Use Deferred Sales Trust to Invest with Brian Burke

Welcome to the capital gains tax solutions podcast where we believe the highest net worth individuals and those who helped them struggle with clarifying their capital gains tax deferral options, not 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 grow your wealth. Hey, I’m your host, Brett Swarts. In each episode, I’m joined by some of the best real estate investment minds in the world as well as financial advisors, passive income Wealth Advisors, and really the goal is to help bring clarity to different tax deferral options and also ways to grow your passive wealth, especially through investment, real estate, with is at the heart of where I started my career at Marcus and Millichap, and also where I love to invest. So with that I’m so honored to bring on a guest for the second time. He’s actually I think, the official first person to be on for the second time. And it comes at an opportune time, in that we’re seeing a big shift in what’s happening with COVID-19 and COVID-19, we believe, could present some real opportunistic multifamily investments. Coming up here with some distressed sellers. It could be in the next three 612 months. And Brian Burke is here you can hear his first full story, our previous episodes, check that one out. But in the meantime, we’re going to dive right into what he’s seeing and what his fund is. He is poised to do so please welcome to the show with me Brian Burke. Hey, Brian, how are you doing? Hey, great to be here

Again, and quite an honor to be the first one to be a two-timer.

It really is right? When we only have you know, 20 episodes or so launched. It actually really is but well what’s really unique about that is you’re in Santa Rosa I’m in Sacramento, right? We’re just, you know, a couple of hours away from one another, and you’re in the multifamily space. That’s where I started my career at Marcus and Millichap. There’s a lot of synergies here. And we have after we talk a little bit, we’re going to talk about a deal that actually Brian and I are serving a co client together with the stress of the deferred sale. So that’s a little sneak peek. But in the meantime, let’s dive right into what you’re seeing right now in the marketplace, and what are some of yours, I guess you could be my predictions or anticipation for opportunities coming up?

Well, obviously, we’re in the midst of the COVID 19 pandemic, right? So that through the economy and real estate into a bit of a tailspin because you have business closures and job losses, and you know, job losses resulting from the business closures are resulting in some economic distress and real estate and businesses that are closing are creating economic distress in real estate if they occupy commercial space. So it kind of put real estate, a bit in the crosshairs And right now, we know it Seeing distress starting to materialize especially in the hospitality sector. I think that along with Office to a bit lesser degree and retail maybe to a greater degree, being pretty negatively impacted by what’s going on, which ultimately is going to result in a pretty long and lengthy recovery for those sectors. But at the same time, I also look at residential assets and you know, apartment complexes, single-family homes, the residential sector seems to be holding up remarkably well, so far, to all of the chaos, I think it’s going to deflect the worst of the damage. But, you know, make no mistake there, there will be damage in those sectors, it’s going to cause some limited distress. And that’s going to result in some buying opportunities. And I also think that once we kind of pull through this cycle, some strength will return in some markets more so than others and just gives us a chance To You know, take advantage of some of those demographic shifts that are resulting in rent growth. At the same time we can take advantage of a negative economic cycle to present some you know some pricing adjustments and buying opportunities and it’s not too often you can put both of those two factors in play at the same time. So it’s an exciting time right now.

It really is. And I’m curious what you think so we both live in California we’ve mentioned here in Santa Rosa I am in Sacramento and I you know, California apartments have been through the roof for really, a while now at least the last two to three, four years I’ve had a tough time having any clients actually purchase in, you know, California and when they sell that’s part of why we did the deferred sales just because I have a tough time having them 1031 and getting buried and overpaying for the property. So let’s focus on California for a second and multifamily and share it with those listeners. What your take has been on the valuation and the pricing for multifamily in California

well, I think it’s a great time to sell, sell, sell and get out of your California assets, give Brett your money so that he can save you for some taxes. But I just can’t find any reason to own California real estate right now personally. There. It’s not the economy that I’m as worried about. I’m not as concerned with COVID. And the results in California that recovery forecasts, in terms of rent growth in California are pretty robust. But the continuous drumbeat of regulation, rent control, eviction control, all of that stuff is gonna make investing in real estate here pretty undesirable if any of that actually takes root, making matters worse from the other side. At the same time, regulators want to limit how much you can charge. They also want to increase how much you pay by rolling back elements of Proposition 13, creating a split property tax roll, which would increase commercial property taxes significantly. So I just think that before any of that all comes to a head sell now while values are still really high and deploy that money to states that actually want your business and want your money versus states that really don’t want your money.

Yeah, to be honest, it’s just a matter of mathematics and regulations right and in a certain point, these prices you go you know, these four caps these five caps where the rents have been you know, highly pressed up you go when is all the regulation and all the challenges and all the all these companies are leaving California When is it going to catch up with him right? And I don’t want to be that I don’t want to be the person you know, sitting in the chair when the music stops or losing that chair, you know, like musical chairs going around, like sell now right? diversify, now get out of California. So that being said, you’ve owned and I think have managed, you know, thousands of units, right? And you got out of California A while ago. So talk to us about where you think the opportunities might be coming to a And then be what markets are you focused in? And what is that going to look like, by the way? Because I, I get a sense that it’s not gonna look like what we did in a way when we were a bank would foreclose and then someone would take I get the sense it’s going to be more like working out between a seller and a bank and maybe you know, having the bank take a little bit of haircut and the seller taking a little bit haircut and kind of just repositioning the paper, but what is your take on what we’re going to see here?

Well, I think, you know, in terms of California, you know, not not a lot good is going to happen. But there I was studying rent growth patterns across the US and ran across a lot of really interesting data. And you know, from what I’m finding from my analysis of the raw data is that markets in Arizona, Nevada, Florida, the Carolinas, and Tennessee and Georgia, are going to outperform not only the country but almost everywhere. intermixed with some of those high performers, though, are some of the usual suspects like San Jose, San Francisco, Seattle. And some of the Central Valley California markets like I’ve seen, not only Central Valley but like Salinas, Fresno, Bakersfield. Some of those markets are scoring pretty high in post-COVID recovery rent growth forecasts. The difference that I see though is that the first group of states that I mentioned, are business-friendly states, their states where people are moving to not moving from their states that have landlord-friendly laws, which mean that you know, you’re going to have an easier time managing your real estate business in those states. Contrast that to California, which while some California markets are right up there in terms of post COVID recovery, rent growth, you still have the threats of all this over-regulation and increased property taxes, if with any proposition 13 rollbacks that may come into play. And at the same time, you have that threat, you have the parallel threat of, you know, mass move-outs. I mean, if you don’t know someone that’s moved out of California, I guarantee, you know, someone that wants to move out of California, and everybody talks about moving out of California, whether they actually do or don’t. The question is, how many people do you know that talk about moving to California, and that probably not very many, and neither does u haul or Penske who are the truck rental companies that put out statistics on where the one-way rental trucks are going. And they’re not going to California in our home state. Brett. They’re going to places like Arizona, Texas, Georgia and Florida and the Carolinas, that’s where they’re going. I like to say that if you want to make money in real estate, you have to go where the population is going and if you go where they’re leaving, that is a really risky place to be. So despite the fact that post-COVID recovery forecasts are strong in California, all of this other noise, it increases the risk that you’re going to accept in order to hopefully achieve those returns.

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