How The Top 1% Legally Pay $0 Capital Gains Tax On Real Estate

Kevin Brunner

Kevin Brunner is a Marine veteran, entrepreneur, and financial strategist with over 30 years of experience advising business owners and doctors on retirement income, tax planning, and wealth preservation. He’s owned a national business brokerage involved in 3,800+ transactions and leads a team of fiduciary advisors, CPAs, and attorneys. Featured in Forbes and a former radio host on KABC, Kevin founded The Q Companies and is driven by a passion to share the wisdom he’s gained from mentors, business, and travels to 47 countries.

Here’s some of the topics we covered:

• The Powerful Influence Kevin’s Grandfather Had on His Real Estate Journey
• What Sparked Kevin’s Mission to Become a Financial Advisor
• The Hidden Reason Most Advisors Avoid Talking About Tax Efficiency
• 1031 Exchanges Unlocked & How The Rich Build Legacy Wealth
• Cost Segregation Secrets Every Real Estate Investor Should Know
• A Little-Known Strategy to Defer Capital Gains
• How the Installment Sales Trust Can Supercharge Your Multifamily Exit
• Estate & Trust Planning Hacks That Protect Wealth for Generations
• Turning Legal Loopholes Into Power Plays
• How Financial Strategists Create Win-Win Deals for Both Sellers and Buyers

To find out more about partnering or investing in a multifamily deal: Text Partner to 72345 or email Partner@RodKhleif.com

Full Transcript Below

00:00:36:00 – 00:00:54:09
Unknown
Welcome to another edition of Lifetime Cash Flow through Real Estate investing. I’m Rod Cleef, and I’m thrilled you’re here now. I’ve got a very interesting gentleman here today, and we are going to go deep on all of the various tax strategies that are available to you in real estate and some things you haven’t heard of before. Trust me on that.

00:00:54:12 – 00:01:15:27
Unknown
His name is Kevin Brunner, and Kevin is, a seven year marine veteran. He’s been in financial services for 20 years and done a lot of other very, very cool things and excited to get into this with him. Welcome, brother. Well thank you. Yeah. Well, let’s have some fun today. I know we’re going to go deep on tax stuff, which makes my head explode, but like I said, I can’t even spell the word tax.

00:01:15:27 – 00:01:38:28
Unknown
But, you know, why don’t you give us a little background on who you are? You’ve got a very interesting bio, and I didn’t want to steal your thunder on some of this stuff, so why don’t you, you know, tell us who you are, where you came from, and where you ended up. Well, I, I grew up on a dairy farm, but my other grandfather was always out buying property, and he had a developer that would develop the property.

00:01:38:28 – 00:01:54:27
Unknown
He would buy it in the path of growth. And as a child, he would put me in the pickup and drive me out with him. Oh, cool. Then all the way home, he’d ask me questions about the meeting I sat in on, and I went along with it because I just loved him. I wanted to spend time with him, but I really was bored by most of it.

00:01:54:27 – 00:02:07:21
Unknown
But now I look back on it, the wisdom that he gave me. Well, they would go out and buy these ten acres on a main road, and they would subdivide it and put a couple cul de sacs in there and build homes around it and sell them off. And it was an interesting thing. He had a lot of money.

00:02:07:23 – 00:02:27:05
Unknown
He’s big money. Yeah. But you know, but he drove the same 56 Chevy truck forever, right? You know, he was that guy, right? And, but it changed my paradigms and how I think about these things from a very early age. And I was fascinated with Henry Ford from an early age. And Henry Ford built a better vehicle.

00:02:27:07 – 00:02:45:01
Unknown
I mean, you can get a model A, and it’s a dependable vehicle today, right? And he built a better vehicle for less money because of the efficiencies he created. Well, when I went into business, that was my paradigms. Can I interrupt for one second? Yeah. There’s one thing I love about Henry Ford. He got interviewed by some reporters, and they were.

00:02:45:03 – 00:03:00:07
Unknown
They were trying to trip him up, and they were asking very technical questions, and he would just pick up the phone and and get the answer to their questions. And they were flummoxed by that. And I just thought that was frickin brilliant. He said, I don’t need to keep all this stuff in my head. I’ve got people that keep it.

00:03:00:10 – 00:03:22:27
Unknown
Anyway, I digress. He understood how to delegate. Right, exactly. Yeah, exactly. So, so efficiency. He was a brilliant man. Yeah, yeah. So I even studied Edward Deming. Deming. Oh. Love him. Yeah. Oh, yeah. Oh, you and I could have some conversations about that. Kaizen. Exactly right. Exactly. So I got deep into corporate America doing mergers, acquisition stuff.

00:03:22:27 – 00:03:42:29
Unknown
We would come in and make a company more profitable, make it more efficient, make things run more efficient. And that led to working for a defense contractor. In 47 countries. Worked in 14 of them. You think that’s glamorous for about six months of this. I mean you, you get really tired food poisoning in Karachi and. Sure sure sure.

00:03:43:00 – 00:04:01:25
Unknown
Yeah. It’s just it’s you get tired of it. How do you do that. Four and a half years. Okay. And, some crazy stuff happening in that arena right now. I mean, as we’re recording this, I. I ran just got their asses handed them in their nuclear facilities. But anyway, please continue. Friends I used to work with and I are exchanging text.

00:04:01:25 – 00:04:22:00
Unknown
Oh, I’m sure right now about 30,000 pound bombs, like. Holy crap. And you know, I love West Clarke, General West Clarke. But I saw him on the news and I’m like, no, no. So I don’t want to get too deep into politics here on this. But, I love him. Good friend. But he, I was surprised last night when I watched him on the news.

00:04:22:00 – 00:04:38:17
Unknown
His opinion on some of this. No, I didn’t know, did he? Did he was he he had an opinion against it? Yeah. Anyway, I don’t, I don’t know there. Yeah. You know, this is this is complicated. When people say death to America, you got to kind of take it seriously, in my opinion, you know? Well, they’ve proven what their intent is.

00:04:38:18 – 00:04:51:07
Unknown
Right. Hello. So. Yeah. So, I mean, I don’t mind talking about politics. I actually enjoy it. I get a lot of hate for it, but I don’t give a shit. I’m a libertarian. Oh, yeah. Okay, good. I hate both parties. Yeah, well, yeah. Once got my left pocket. Once got their hand on my right. Oh, I love that.

00:04:51:07 – 00:05:11:03
Unknown
Yeah. Like it’s so true. I just want to leave me alone. Yeah. So true, so true. Yeah. I became a financial advisor kind of at the last minute. In 2003, my advisor wanted to retire, and he’d been my grandfather’s advisor. And I’d known him since I was mowing lawns and buying penny stocks from him at $22 a purchase, you know.

00:05:11:06 – 00:05:32:13
Unknown
Oh, wow. And, we just go to sample restaurant, have a hot fudge sundae, and I give him an envelope, $22 to buy certain penny stock. I’d. No kidding. Wall Street journal. That’s hilarious. Yeah, I know, so, I asked him one day, Carl, why do you spend so much time with me for $22? And he said, well, I started doing it because your grandfather’s got a lot of money invested with me.

00:05:32:15 – 00:05:54:03
Unknown
You’re the favorite grandson. He goes, I do it now because I enjoy this. And he and I were friends. He now has dementia, so, he doesn’t know anybody. Well, but that’s when I’m actually getting into that business right now. Yeah, you were talking about that, and it’s it’s, you know, this is off topic, but in California, I read recently they are 40,000 beds short.

00:05:54:04 – 00:06:10:04
Unknown
Oh, there’s a there’s a shortage under the demand. There’s shortage all over the country. It’s going to be they’re going to be aging people living on the frickin streets. And and I, I love the elderly, so I, I, I actually threatened to get into this about ten years ago. Maybe longer than about 12 years ago. Got my administrator’s license free.

00:06:10:04 – 00:06:26:11
Unknown
I left here in Florida and was going to do it and just got side got derailed. But it’s a tough business. It’s a tough business. It’s a tough business. You just got to have a great operator. We’ve got an incredible operator. So this this facilities in Pittsburgh would literally just sent the earnest money right before me. I had to do that.

00:06:26:11 – 00:06:49:01
Unknown
That’s one of the reasons you had to. Wait a minute. I had to send the earnest money. Literally just did it minutes ago, and, Yeah. Anyway, so, yeah, when I, when I bought his practice, the financial planning practice final out. Yeah. So I joined the brokerage, and I took the book of business with me. But as I was going through all their classes and how they teach to do things, I was already late in life.

00:06:49:01 – 00:07:03:20
Unknown
I had my own opinions, my own investment portfolio, and I noticed they were teaching some things to the young advisors there. All this guy in the room except for the instructor. There were not correct, and I kept pulling the instructor aside at the break saying, you know, that’s not quite correct. That’s not how you come. That’s an that’s a mean average.

00:07:03:20 – 00:07:19:29
Unknown
It’s not a rate of return. You know, and you’re not accounting for a volatility there. And he finally went into the partners and said I want that guy out of my class. They said we can’t kick him out. He bought one third of the firm when he joined. Oh he’s a partner. And the guy said well it’s the last class I’m teaching them.

00:07:20:01 – 00:07:45:19
Unknown
So other words he wasn’t going to correct what he was teaching. These advisors, he just wanted me out of the class. And what I found out was financial services want those inefficiencies because they make more money that way. So I think there’s a lot of, not blatant, but fraud in that business and in the whole, you know, I know there are financial planners that have a fiduciary responsibility versus the ones that don’t.

00:07:45:22 – 00:08:10:05
Unknown
And and I’ve heard but dig into what fiduciary really means. Okay. So that’s a topic for another day. Okay. So I, I refuse to do some of those things. Okay. So the broker and I decided to part ways and I’ve been independent ever since. I say, well, I will tell you, you know, I’ve had students in my warrior program that work for, you know, in the financial planning industry, and they work for, you know, under big houses, little things like Merrill.

00:08:10:05 – 00:08:29:00
Unknown
I won’t say them specifically, but outfits like that, and they won’t even allow them to raise money for Syndications and things like that, they have to just sell their products. And so, you know, it can be a real life. There’s two incomes. They want them selling only what they’ve approved because they’ve made revenue sharing agreements on the back end, do not have to be disclosed to the public.

00:08:29:00 – 00:08:47:28
Unknown
Well, and they don’t trust them to not screw it up and get them sued. Yeah, yeah. And the reason your financial advisor won’t go deep on tax planning with you, even though he probably knows it. The good ones do is he’s not allowed to, I say, because if you employed some of those tax efficiencies, the brokerage house will make less money off of you.

00:08:48:00 – 00:09:04:24
Unknown
Or if they get audited, you could get blamed and they got problems. So they just don’t want you talking about it at all. Well, let’s let’s talk about tax strategies and real estate. So let’s shift to that now. And and I know you you, have something called a tax deferral trust. But let’s save that for last.

00:09:05:01 – 00:09:23:03
Unknown
So obviously we all know about the 1031 tax deferred exchange. Right. And, you know, we’ve talked on the show about cost segregation. So the ten, 1031 exchange, you want to just quickly define what that works is you actually an administrator for those as well, right? Yeah. Actually, I have a 1031 company in accommodation services. Right.

00:09:23:06 – 00:09:48:08
Unknown
Okay. So I got tired of working with accommodation services that their attorneys would just argue with us when they were wrong. So we just set up our own, I say. And the IRS actually approved our agreement to have the installment sale trust as a fallback position, I say. So you have to use an IRS approved accommodation service when you go between properties if you want to defer the tax, mostly because the IRS doesn’t trust you to tell them the truth.

00:09:48:08 – 00:10:04:10
Unknown
Right. And so it’s kind of like your retirement account. It has to be at a Schwab or a fidelity or somewhere that’s an administrator, by the way. Sorry, I called it the wrong trustee. The one you do is the installment sales trust. Yes. Another one is the tax deferral trust. So we’ll talk about all these and we’ll save that installment one for last okay.

00:10:04:10 – 00:10:24:18
Unknown
And most of these are marketing names for a process. There’s something deeper inside okay. Got it by the way. Got it. So, what happens is when you go to the accommodate or you have to go from escort the commentator. As long as you don’t touch the money. That’s called constructive receipts, not taxable. But the IRS came in because the 1031, by the way, evolved over time.

00:10:24:18 – 00:10:41:22
Unknown
What it is the IRS kept making up more rules. Well, since the courts and Congress allow you to defer the tax, the IRS has attitude as well. We’re not going to make it easy. So they put in a 45 day rule. They put in 180 day rule that wasn’t in the original law. No kidding. I didn’t know that.

00:10:41:22 – 00:10:56:19
Unknown
So, it’s been that way ever since I’ve known about it. But they’re not going to make it easy, right? Right. Their whole the 45 day rule is to identify. Identify. So you’ve got to identify a property within 45 days. You know, you can you can identify many. You just got to buy one of them. Got to be the one you close on.

00:10:56:19 – 00:11:18:14
Unknown
And then you have to close within 180 days after the 45 days. Yes. No, no, the 45 is part of the 180 oh. It is 45 part of the 180. So you got a total 180 days to close on your replacement property. Now, some people think you have to buy the same type of property. You don’t. I’ve done 1031 exchanges from single family into multifamily even, but, yeah, but it has to be an investment property, obviously.

00:11:18:14 – 00:11:41:18
Unknown
Yeah. So that’s the 1031 exchange and and the hurdles there are the timelines and you have, your contract for 1031 exchanges allows people to get into this installment sales trust, which we’ll get into in a minute, that, you know, is a solution if they don’t meet the deadlines, correct? Yes. Because you got 45 days and you’re trying to coordinate two transactions.

00:11:41:18 – 00:12:04:10
Unknown
Right. And so many of these fail because things don’t line up. The ratios of financing and everything else. Be tell you, I think I think they’re a mistake because you’re under the gun to identify a property. And very often you can overpay for that property because you’re so under the gun to, to, to get one. So I don’t particularly like the 1031 exchange any longer.

00:12:04:13 – 00:12:27:13
Unknown
Now we’ve also got cost segregation, which we’ve done on every one of our properties. So guys, you know, basically I’ll explain that, you know, in a typical real estate transaction or real estate purchase, you’re going to have depreciation, you’re gonna have straight line depreciation takes 20 years, I believe, cost segregation greatly reduces that timeline. You’ll have an engineer come in.

00:12:27:13 – 00:12:48:21
Unknown
They’ll identify the remaining life on every piece of the building. The floors, the walls, the ceilings, the windows, the roofs, the service, Hvac, you name it, every piece of it. They’ll put a remaining life on it, and they’ll put numbers to it, and they’ll mass tively accelerate your depreciation. Would that be an honest way to. Yes. Say that.

00:12:48:21 – 00:13:08:07
Unknown
Okay. And so, you know, that’s fair. And then we’ve also had what’s called bonus depreciation which allows you to and I don’t know all the details about that either. I know you’re not an expert in that either. But I mean they’re bringing back 100% bonus depreciation, which I believe means you can take it all the first year. I believe that’s what that means.

00:13:08:12 – 00:13:30:27
Unknown
So years ago, 40 years ago is how it was. Really? Yeah. Okay. All right. Well anyway, so that’s very exciting as it relates to cost segregation and bonus depreciation. I’m very excited about that. But then you know you’ve got these other tax strategies like the tax deferral trust. What can you describe. What what what that what’s behind the window on that.

00:13:30:29 – 00:13:50:21
Unknown
That’s a program I’ve not studied too close. Oh okay. I know they’re not using a business trust, okay. And they’re using an irrevocable trust, which introduces a whole series of problems because the IRS is like, okay, you’ve you’re too irrevocable. Okay, well, now you’ve made a gift. I see. So they ask a series of questions and it’s either A or B, which is it.

00:13:50:21 – 00:14:11:06
Unknown
And you’ll probably fail the audit and some of those. So what. Okay. Fair enough. So a lot of these hold on C in a lot of these tax programs that you see promoted out there. They’re taking something that is fine. And they’re taking a series of rules out of the tax code that are fine. Right. But then they’re applying it to a transaction that doesn’t meet the criteria.

00:14:11:10 – 00:14:31:11
Unknown
I see. So so there’s some real possibility to have things reversed if you do some of these other tracks. So there is okay. And there’s a lot of people who need to be thankful. The IRS is running short on auditors. Okay. So tax deferral trust is one of those things. Then there’s the DST. I’ve had people try to come on my show with the Delaware Statutory Trust.

00:14:31:14 – 00:14:51:28
Unknown
Do you do you know? Yes. Those are fine. You can go from an Or to a Delaware statutory trust. Okay. The problem is the IRS has made those difficult. The same way that they made the 1031 difficult by, narrowing and narrowing down to the 45 days or 80 days, all those other rules, right? 60% of ten, 30 ones pay some tax, okay.

00:14:52:00 – 00:15:10:08
Unknown
Because they don’t quite because they don’t they don’t allocate all the money or whatever. Right. So it’s not all well. And a Delaware statutory trust, the IRS requires those trust to have a certain amount of liquidity. That’s money that’s not deployed. I see they’re also structured kind of like a triple net lease. You pay all the expenses, okay.

00:15:10:08 – 00:15:31:19
Unknown
The people running them, they get paid either way. Okay. They generally way perform the brochure you receive. Interesting. Okay. Then they have redemption fees if you get out early, I said. But at any point they can give you 90 days notice that we’re closing. I say, okay, well now now you got to scramble and find someplace to put the money, I say, or you got to find a property to put it into.

00:15:31:21 – 00:15:56:05
Unknown
So there’s so many cumbersome. And I’ll go back to my original thing about inefficiencies, okay. In that whole process okay. So we want to eliminate unnecessary complexity and unnecessary inefficiencies from anything you’re doing because that’s where all the problems come from. That’s where the losses and the expenses. And so there’s other trusts like the deferred sale trust, the financial advisor trust.

00:15:56:05 – 00:16:19:10
Unknown
Are these just coin names? Most of those are coin names that are knockoffs of the old Ernst and Young Installment Sale Trust program. And we’re still doing the original from 1970. Have you been to one of my live stream virtual online multifamily boot camps? If not, what is the hold up now? Literally over 15,300 people have attended my boot camps to rave reviews.

00:16:19:10 – 00:16:41:15
Unknown
And respectfully, if you’re serious about this real estate game, you’re crazy not to come spend a couple of days with me and I don’t sell anything at these virtual events, and I train you on every aspect of this business. I mean, you’re going to leave knowing how to put together a team, pick an area, evaluate that area, find deals, evaluate those deals, raise all the money you need for your deals, finance them, syndicate property management, you name it, all of it.

00:16:41:15 – 00:16:56:01
Unknown
I’m going to make sure you get very clear on exactly what it is you want out of life. We spend time on mindsets, psychology, which is 80 to 90% of this, so that you actually go take action with what you learn. And the price for the two days is less than the price of a lunch. And again, I don’t sell anything there.

00:16:56:04 – 00:17:19:25
Unknown
So listen, text boot camp right now to seven, two, three, 4 or 5 or go to Rod’s Boot camp.com and get signed up. I promise you’ll be very glad you came again. That’s boot camp to 72345 or go to Rod’s Boot camp.com. I’ll see you soon, buddy. It’s been updated with some tax law. Original. It’s very simple. So it’s what you do is the installment sale.

00:17:19:26 – 00:17:39:15
Unknown
Installment sale. So talk about what would the you know what that looks like. Let’s start there. And then let’s talk about the benefits of it. Talk about the structure. The structure. It’s it’s a business purpose trust which has been around for hundreds of years. There’s nothing wrong with that. And it buys the asset from you under the installment sale provisions of the tax code.

00:17:39:17 – 00:17:55:09
Unknown
Okay. And then just like if you did a seller finance deal. Yeah. Basically, you know, and I tell people seller friend, you know, how you can how you can sell a seller on seller financing is letting them know they’re only going to pay tax on the amount they receive every year. Exactly. And so it’s the same dynamic as that.

00:17:55:13 – 00:18:12:09
Unknown
It’s just utilizing a trust. Is that an accurate statement? It is okay okay. But once the money’s in the trust you see if you sell the finance, that building right. And you’re the one carrying the note and they don’t manage the property. Right, you got to go take it back. And you you got to foreclose. You got to foreclose.

00:18:12:09 – 00:18:33:17
Unknown
Yeah. Right. So you have no upside potential. But all the downside risk if you’re the one carrying that note now you get a down payment to reduce some of that risk and things like that. Right. Right. Well in the case of an installment sale, trust is still the same thing going on. Okay. But it close of escrow. All the money lands in a trust account that you get to direct the investments from.

00:18:33:17 – 00:18:54:21
Unknown
So now you have significant upside potential. You actually haven’t sold the property to someone outside party? No. You sold it to the trustee. You sold it to the outside party. It’s called an intermediated transaction. Okay. So so so it is. The property is selling a 1031 exchange is an intermediated transaction, let’s say the accommodate or intermediated the transaction.

00:18:54:21 – 00:19:11:16
Unknown
So this is the same thing, same thing. Just using a trust I don’t understand the upside conversation. So so so because you said that earlier before we started recording it, I didn’t quite track that because if someone else is buying the asset they’re going to get the upside. So I am missing the upside once the cash lands in the trust, right.

00:19:11:16 – 00:19:37:03
Unknown
It’s invested. Doesn’t just sit there okay. So you’re so basically what you mean by that is as money comes in from that installment sale quote unquote from the trust, then or into the trust it’s being reinvested and you’re getting upside on that. I mean, okay. And in, you know, a dozen ways, I know a dozen more to make a lot more than the 7% that note you were carrying was going to make.

00:19:37:05 – 00:19:59:13
Unknown
Okay. So it’s the money to reinvest trust the reinvestment piece. Now. Now, what’s the taxable consequence of money being made in that trust. Well, our trust structure the trust grows tax deferred. It does all the assets in the trust. Their tax deferred like in just like they were just like an IRA like a good good example okay. Yeah.

00:19:59:20 – 00:20:21:13
Unknown
So so that money inside. So so if you’re if you’re putting that money into the trust it’s not taxable. You’re reinvesting it inside of the trust. The trust is reinvesting it. You’re not it’s not coming to you. So there’s no taxable consequence there. So so any any profits from that reinvestment grow tax deferred. What’s the end game.

00:20:21:13 – 00:20:39:24
Unknown
At what point any anytime you pull it out you have to pay it basically. I have a couple families on the third generation. No kidding. Wow. Okay. Dad wasn’t doing well. And health. Mom didn’t want to be a property manager. So the money’s still in a trust, and the money’s in the trust, okay? It’s doing better than the properties would have done had he kept those properties.

00:20:39:24 – 00:21:06:12
Unknown
Now, he could have sold the 20 unit for a 50 unit. And. Right. Sure. Right. But at 78, he wasn’t going to do that. Right. So they’re on the third generation now getting income from the trust. And the trust keeps growing and the income keeps going up. Nice. So how long can you do it. As long as the trust has a business purpose it continues I see I see and how does the trust come into play?

00:21:06:15 – 00:21:27:21
Unknown
Under. Yeah, I’m just doing this now because I’m separated from my wife and we’re very friendly and we’re great friends, but but we’re redoing all the estate. I told you, I just said to meet with an estate planner. I literally had the call today. How does estate planning and death exam, for example, or anything else, come into play with the trust?

00:21:27:23 – 00:21:55:12
Unknown
This same trust is used in very large estates, okay, to bleed down the state or the estate below the the estate tax threshold. I say okay, so when somebody is getting older in their got $100 million net worth, you know there’s going to be some estate taxes, right? So a good attorney and a good advisor will work together to over time bleed that net his net worth, get assets out of his name into other entities.

00:21:55:14 – 00:22:14:05
Unknown
I see over time the bleed down the estate below the estate tax threshold. And then those other entities continue for generations. I see so these are this same trust methods used to do that. All that I see. Yeah. And and do they bleed these entities by putting things in trusts or in LLCs or all the above all the above.

00:22:14:05 – 00:22:30:14
Unknown
Okay. It’ll be, it’ll be LLCs that generally are owned by owned by trust. Right. Which is what I did. You know, back in the day, I was telling you this before we started recording, you know, I took asset protection very seriously. And I had I had all my 800 houses in individual land trusts just for anonymity.

00:22:30:14 – 00:22:49:25
Unknown
I mean, 800 houses get 800 houses here in Florida. But anyway. And then the land trusts were owned by them back then, it was limited partnerships because LLC hadn’t come around yet. Yeah. So, Limited Partnerships LLC, you know, for people like you and I that are of to know what those were. And then LLCs were like the belle of the ball the much, much better.

00:22:49:25 – 00:23:06:26
Unknown
But yeah, but, you know, and then, then the and then the limited partner interest in the LP, in the limited partnerships was owned by an offshore trust. So, I mean, I took it to a whole nother freaking level because, you know, my mindset was, you know, when you’ve got a lot of property, you’ve got a bull’s eye on your forehead and you want to do asset protection.

00:23:06:26 – 00:23:31:04
Unknown
So mentor of mine. Yeah. Early on back in 91. And it stuck with me. Remember Kryptonite and Superman, the glowing rocks takes away Superman’s strength. Sure. He said the Kryptonite to lawyers is to arrange your finances in a way that even if they win, they. They don’t get anything. Yeah, yeah, yeah. No, I know that I, I got sold on that as well, which is why I did all that.

00:23:31:07 – 00:23:50:16
Unknown
I don’t know that it really helped me. In my first divorce, but it was, it was still like, you know, it was kind of cool to fly to Nassau and meet with the trustee and all that. I felt like a big shot, but, so, so. Okay, so it’s it’s the, installment sales trust. And then, and and what else do you do?

00:23:50:17 – 00:24:08:26
Unknown
You’ve got some other plate spinning. So you do the 1031 administrator thing. Well, talk about that very early on. I realized with the relationships we had in financial services that I wasn’t going to be able to get the fees down inside the trust, all the fees, because you got to pay the people that are doing things for you, right?

00:24:08:26 – 00:24:27:07
Unknown
Right, right. But how can we create efficiencies there? So because that’s my paradigm, how can we make transactions more efficient? How can we make all these things more efficient in taxes, or just an expense that can be managed like every other expense? You buy solar panels, get your electric bill down right, you put in new hot water heaters to get your gas bill down.

00:24:27:10 – 00:24:51:18
Unknown
So, heck, you plant different grass. It needs less water to get your water bill down. Right? So taxes, you need to look at them the same way people, you know say, well, there are lots of great strategies you can use that I haven’t even implemented. You know, like this health plan you can do where you can write off all your health stuff and but anyway, so in my own practice, I knew if I didn’t start getting some of the fingers out of the pie, I couldn’t get the fees to operate the trust down.

00:24:51:20 – 00:25:12:07
Unknown
Okay, so the first thing we did, we set up our own registered investment advisory firm that got registered with the SEC, and it’s run by an accredited investment fiduciary. Okay, good. Well, that shaved a bunch of fees off. We set up our own 1031 exchange company because I just got tired of arguing with the other ones out there.

00:25:12:09 – 00:25:38:23
Unknown
Got it, you know, got it. And you created you, you structured your contract that if somebody didn’t meet the deadlines and at 1031 they could go right into an installment sale. So we even set up our own fiduciary trustee service. I hired attorneys to be the trustees and the whole thing okay. Because then I could quit using the bank trustee system because they were always pressuring us to use their in-house advisors and use investments they wanted to sell, which run they all have investments, right?

00:25:38:26 – 00:25:54:10
Unknown
And then about every two years they change attorneys because he finally gets a job on Main Street somewhere. And I got to train the next attorney. Why am I training their attorney? I’m not even an attorney, but I was training their attorneys. Interesting. And it just got exhausting. So in 2015, we set up our own fiduciary trustee service.

00:25:54:12 – 00:26:15:23
Unknown
And then the last thing I did to get our fees down is we changed the monthly payments to quarterly payments. Okay. Here’s why. We’re doing all the bookkeeping, accounting and direct deposits. Once a quarter, not once a month. I see that by itself shaved 25 basis points off our fee. Interesting. So we’re making the same. We’re just charging half what we were charging years ago.

00:26:15:24 – 00:26:39:09
Unknown
I say interesting, okay. By getting over and you’re managing the trust. Yeah. You, are involved in the investments in the trusts? Yes. How does that work? Once the money’s in the trust, we have a standard model we call model Q, okay, which will generate, ten, 1 to 15 for, and we have a 6% payout.

00:26:39:11 – 00:26:55:11
Unknown
And then every couple of years when the trust assets. I don’t understand what you just said. What is ten when you said ten, 1 to 15 for what do you mean by are are lower performing trust based on the investment. Oh I see that’s the range. That’s the range of returns. Yeah. But gotcha. Okay. And our better performing ones are about 15 for.

00:26:55:12 – 00:27:13:12
Unknown
Okay. Okay. So those are audited returns. And then what was the 6% piece. The note begins the trust pays 6% interest based on trust assets. And that’s that’s the class the board. You always use that 6%. No. Issue six okay. So two years and three years and you call me up and say, hey, there’s an extra $400,000 in the trust.

00:27:13:12 – 00:27:32:04
Unknown
800,000 trust. Yeah. Would you like a new note against the new value? Well, then your payments keep going up over time, I say, because you got to outpace inflation a hell of a lot better time seeing this on a whiteboard because I’m really struggling right. So you just said, let me talk about, for example, we had a client up in, Los Angeles.

00:27:32:10 – 00:27:51:15
Unknown
Yeah. So he had a, extermination company. Okay. And he had a lot of trucks, had a big lot and everything else. And he was going to keep the building and the lot and everything else because. And just charge rent to the new buyer, to the to the new buyer, the business. And he had, three other tenants on the end of that building, the way it was laid out.

00:27:51:15 – 00:28:08:20
Unknown
Gotcha up there. Gotcha. And he said, well, I’m going to keep the real estate. Gotcha. Well, it he’d never paid himself market rate rent against the business. So when he sells the business to the new owner, now he wants market rate rent. New owner has seen a PNL that’s got the old rent there you go. And that’s an issue.

00:28:08:20 – 00:28:25:14
Unknown
And the whole transaction became unviable. And he literally couldn’t sell his business because he hadn’t been charging him. So because, you know, you are the business owner that owns the property, we’ll keep that the separate LLC and you’ll pay rent, right. Interesting. So he kind of dug himself into a hole. Now it made the financials didn’t make any sense.

00:28:25:14 – 00:28:45:19
Unknown
That that make any sense? Gotcha. Well, when I came along, this is how I ended up owning linked business for years. And, I had 44 business brokers and 30 franchisees nationwide. Well, you were doing business sales. Yeah, I own a business brokerage as well. I ran it for a long time and then finally bought it. And then managing business brokers is like herding cats.

00:28:45:19 – 00:29:04:02
Unknown
Oh, it’s like any I’ve got too many salespeople. So I was bringing more deals in through this installment sale trust than all their brokers were bringing in, because I made the transaction, but it wasn’t a viable transaction unless you could solve this problem, done it. So all of a sudden he said, wait a minute, I’m going to sell the real estate and the business together.

00:29:04:02 – 00:29:21:16
Unknown
In one package, the new buyer can get better SBA terms if the real estate’s part of the insurance. Sure. And I’m going to get more income from the trust by deferring the tax than I would ever get from the rents and everything else from this, it was a better deal for him. Oh, interesting. Now he’s able to offset the difference in rents.

00:29:21:18 – 00:29:40:15
Unknown
Oh yeah. Okay. And then he talks because of the tax savings. Yes. Got it. And then he took a portion of the trust I made a down payment on a large apartment building. Got a good deal on okay. So he without ever doing 1031 without ever paying any tax, he went from that business in real estate and still invested in the next real estate.

00:29:40:16 – 00:30:07:28
Unknown
Oh, interesting. And and so the trust owns that that new building obviously. And the income’s coming through there and it’s just building and building. Got it. Very interesting. So okay it makes transactions that would not be viable otherwise. So is there any benefit to introducing this trust dynamic on the buy side. Like if someone’s going to buy an apartment building, it does the trust does this installment sales trust could can it come into play?

00:30:08:05 – 00:30:29:19
Unknown
Yeah. We help people close transactions all the time. Okay. So you got, I’ll give you an example. Okay. You have an old landlord. He’s doing basic maintenance. The place really needs reposition to this, right? This property needs repositioned. Yeah, we call it a value add. It’s a value add. Yeah. Got it. Yeah. Okay, now, the old landlord really doesn’t want to part with it because he hasn’t found a replacement property.

00:30:29:19 – 00:30:48:20
Unknown
He doesn’t know what he wants to do. He doesn’t want to pay the tax. You bring us along, it opens up all kinds of opportunities. Because now he can exit without worrying about the 1031 issue. He still keeps income. He can defer the tax for the tax. I see the benefit when he passes. The wife’s not going to be a landlord right.

00:30:48:23 – 00:31:08:21
Unknown
When he’s in a home with Alzheimer’s, the wife’s got the extra 9000 a month to pay for the Alzheimer’s care. Right now they have liquidity right. Real estate’s wonderful, but it doesn’t have liquidity. Right. So now they have a liquidity situation with the trust. I like it. So at the end of life, it’s very often a better position for an old landlord to have than holding under the property.

00:31:08:22 – 00:31:23:19
Unknown
I completely agree. So so how do you get involved in this? By the way? Oh by the way, key point the trust gets a step up in basis just like the property to the heirs. Help me understand what you just said. You pass away you own apartment building, right? It gets a step up in basis to your heirs.

00:31:23:19 – 00:31:38:18
Unknown
They can sell it the day after you die and not pay any tax on the transaction, right? Oh that’s okay. Right. Got it, got it. Guys, you don’t want to give that up. Well with with our trust you don’t give that up I see I see. So they’re not giving that up either. Interesting. So this the kids are probably going to sell it anyway.

00:31:38:19 – 00:31:55:29
Unknown
So back to my question. If someone is in this scenario they want to buy an asset. Do you get involved in some advisory capacity. Yes. Oh you do. So you’ll you’ll you’ll help talk to the seller or at least guide someone in talking to a seller. Yes. Okay. Interesting. No, no. Will engage the seller and the buyer okay.

00:31:55:29 – 00:32:18:25
Unknown
We’ll help you engineer a transaction. In fact, using the installment sale trust in having the installment sale trust carry back part of the purchase can help the buyer structure his financing and keep some dry powder. To do that 24 to 36 month now renovation. Will this work? If there’s bank financing involved? It doesn’t need to be cash.

00:32:18:28 – 00:32:46:20
Unknown
It will. Oh, yeah. Okay. Yeah. All right. Interesting. It opens up all kinds of options. Interesting. All because we’re deferring tax okay. That that weight over your head of that tax or the 1031, the 45 day 180 day that is causing so many inefficiencies. Well, I think I told you this before. The reason I don’t like a 1031 is because you’re under the gun and you may overpay because you have to identify something if you feel like you’re under the gun.

00:32:46:25 – 00:33:06:28
Unknown
And I that’s that’s my hesitation with those. But so so just to recap, if, if you’ve, if, if I want to buy a property and you know, it’s an elderly seller and then you know, and I want to sweeten the pot to make it more attractive to them. And, you know, maybe this installment sales trust can help do that.

00:33:07:00 – 00:33:30:18
Unknown
I can involve you. Yes. The the seller would transfer the property to this trust, you’d help facilitate it. And then, and then they defer their tax, just as they would in a seller finance deal. But, that’s going into this trust, and, and all the things you just described come into play, I guess it’s, it’s like seller financing without the things the seller doesn’t want.

00:33:30:21 – 00:33:50:03
Unknown
And that is loss of control. What if you’re not successful at right, turning the property or we have to foreclose and all that. Correct. Yeah. Got it, got it. Yeah. So it takes all that off the table as well. Got it. So if someone’s interested in this how do they get Ahold of you if you go to Q Dash 1030 1.com Q Dash 1030 1.com.

00:33:50:03 – 00:34:19:18
Unknown
Love it. That’s our combination service. Right. And there’s there’s all kinds of stuff there okay. So there’s information there as well. Yeah. And and the Q companies.com we’ll have a master page with a link to all of our various Q companies. The A we have a hedge fund okay. We have all these services. Interesting. And the other thing is, as an advisor, I like real estate investors and I like engineering a transaction where both sides get more.

00:34:19:20 – 00:34:45:05
Unknown
You know, if you plan ahead you engineer a transaction one and one equals three. Yeah. Love it. You know. Yeah I can see it. I can absolutely see it. I can see the benefits here. I was a little dubious at first. Be candid. And that’s why I was asking. That’s why, you know, I was we talked for 15, 20 minutes before we even started the recording because I wanted to I needed to know for myself, and I’ve had people try to come in and come on my show with this distrust and all these other things, and I haven’t let them on.

00:34:45:07 – 00:35:06:04
Unknown
But, this is this is very interesting. So it’s not as complicated as it sounds. Right? And you’re paying us, less than you’d pay a Wells Fargo advisor to manage your IRA. Okay, seriously, our fees are less than that, okay? And we’re just making sure that you’re ticking certain boxes. The IRS requires to be there, like constructive receipt related party.

00:35:06:08 – 00:35:24:23
Unknown
And you told me you’ve got to tax a really good tax attorney that that that works with you. If it’s not tax law at Harvard taught tax law at Harvard. So really good guy okay. And and I think that’s important. And there you told me there’s attorneys involved in the transaction. So you know this just it’s it’s and we carry fidelity bonds and malpractice insurance.

00:35:24:23 – 00:35:46:19
Unknown
Oh. You doing all that stuff? Okay. Good. Yeah okay. Okay. Got it, got it, got it. Well, listen, Kevin, I really appreciate you coming on the show. This has been very interesting. And I’ve I’ve absolutely learned a lot myself. So, anyway, thank thanks for coming down. And I really enjoyed this. Thank you for listening to the Lifetime Cash Flow Through Real Estate Investing podcast.

00:35:46:21 – 00:35:47:02
Unknown
If you’ve.