Why Marco is Still Bullish on Real Estate

Marco Santarelli is one of the best real estate, financial wealth, crypto, and leading minds in the world where they share their ideas, deal stories, and inspiration. So together, we can make complex tax deferral strategies, simple and passive income plans that you will have excited about our next guest. He is at least been on the show once, maybe twice. And this might be his third time. And he’s an investor, author, and founder of Norada Real Estate Investments a national real estate investment company offering well-researched investment opportunities in emerging US markets. He’s also the creator of deal greater a scoring system that measures the investment quality of real estate investment and gives you an overall snapshot of his profitability

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Brett:

Hello and welcome to the Capital Gains Tax Services podcast where we believe most high net worth individuals and those who help them struggle with clarifying their capital gains tax deferral options. Now 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 exit highly appreciated cryptocurrency businesses real estate, save a failing 1031 Exchange, you can defer millions of dollars of capital gains tax and create and preserve more wealth. Hey, I’m your host, Brett Swarts. In each episode, I’m joined by some of the best real estate, financial wealth, crypto, and leading minds in the world where they share their ideas, deal stories, and inspiration. So together, we can make complex tax deferral strategies, simple and passive income plans that you will have excited about our next guest. He is at least been on the show once, maybe twice. And this might be his third time. And he’s an investor, author, and founder of Norada Real Estate Investments a national real estate investment company offering well-researched investment opportunities in emerging US markets. He’s also the creator of deal greater a scoring system that measures the investment quality of real estate investment and gives you an overall snapshot of his profitability and investment risk. And so much more. Please welcome show with me, Marco Santarelli. Hey, Mark, how are you doing?

Marco:

Doing good, Brett, it’s good to be back on the show. And I’m honored to be here. It’s gonna be fun.

Brett:

Absolutely. For our listeners getting to know you, perhaps for the first time, would you give them a little bit about your story and your current focus?

Marco:

So I’ll just give you kind of a quick snapshot. So as you mentioned, I am a full-time real estate investor. I’m a serial entrepreneur, I run a couple of different companies, mostly real estate-based. One of them is an investment fund that invests in mostly retail e-commerce type businesses and a few other eclectic types of investments. But that is actually open to accredited investors. But I started no Rata Real Estate Investments about 18 years ago. And it is a nationwide provider of turnkey cash-flowing investment property. So we basically provide people a service to invest in cash flow real estate, in different markets around the country, 25 different markets to be exact. Two years old. And amazing.

Brett:

Fantastic, and others show you into kind of your gifts and the talents you’ve been given. So people can go back and listen to that. I do want to focus, I want to change the question a little bit. What’s the one habit that you try to practice in 2022, that you feel it’s going to have the biggest impact on helping you to help other people,

Marco:

the one that’s going to help me to help other people, this is going to sound maybe a little lame, but actually just being focused and organized. And not that I haven’t been in the past. But I realized that I have so many plates spinning in the air that I’m being stretched in many different directions, and I don’t have the bandwidth to keep up with everything. So I really am a big believer in, you know, delegating and automating anything and everything we can. So you free up the time to focus on your superpower, which if that’s thinking and creating, which is a lot of the stuff that I do, I want to focus on, you know those superpowers. So getting more focused and organized and delegating, automating anything and everything can help you to x 10x. What that means a lot more.

Brett:

I couldn’t agree with you more. And that’s, I think that’s needed even. It’s more needed than ever, because of the pace of information, the pace of deals. The just what we’re seeing in the environment, especially as, as you’re leveling up and becoming, you know, I say we get to call this episode why Marco is still bullish on real estate. Because like, cool when you have a cool name that not only people have it, but be your brand is so big, and it’s building that we can just use your first name, which is pretty cool. But at what we say that I’m sure you’ve done delegation in the past, too, by the way, Marco right, and you’ve done certain things. But I’m curious, like, what’s the one thing you feel like it’s going to have or has had the biggest impact on that delegation? Like, what is that practice? Like? Is it hiring multiple more virtual assistants? Is it you know, like, I’m doing these loom videos or Zoom videos are people that they watch my over my shoulder as I’m doing the things, so I don’t have to do them ever again. Like I traded my, my, my aspect of thinking with the delegation was, which was, hey, let me teach you how to do this thing. No, no, you just watched me do the thing. And the less you absorb what I’m doing, and then take over that, like, for example, learning Spanish, like I if I knew Spanish, I was trying to teach someone Spanish. It’s much harder to do it on a whiteboard to teach somebody, Hey, let’s go to Mexico for a couple of years. And let’s immerse ourselves in the language. So what is that thing that you’re doing? That’s really, really going to help you delegate more?

Marco:

You know, I think this is going to resonate with some people, people who are controlling or OCD or, you know, control freaks, which I’ve been, you know, accused of being over. Over the years. The hardest thing to do is have I trust in other people. And I do trust people. But I also am very cautious. So it’s hard to get over that hump. And delegate things that you feel are only you can do the best for you hold it close to the chest and feel that you can’t actually show somebody how to do something reasonably short amount of time. And just to be able to train yourself, trust other people and letting go through whether it was, you know, a little more or a quarter videos or worse. And even if it takes you a few days, or a few weeks to train somebody to let go, something, you’ll realize you’ll get that time back. It just starts to compound on itself. But that’s trust. It’s really hard. You need to do it.

Brett:

I can’t agree more. And I think about the whole saying that, you know, financial intelligence, it’s 20% head knowledge and 80%, you know, basically emotional intelligence or emotional parts, right? And then that trust aspect is that relationship and emotional intelligence, and then letting go and having faith and trust in somebody else, not without the training and the procedures and the things in place. But that I think that’s really powerful. But Well, now let’s try to apply all of that to why Marco is still bullish, bullish on real estate. So Marco, what’s the number one thing that makes you confident and bullish in real estate in today’s market?

Marco:

Well, it really comes down to one basic economic principle, and that’s supply and demand. I mean, we can certainly drill down to this because it’ll just put flesh on the bone. But the bottom line is this, there is a lack of supply relative to the amount of demand for housing units in the country. And this is not a new thing. This has been going on for many, many years, we’ve been in a constant deficit in terms of being able to create new household formations to keep up with, with population growth, organic growth. So that’s, that’s really the answer to your question.

Brett:

We can dive into that as well. Yeah, let’s dive right into it. What are some of the numbers that you’re seeing?

Marco:

Okay, so, so from a supply fundamental, you know, we’ve been running a deficit for a long time. Actually, if you really go back far enough, you’ll see that it has been going on for decades. But the last time we were at a point of equilibrium was right around 2007. But you have to remember right before the Great Recession, and we’re building like crazy, so there was a lot of speculation, a lot of construction going on. So we actually got to a point where there was enough supply to meet the real demand of a true household or like demand, man. But ever since then, we got back to a place by 2012, when we were large. So Freddie Mac recently said that now 2013, he could have a 4 million unit housing shortage. Now, that’s not going to happen because builders are building like crazy, and they’re on top of the game. But roughly speaking, we have a shortage every year by 1000 pounds. The problem is, there’s not there’s a lot of new inventory coming on builders. All of this increase in demand and lack of supply leads to a restocking. All the good old real estate getting into real estate. But when we look at the demand side, we need we actually were to look at this report five months ago, we needed 1.3 7 million units and supply just to keep up with yesterday’s demand. And now looking back today, those numbers have increased between units per year here are we now are actually exceeding that as 2021 2022. But you have to remember that we had about nine years deficit so we’re not we’re just going past this point in time. So if you look at what’s going on, you’ll realize that we need the real fundamental need for children. And this demand is going to help how’s it going forward? I can go get the picture.

Brett:

I get to get the point that’s, this deficit is huge, right? It part of the 2008 crash was you know, banks and lending and development all seized up and just kind of paused and it takes a while for these things to flush out and the deficit just kept building or the demand kept building the supply I was decreasing. And now it’s kind of like playing catch up. And now we’re finally starting to maybe on a year-by-year basis hit some things, but we have this big deficit to make up for. So it’s hard to get that boulder over the top of the other side. That being said, what’s the number-two reason why you feel that you need to be really bullish on real estate, and perhaps even a better way to put it be? Why we’re not in this 2000, you know, 6787 bubbles, right? Where before everything really hit the fan. So what’s, what makes you feel good for the next 12 to 24 months?

Marco:

Well, I’m going to throw one more thing at you that’s related to the demand, we’re gonna call it shadow demand. You know, if you remember back in 2006, and 2008, we had well, after the Great Recession, we had this this this concept called shadow inventory, all the foreclosures that were on the books of the banks that were not being released into the market, but they were there. And ultimately, we’re going to be put on the market, we refer to that as shadow inventory. You can’t see it, but you know, it’s there. Well, there’s a similar concept called Shadow demand that exists today. And that’s basically this is, if you look at the percent of young adults, which are people that are between the ages of 18, and 29, these 18 to 29-year-olds, are still living at home with their parents, typically, living at home is the highest in the last 100 years, the last 2% right now. So 52% of young adults aged 29 are still living at home. The last time we had a number level that was approximate that high 48%, was back in the 1940s, which was literally right now. More so ever since and it’s declined, you know, it was low in the 60s of 39. To a high today, he sees he’s young, forever, they need to get out, want to get out, they’re gonna go out to rent or to rely on. And ultimately, they’re gonna get married, or you’re gonna live in their own home. So this depends on how long the line is, yeah, there is another pig in the pipeline that is on the system that doesn’t even come out and just continues to have demand pressure on the housing market. So that’s the concept of shadow ban and the other work with low flow rates and even drink for like, yeah, that portability, if you are going to be able to get in demand for housing. And the fact that you know, provide credit in order to acquire investment real estate for their home. So where are short where that trend continuing interest rates very low girls are provided for you to invest in real estate they were you Yes, whoa, a good deal. Your equity grows over time, on top, which is just, you know, one that I really don’t think about, and that the tax depreciation is amazing. It’s one of the most tax countries. So those are my tax

Brett:

let me see captured all that. And that is fantastic. So it’s a shadow demand. And it’s those that are 18 to 29. They’re living at home with parents, it’s the highest it’s ever been 52% of all 18 to 29-year-olds are stolen home with a parent or parents, and they’re wanting to get married, they’re wanting to form their own household, they’re wanting to have kids, it’s as that increases, right, that creates more demand for housing, as well historical low-interest rates that are happening have been going up but still historically, very low, make it still attractive to buy real estate. And then the last one, which is what the ones that we really love here, capital gains tax, which is just the tax benefit, right. And I had this concept that I’ve been, I’ve been working with more and fleshing out OneNote you think Marco and it’s the idea of cash flow versus tax flow. And they’ve always been important, right? But there’s a big thing. You know, let’s say the last 10 years, Robert Kiyosaki, cash flow, cash flow, all that stuff, which again, is absolutely important, but now more than ever, with, Oh, I think they’re at 29 trillion. I don’t know. It’s crazy with the government spending these days, right. And they’re having to increase taxes by a lot and, and, and they’re having to figure out ways to pay for this stuff, right. And so it’s now more than ever about tax flow and not cash flow. So let’s dive into those main benefits as a reminder for all of us, what’s the biggest benefit have tax rights off and depreciation for owners of real estate Marco

Marco:

Well, the main thing is this is with residential real estate, the IRS allows you to depreciate the improvements of the property and the improvement simply means that it’s everything excluding the land the dirt underneath the property. So if you take the value of the improvements, which typically in most markets are is the bulk of the purchase price, or the bulk of the property value, you can take that and depreciate it over 27 and a half years which simply means you take the value divided by 27.5 and that number is what you’re allowed to use as depreciation basically a tax write off against your income and so when you can defer or reduce or even eliminate your taxable income from these investment properties because of that issue, it lowers or eliminated the tax impact each and every year here and what’s interesting about that The beautiful thing about that is you do not in order to get it, in other words, there’s a potential you any money you’re gonna get them right off paper done junction that you get because you appreciate real estate so this is why real estate is one of those investments out there are investments as of now jobs and take boats in your businesses.

Brett:

So let’s break that down. Right now by the way you can learn more about Marco at passive real estate investing calm as passive real estate investing calm. And to also clarify, when Marco St. Residential, he seemed like multifamily single-family duplex four Plex anything that basically is housing for people, the government gets a favored depreciation scheduled 27 and a half years versus commercial, which is 39 years, however, realize that the primary home you cannot depreciate, right? They’re only going to do this for investment, they’re gonna encourage us as citizens of the US or anyone really who’s going to be investing in real estate in the US to be able to depreciate to offset the cash flow, right cash flow that’s coming in, because not about what you make, it’s what she keeps, in the end, offset that cash flow with the depreciation of the asset. Okay. And so we’re about to dive into something called Cost Segregation and accelerated depreciation, which is like the I felt like the ninth Wonder of the World Marco here. Right? It’s really powerful. And, and it’s the thing that, that Trump will part of what Trump did well with, with the policy was he enabled something called bonus depreciation, which is only a couple years left, I think it’s 2026 25. It’s going, to fall off if it doesn’t get renewed. But essentially, what that means is, we can as real estate investors, not only take depreciation but not only do cost segregation, to accelerate that but then to get bonuses on top of that. So Marco, break down maybe an example of this, of how you’re doing that, perhaps with some of the investments that you have.

Marco:

Well, let’s talk about cost segregation. I am not a tax advisor and or, you know, a tax specialist. And so I don’t know all the nuances when it comes to the bonus depreciation, there are some conditions attached to it. Cost Segregation is an interesting thing though, it allows you to take the different components that make up the property because everything will break down over different lengths of time. So you can look at a hot water tank that let’s say lasts for 10 years, a roof that might last 20 years, the flooring you know, cabinets, and whatnot. But you can basically a breakdown of all the components that make down a proper house and apply a deletion schedule towards each and every one of those. Some of those ways might get over three years some over five or 10. So rather than at all, depreciating it over seven and a half years, you can accelerate the creation by taking those components broken down due to depreciation in shorter order periods. One year two years that means more and more should take advantage up to a next year and year after and tuner and this is your best this year worth the cost help you lower your tax because you have higher notice I hope that makes sense.

Brett:

It does. It does make sense Mark I want to also Take it away even one step further. And there’s an amazing video that Grant Cardone actually does on this. And if you search, Grant Cardone cre taxes, tax savings, he’s a 13-minute video, he’s walking in his office, he’s breaking this all down, but we’re gonna apply this now, for even your potentially your personal income, okay, which is check with your CPA and make sure that this can be there. But especially if you have a spouse who may be not is working, they can become what’s called a real estate professional, if there are certain rules like 750 hours of like active ownership and properties or management, or overseeing those properties that you own personally not like, not like as an LP limited partner, but as like a GP. And this allows you to take some of your active income, which by the way, gets taxed at the highest level, and lower it potentially to zero. And that’s really the ability to take highly appreciated assets, of which we talked about leveraging low-interest rates, right now, buying multifamily properties is the one that I love most, especially doing it potentially with partners. So you can, you can have a look, you can all kind of partner together and get a big lump, you get a big loan, which can be scary. But if it’s cash flowing, and it’s producing, and then you get that depreciation, you can use that savings to also pay down the loan. And so it’s knowing what the rules are the game what the game is, and the game is how do we lower your income tax? How do we lower passive income tax? And how they do that through depreciation in which some people go, well? Why would the government allow this? Well, they want to incentivize us to build all this housing, which Barco said in point number one, supply-demand imbalance, well, we the government can’t force Marko or me or other developers to build a real estate or to buy real estate or to improve real estate, they can’t force that. But they can give tax incentives that encourage entrepreneurs and business folks, and developers and owners of real estate to build more so that they don’t have to pay as much in tax. And so it’s a win-win for everybody. But I want to encourage people to learn about this, be aware of it, and check with your CPA, right, make sure we can line these things up. But there are ways to do that. So Mark, any thoughts on that?

Marco:

Yeah, you know, to your point, if you look at tax incentives, if you look at the tax code is really the government’s way to direct what they want. In other words, they know they’re not good at housing, they know they’re not good at business and industry and, and creating jobs and all that kind of stuff. Sometimes they like to think they are but they’re not, I mean, they’re kind of the most dysfunctional organization out there, just looking at the DMV as an example. But when they need something or want something, whether it’s, you know, electric vehicles or solar panels or renewable energy, or more housing, what they use tax incentives for people to take advantage of so that you can defer or eliminate access and make more money, so to drive in the direction. So that that way, you know, these tax deduction options, whatever they really mean, are there to use whatever

Brett:

which leads to the biggest frustration with the sent through an exchange and the deferred sales trust as an alternative, right. And that’s, we had a cryptocurrency deal mark I’m gonna tell you about and then see if see what your thoughts are on this. And so she, she bought, she’s, she’s, she’s in her 20s. Okay, she’s working for a big tech company in Silicon Valley. And she bought Bitcoin for about 30 to 50,000. And she never sold as he did over a number of years. And it went to $50 million dollars, okay. And so she never exit it until she met us and learn about the deferred sales trust. Now she’s excited about 5 million into the deferred sales trust to go start a business. And, and people go, that sounds too good to be true. Why would the government allow that sick? Well, think about what we just said right there allowing them to incentivize people to do things that could benefit the greater good of the economy of the world of society. And so she’s taking this coin that’s in outer space, or that’s on a bunch of computers. And, you know, I’m still learning about cryptocurrency, I’m investing in it, right? It’s not that I’m not a believer in it, but it’s very cautious I’m mostly a believer in real estate. And I’m figuring out how how to use crypto as a way to also build some wealth on a small scale. But that being said, she’s made it on a big scale. She’s a believer, and the idea is okay, we’re gonna exit that we’re going to create these jobs, a new she’s doing an educational company, with her college roommate, she’s retired from her big tech job. She’s building her dream, she’s creating more tax revenue. She’s taking income from this trust to pay tax on I’m paying taxes on the fees anyways, there’s a lot of benefits here, right if you just take a big expansion View and save. Yeah, look at all the people that are winning the IRS is winning too. Because guess what? Bitcoin when she sold it 54,000 Marco dropped to about 35, I went up to 68,000 within a month of her till exceeding it 54 Then it went back down to 35 or 36. I’m not sure where it’s at today, it’s, but all of that equity has been instead of being lost, or, you know, gone, it’s now building American companies. So any thoughts on any of what I just said there?

Marco:

Well, you’re, I’m not sure how to comment on that. I mean, I do own some crypto myself crypto assets, maybe I need to have a conversation with you about, you know, the deferred sales trust, because I’m now thinking about how do I manage my exit if and when that ever happens? You know, I don’t want to be taxed, obviously. But if I’m going to be taxed on those gains, I want to minimize that further for as long as possible, ideally indefinitely. And this is where I need to be further educated on the vehicles. the conversation I would have to have with you. But most investment activity will be taxed at some point in time. With a few exceptions, there are ways to essentially defer taxes forever, which involves passing, you know, assets to your heirs. But a lot of money in crypto, it’s already happening. This is the Wild West, we’re when it comes to Costco, we’re where the internet was back in 1995. Likely Amazon’s people are wondering. And that’s a big big thing and it will impact every area of our lives. Penetrate everything. In real estate is not there already can’t wait to have a lot longer and transact that will be the transaction data should be recorded forever. Block watch people will record on the blockchain you know, valid verify in a trustless environment. In fact, on the block one can be fractured up by 1,000th of the owner on property just by owning a fraction of what we’re doing today. They are satiation. So this is going to change everything they need to understand. Gave me a million years.

Brett:

we should do a whole nother show on that on the whole concept, Marco, where we can really break it down for people. And for those who are wondering if they want to dig in more. We do have a crypto mastermind that happens every Friday at 10 am. Pacific Standard Time. 1 pm. Eastern, and it’s the crypto DST mastermind, where we’re talking about. Everybody was just saying we have our DST mastermind it’s a crypto mastermind, we’re actually bringing the crypto world together, the deferred sales trust roll together and in the traditional investing together and figuring out a way to defer that capital gains tax to create preserve more wealth to sell high and buy low which is now possible with cryptocurrency with real estate with business using the deferred sales trust. So that crypto DST mastermind happens every Friday at 10 am Pacific Standard Time. 1 pm Eastern, you can go to capitalgainstaxsolutions.com That’s capital gains taxes.com To learn more about that to register for free and to join us. That being said, Marco, we’re running out of time. So for listeners who want to get connected, connect with you, what’s the best place for them to find you?

Marco:

Well, if you want me to leave one website, it’s passiverealestateinvesting.com that’s passiverealestateinvesting.com. It’s actually my sister’s website. But it’s the whole by podcast, but you can link to our main website where we have all kinds of free resources, information, downloadable guides, all the properties that we sell well not all 10% of them.

Brett:

Marco, thanks for being on the show. And thanks for being I look forward to having you again. We’ll maybe talk some crypto here. Sure another month or two back on the show. And I get I want to thank all of our listeners for listening to the episode of the capital gains tax solutions podcast. As always, we believe most high net worth individuals and those who help them struggle to clarify their capital gains tax deferral options 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 exit highly appreciated cryptocurrency businesses real estate save a failed 1031 exchange. So you can defer hundreds of 1000s and millions of dollars of capital gains tax and create and preserve more wealth got a capital gains taxes com to learn more about that and get with Marco to for investments for real estate for research, for buying deals out of state buying deals that make sense and his level of expertise and knowledge and all of these things are, are a plus I can’t recommend him more. So thanks to everyone for listening, and we’ll talk to you again later.

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About Marco Santarelli

Marco Santarelli is one of the best real estate, financial wealth, crypto, and leading minds in the world where they share their ideas, deal stories, and inspiration. So together, we can make complex tax deferral strategies, simple and passive income plans that you will have excited about our next guest. He is at least been on the show once, maybe twice. And this might be his third time. And he’s an investor, author, and founder of Norada Real Estate Investments a national real estate investment company offering well-researched investment opportunities in emerging US markets. He’s also the creator of deal greater a scoring system that measures the investment quality of real estate investment and gives you an overall snapshot of his profitability and investment risk.

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