos. Tell us about a poor condo experience to avoid for some more readers.

When I first moved to Kona, I was too smart for myself, so I negotiated 10% or 15% off of the top of the market and bought six condominiums with my family’s money. This was in the early ‘80s and they went down 50%. Getting 10% off didn’t mean anything at all and we wound up having to pay the sellers to take them back. One of the jokes that you hear sometimes is, “What’s the difference between condominiums and gonorrhea? You can get rid of gonorrhea but the condos in that market, you cannot get rid of them.”

That is tough. The moral of the story is making money in real estate sometimes means losing money in real estate. It’s making bad decisions and it’s taking that action and learning from that experience and redefining your business plan to not make the same mistakes twice. For you, that was certainly condos. We got caught up in Camp Satori a little bit before the show. Can you mention what that is and exactly what the goal is for a glamping resort in Montana? Walk us through that again.

Camp Satori is a glamping adventure resort on a property I bought outside of Missoula, Montana. The intention here is to take Millennial executives, youngsters if you will, compared to me, and give them leadership training. Once they’ve had an a-ha moment, a moment of breakthrough or seeing the other side or seeing the goodness of at all however you want to describe it and we do that with several techniques that we have including zip-lining and other things.

They have this a-ha moment, which is what Satori is and they go into conventional leadership training and they come out of that feeling like they want to make a difference and have a more corporate social responsibility as their core values going forward in their careers. That’s close to me right now and has been all along. It’s corporate social responsibility. Hotels and homeless realtors and public schools, tech solving medical errors, which is a big deal right now, medical and tech. We have Satori Leadership Training for corporate social responsibility with Millennials.

There’s a saying that goes, “If the leader gets better, everything gets better.” If you can pour into leaders with training good mentors, ideals and values like that can change the world. Leaving to our last question, after all your success, as a real estate investor, as someone who gives back as an inventor and a philanthropist in so many ways, how do you stay center in your values and how do you stay encouraged to reach to new goals?

Boldly go where no man has ever gone before and do what you have to do. The only failure is not to participate in solving problems for our society. Click To Tweet

I do meditate every day. I try to find solutions to problems that come across my desk. People tell me what situations they’re in through my network and I figure out what I can offer them as suggestions. Sometimes they take them and most of the time they don’t. I’m good at figuring out solutions and I enjoy that so I offer solutions all the time. As a matter of fact, sometimes too often to too many people, but they come to me and I can’t help myself so people get to hear from me regularly with ideas for them. Some take it, some don’t.

You have to make the offer though. You have to show that the more offers you make or the more solutions you provide, the more opportunities they are to participate and have a chance to take the next step. I want to thank you for your wisdom, your time, for going out and making a difference in this world and encouraging us to do the same. There’s another saying I heard from a leader of mine, “You can’t push a rope. You’ve got to get out in front and you’ve got to pull.” I see that’s what you’re doing.

You’re pulling those behind you to forge forward and to use the gifts and talents and the wealth they’ve been given to make a difference in this world. From us to you, thank you so much. You can find more about Dave’s Project Camp Satori at CampSatori.com. Dave, do you want to leave our readers with one last thought? It might be this, what would you tell your 25-year-old self looking back after all of this? What’s the one golden nugget you would tell your 25-year-old self, knowing what you know now?

It’s not how much money you made, it’s what you did to help other people with your money.

CGT 4 | Real Estate Wealth

Wisdom at Work: The Making of a Modern Elder

I want to thank our readers for reading another episode of the show. We believe not having a plan is the enemy and using a proven tax deferral strategy, such as the Deferred Sales Trust, is the best way to grow your wealth. I hope you gleaned from this conversation, the idea of not just location but also timing. Also to be able to use your wealth to give back and be innovative and free up your time and energy to use the gifts you’ve been given to invent things that can solve problems for the world. With that, take this information, be inspired, take action, share it with somebody who may need to hear it. With that, we thank you so much. We hope you’ll join us on the next one. Thank you.

That was probably my favorite episode I’ve done so far. I love how practical Dave was and what a heart he has for giving and using the gifts, talents and wealth he’s been given to make a difference in this world. There’s some great wisdom. That timing was smart and applicable for now. Not to jump in when the sharks are on a frenzy but wait until things settle down and calm down. You may not time the bottom perfectly, but you’re also not going to have to be bouncing at the bottom. Wait for the market to stabilize to start to recover and jump into deals. Maybe you lose out on 5%, 10% or 15% of the bottom, but that’s okay. You don’t need to do that and likewise sell.

You can apply the same concept. Sell when things are good and don’t wait for a crash to happen like the Corona crash. Timing is smart and it’s something I’m going to try to implement in my strategy moving forward with real estate investing. Also, mortgage relief. Taking on smart debt, dumb debt and making sure you’re doing it at the right time. The 1031 exchange, unfortunately, is equal or greater value taking on too much debt. Don’t do that and don’t overpay. Buy when it makes sense. Use the Deferred Sales Trust to park the funds, sit on the sidelines and buy when it makes sense for you. Check out CampSatori.com. It’s a glamping resort in Montana. I’ve seen the pictures. They’re amazing. Go to the website, check it out. It would be great to check it out. That’s it for now and I hope you enjoyed the episode. Please share, like, subscribe and we’ll see you in the next one.

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