Introducing Dr. Elaine Stageberg, the Chief Investment Officer of Black Swan Real Estate, renowned for her expertise in real estate investment and mindset coaching. With a background in psychiatry and a passion for empowering families, Elaine has successfully raised capital, including an $11M fund in a single day in 2021 and a $30M fund in 2022. Through her work, she demonstrates how real estate can create prosperity and positive community impact.
Episode Highlights Here:
Brett Swarts:
Okay, awesome. All right. All right. Great. Well, let’s dive right into the topic at hand with that in mind, which is tax advantages of passive real estate investing. So we live in what is the number one secret to, for investors to have tax advantage, investments through passive real estate.
Elaine Stageberg:
So the thing that’s really worked for us in our portfolio is we’ve never sold anything. So we’re able to take all of those losses that come from depreciation and expenses. And then instead of doing a sale and getting into, you know, the maneuvers that are needed to defer those capital gains after that sale, we’ve made the decision very early on in our portfolio, that we would just never sell anything, and that we would always acquire things, renovate things, and then manage things and take care of those things along the way. We call them our golden geese. But of course, then, you know, the question that you might be thinking to yourself as well. What about your equity? How do you unlock your equity? We’ve used a cash out refi strategy. So that’s been our plan, all the way back from our very first investments, I’m sure you know, we might talk a little bit about how that’s changed or what we’ve done tactically to do our cash out refinance, over the last, you know, 12 to 18 month As interest rates have gone up, but for us, it was just always about how do we take one bucket of money, use that to acquire property, improve that property, get our cash out of that property, keep that cash flow and property and be able to benefit from the cash flow, the debt paid down and the market appreciation of that property. But then buy the next thing and the next thing and the next thing, and in doing so, just continue to carry forward all of those losses and not have to worry about any capital gains.
Brett Swarts:
Absolutely amazing. I’m talking with Elaine. Stageberg and Dr. Elaine Stageberg. Black Swan. team.com is the website if you wanna learn more black swan team.com. Okay, so let me see if I gather that correctly. So buy, never sell, buy and add value by never will add value and cash out refi to unlock the equity and go buy more. Is that a fair summary so far? Elaine?
Elaine Stageberg:
Absolutely.
Brett Swarts:
Excellent. You know, and I always thought to, you know, as long as you don’t over leverage or get into let’s call bad debt, and make the deal go wrong, right, pretty quickly. And you only 50% leverage. I mean, it’s kind of a thought, too. I mean, can you really lose in multifamily value add real estate, I mean, to me, it’s probably the safest, most durable, consistent, you know, returns, especially if you can scale and you’re buying larger deals and hire the full time property manager. But to me, it’s like collecting boardwalk Park Place and all the other places around the ward. Any any thoughts on that are my kitchen in pretty good?
Elaine Stageberg:
Yeah, I think I think you summed it up very well there. You know, so we did scale along the way. So we have a large portfolio of single family homes. We did all of those with our own capital. And then along the way, we got to a place where I think it was about 15 single family homes that we were ready to do a bulk cash out refi. We then took that capital and bought a townhome community that also came with some land. That townhome community is now 115 townhomes we built we came with 30 We built an additional 85. And then we’ve scaled into large multifamily. And along the way people started coming to us and asking if they could possibly invest alongside us. And so we grew our business very organically. And when we made that transition into joint ventures and then eventually into our private equity funds, you know, we had to ask ourselves do we want to do kind of the typical private equity model, where there’s a pref, and a waterfall and you know, distributions, and then there’s usually a sale at year 345, maybe seven, and that just didn’t feel super congruent to us because we had built our own personal wealth through using the burr method, and through keeping all of those properties. So we just carried that same business plan into large multifamily. So all the way from our first single family home that was $35,000. To our most most recent acquisition, it was 129 unit multifamily building here in Rochester, Minnesota, the largest residential real estate transaction in the state of Minnesota so far this year, it’s always been that same investment methodology of buying it, fixing it up doing cash out refi keeping it and then continuing to do a cash out refinance in the future as well. So that we’re always able to maximize our total return on equity, but then keep all of those tax advantages because there’s no sale and no depreciation recapture.
Brett Swarts:
Absolutely. You know, because we say it’s all about tax flow, not just cash flow. And if you have no plan you’re gonna get hammered in Minnesota is one of the worst states to along with tax and Fornia. New York, New Jersey, Illinois, for taxes, right. And so that’s, that’s a big thing to consider. Okay, so private equity funds, let’s dive into that a little bit more. So people come in and say, hey, I want to invest in you like, sweet, we got this deal. We’re gonna be building these townhomes, you know, you bought the bottom, you’re gonna build another 85. And or a different deal. Maybe you did that with. But the point is, they’re bringing in some capital, I imagine they’re accredited investors, right? And then they probably say, I don’t necessarily need or want any liquidity, at least not for the next three to five years, perhaps I don’t know, it, or what’s kind of the expectations that you’re setting because you’re not necessarily going to be selling, you will do a cash out refi if they cash out refi do they get their money back and they made the owner in the deal, and you continue to roll forward? And then you just do that again? Walk me through kind of that that whole thought process there?
Elaine Stageberg:
Yeah, you got you got a lot of the the major principles there. So you know, folks invest in a private equity fund, we then go out and buy residential real estate both portfolios of single family homes, and then also large multifamily, we do our value add plan, the number one metric that we target is payback period. So that’s how long it takes for us to get all of someone’s originally invested capital back to them. We tell people to plan for five years for that historically, it’s never taken more than three years, but we’re just big believers and under promising and over delivering particularly with, you know, the the tides that are in real estate or the headwinds that are in real estate right now. And then after that our investors stay in the deal indefinitely with us all the way until that final sale. So unlike other deal structures, where investors are often taken out of the deal at the time of a cash out refi we keep our investors in at their original ownership percentage, and then they share in the cash flow and then the future cash out. refi is that we’re able to do on all of those assets, all the way through till the very end, inside of our private equity funds, we’re targeting a 20 to 25 year hold for our own real estate holdings, you know, we’re thinking more of, you know, generational wealth and being able to pass that on to our heirs, so that they can get that step up and basis, it’s a little harder to do inside of a private equity structure. So we’re planning to hold for about 20 to 25 years, sell everything and then share out the final equity, and then the funds would be officially closed at that point.
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About Elaine Stageberg
Chief Investment Officer of Black Swan Real Estate, a leading national presenter, investment thought leader, and real estate expert, Dr Elaine Stageberg is a psychiatrist, mother of four, and mentor to physicians and real estate investors from all walks of life. Elaine’s own journey to financial and lifestyle freedom has been nourished by an unwavering passion for empowering families. She believes that real estate investing can—and should—create good for not only investors, but also for the communities of people who live in these investment properties.
Elaine received an MD and MHA from the University of Oklahoma, and was one of the few selected to complete her elite training in psychiatry at the Mayo Clinic, the #1 rated hospital in the world. Her best-of-the-best pedigree ingrained her in a powerful, deep, and rare understanding of what fundamentally drives people, and how to help them manifest a better version of themselves. Today she teaches everyone ranging from fellow physicians and fund managers to first-time real estate investors that real estate is the most powerful way to leverage mindset. Elaine shows her audiences how to not just turn paychecks into prosperity but create a full and rich life which will launch their legacy.
Elaine is responsible for Investor Relations and marshaling capital at Black Swan. In December 2021 she successfully launched a $11M private equity fund which was raised in a single day. In December 2022 she just closed another $30M private equity fund.
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