Learning about the Deferred Sales Trust for the 1st time
“If we're at the top of the market, which I think we can all fairly assume that is the case right now, you can move the money into the trust, mitigate the issues with the timelines.”
Marty Hall is a seasoned investment real estate broker from the original Silicon Valley in Northern CA. He has been involved in multiple asset types in commercial real estate. And also an expert in the 1031 exchange. He is the Founder and Owner of Marty Hall & Co. They enhance the valuation of our properties via a combination of value-added amenities and onsite renovation improvements. Their investor network is growing due to the unique investment opportunities in Arizona. We invite new investors to contact us to discuss our program and to answer any questions about the local market.
Watch the episode here:
Learning about the Deferred Sales Trust for the 1st time as a CRE Broker with Marty Hall
Brett:
Marty, give the potential people who are listening right now your background and a little bit of your current focus.
Marty:
Absolutely. Well, I've been in the real estate land development and billing business, since the middle 1970s. I grew up, cut my teeth in the business, in Santa Clara County, more specifically Menlo park or South Sunnyvale, Cupertino, San Jose, and those particular areas, long before they ever referred to it as Silicon Valley. Back in the day, there was nothing but avocado and cherry orchards. So I've been in the business for a long time, and I have explored a number of different niches anywhere from land development, building, of course, from investments. I worked with a lot of private investors looking to improve in their investment situations, moving from their assets from point A to point B. Very familiar with 1031 and the inherent challenges with 1031s. On the surface they're great, but they don't always materialize in a fashion that you would like them. And one of the points that you make a note of, which is absolutely true is, once you close escrow and you place your money with a 1031 administrator, you've got a timeline by which you have to perform. And unfortunately, that puts you in a kind of a precarious situation, because sometimes you're having to make decisions to make acquisitions that don't particularly meet your criteria, but you've... again, the timeline dictates that, so that's what kind of triggered my interest in what it is that you're providing. And I know there's a lot of variables to the concept of trusts and estate planning, so and so forth, which certainly isn't where my knowledge sits. But I thought this was very interesting to me. And what really inspired it was, one of my clients, who I've been working with for a number of years, owns in concert with our ex-wife many, many years ago when they weren't married, they purchased this mobile home park. I do not know what the acquisition price was at the time, but in this conversation, let us assume it's around $500,000. It consists of 62 spaces here in Phoenix, the average monthly income, I think, it's around 365 to 375, and they've owned it since 1992. I'm sure that whatever depreciation allowances are they're probably no... very little of it is left to them, if at all, other than capital improvements along the way. And it's been a great little cash flow for the two of them. And so, one of the parties manages it, and the other party, who I work with, more specifically with, is more the passive participant. But he has since remarried, and she has since remarried, they do have two daughters together, and so they've been, I think for the last number of years, kind of characterizing this as something they're just going to pass on to their daughters. But I do know that if there was a way or an option available to them where they could relieve themselves of the responsibility of owning and operating this mobile home park, that would be certainly a consideration. Because one of the things that have prohibited them or discouraged them from doing so is due to the capital gains because they have significant capital gains. My estimation would be the valuation would be probably somewhere in the neighborhood of three and a half million. So if their original basis was 500,000, which would be less than that, of course, due to the depreciation they've taken over the course of the years, they're looking at a substantial capital gain consideration. And so, this is what led to us having this gathering is to entertain what options are available to them. And I have a number of questions to ask of you as a result.
Brett:
By the way, thank you so much for that background and that story, that's going to help everybody who's about to see this training. And likewise, I'm a commercial real estate broker myself by trade, started 13 years ago at Marcus & Millichap, and the same thing, clients faced with 1031 exchanges that they probably wouldn't have done if it wasn't for the tax and/or they're challenged with low depreciation schedules, and they're looking for ways to offset the income that they're making, or just retire from it all, toilets, trash, and liability, and just be finished. And so this truly is an amazing way for them to accomplish what we call a transformational wealth plan, not just a transactional wealth plan. Well, let's dive into the specifics and make sure that we answer any questions you have Marty. So what... Go ahead, back to you.
Marty:
Well, you and I've had a chance to, and I've reviewed many of your videos to probably gain some insights on your background, your partner's background, a little history of deferred sales trust, and some of the interviews you've had with some of your clients as well. And on the surface, it sounds almost like a... From my perspective, I'm thinking, wow, this is really a great opportunity or a great advantage for people to consider. And so that would lead me to a couple of questions.
Brett:
Sure.
Marty:
So one would be in essence, what this trust provides, or one of the benefits it provides is deferring the capital gains tax somewhere in the future.
Brett:
Mm-hmm (affirmative).
Marty:
My understanding is as a general rule of thumb, these trusts are set up in 10-year term increments.
Brett:
Correct.
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