All Forum Posts by: Brett P Swarts

Joe Robert:

So for those that are listening, and they're sitting there thinking they may have some assets coming up, or they could have some capital gain implications, you know, what are the qualifications to be able to utilize DSA?

Brett Swarts:

Big question. So our minimum is $1 million of net proceeds and at least $1 million gain. And the reason we have those minimums is that the pain has to be big enough to pay for our services. And so to give you an example, in California, for example, I like to use 37 to 50% of the gain is going to be wiped out by depreciation recapture and capital gains tax depending on what state you're in, and your income bracket a lot of different things kind of come in play there, but that's our minimum we want to make sure that folks understand that because if it's too small our fees eat up the savings and we say just pay the tax now if you had like a couple of deals, you know, that add up to that, you know, one or two, you know, 500 500 then that's fine. So that's who this is for, you know, works for business owners or works for s corpse. LLCs c corpse it works for primary homes works for cryptocurrency, it works for artwork, collectibles, right? Just buy anything that's highly appreciated. So if you have that a million-dollar gain, and at least a million-dollar net proceeds over one or two assets at least then we're a great fit for somebody I hope to answer the question, Joe.

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Michael Lafido:

As I mentioned earlier, if you're just tuning in, we just did a luxury designation training out in Napa. And on day two, we toured two properties. The first property, we're calling the Napa Valley Vineyard Estate. The website is napavalleyvineyardestate.com. It's on the market for $18 million. The address is 2100 Old Soda Springs Road in Napa, California, listed with Sid Greer, Coldwell Banker, she was gracious enough to open up the property. We had two-thirds of our class we had 70 people attend the training. So literally had about 45 people on this tour. It's on the market for $18 million. It's on 44 acres of houses 11,000 square feet out of the 44 acres, 14 are vineyards, it's got a tennis court, amazing view pool. We toured the home. Our class did, we talked about it, we have some follow-up coaching calls. So we're going to apply what I call my SWOT analysis. A what are the best features of this home? If you were the agent? What would you accentuate? What would you downplay, and then we're going to get back to Sid with our report, so we can help her get the property sold. But using this scenario, the owner paid around $8 million for it, and it's currently on for 18 million bucks. So let's just keep it really simple for the listeners. But let's assume the seller gets full price 18 million bucks and they paid 8 million. That's about $10 million in profit or gains. And so that $10 million is it's based in California, as you mentioned, the federal government takes 20% state of California 13.3. So 33% of $10 million is $3.3 million in potential taxes. Correct?

Brett Swarts:

Exactly right. And the same with a Deferred Sales Trust. It defers capital gains tax on primary homes. It's Netflix because it does primary homes, it can do investment property can do businesses, it can do a cryptocurrency, we're literally doing a $12 million cryptocurrency case right now with the gentleman who bought it at $100,000. And they actually live in the Bay Area as well and they're selling for 12 million, we're going to defer about five and a half $6 million, they're gonna defer all that tax and go buy an investment property to get cash flow and literally never have to work again. So the same thing is true for primary homes. Okay, so that we did the Palo Alto one, we did the one in Aptos. It was a $7.9 million sale, she's in her 70s. She's made her wealth, her basis is zero, it happens to be a rental, but she doesn't want to 1031 and take on new toilets, new trash, new liability, she sold, she deferred the tax, and she moved into stocks, bonds and mutual funds, liquid investments in the biggest companies in the world. So unlike a 1031 exchange rate has to be the light kind of investment property. The Deferred Sales Trust does not have to be light kind, you have no time restrictions, you can put it into active or passive real estate deals. And the key thing for a lot of baby boomers, Michael, which is really, I think a key stat for a lot of the listing agents listening to this episode is according to the American Bankers Association, there's about 17 to $20 trillion, that's gonna pass from one generation to the next in the next 20 years. The same study found these baby boomers were about 77 million in the US alone and every day about 10,000 are turning 65. And this is the largest wealth transfer in the history of the world that we know of is happening right now. So as listing agents, we have an opportunity, but more so our responsibility to help them sell these huge homes for their kids are gone, they want to relocate to their grandkids, they want to travel the world, they want to get passive income stream coming in, so they can enjoy their wealth. But they literally feel locked into these homes, right? Because they go, if I just sell this, all this money's just gonna be, you know, paid in tax, and it's gone. I'm just gonna sit it out and wait for what's called the stepped-up basis, right? and pass it to my kids and they can step into it and walk away capital gains tax-free. Hold on a second there, Biden is considering taking away the stepped-up basis. Okay, so you can't even count on that anymore. Who knows that's a part of the proposal, which is a big deal. He's also proposing to take away the 1031 exchange, which is oftentimes another thing to listen to you to say that I can't tell you what, how would you move out of the place and granted for two years, and then let's do a 1031 exchange. The challenge with that is they're going look at (a) I don't want to necessarily move out, (b) I don't need new headaches over there on another property. Like I don't want to overpay for a property. I don't want to deal with banks. I don't want to deal with tenants and rent control. Like that doesn't solve my challenge. And so they what they do they let the tax tail wag not only the investment dog but their entire life dog. Right. And that doesn't that's not great, right? So here's the Deferred Sales Trust. Again, that's the blockbuster way of doing these Deferred Sales Trust. We sell, we defer the tax doesn't affect the buyer in any way. Okay, we do it all in one escrow. The funds go to some of the largest banks in the world, TD Ameritrade, Charles Schwab, you approve an investment allocation. And then you start receiving payments and you pay tax slowly. And so what we're doing you're just curious people are wondering, we're doing an installment sale. It's known as IRC 453, which is a tax code. This particular Deferred Sales Trust, it’s proprietary the way we apply these reply the IRC 453. But it's been doing it for 25 years, 1000s poses billions under management, perfect track record with the IRS. But all we're asking the seller to do is instead of selling directly to that cash buyer.

Let's use the old Soda Springs Deal, instead of selling for 18 million in taking what's called actual receipt and paying tax of about 3.3 million, we're going to ask that buyer and seller to cooperate with this newly formed trust, and we can make up a name, let's call it Napa Valley, then your DST trust, that trust is going to be formed and it's going to be in the language is gonna be put into escrow that the funds are going to go to the trust, instead of going directly to the seller. And therefore, it's in a deferral state at the close of escrow. And then from there from the trust is going to slowly pay back. So now let's talk about pay taxes, they receive it, but instead of paying, you know, instead of having, let's say, an 8 million debt on, let's say, instead of having 10 million, instead of having 7, they have about 10 million, they'll be able to live off of that interest, and keep that deferred over a period of time. So I'll pause there, Michael, because I know you probably have some questions.

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Ricardo Matos:

Tell us about the Deferred Sales Trust or what we call DST. Why is it so important?

Brett Swarts:

Yes. So most again, clients, start with capital gains tax. But more than that, they also want to give them what's called a transformational exit plan. I'll talk about the difference between them. And just like a transactional exit plan. So most folks, when they think about selling their business, they're thinking about a couple of options. And the first one is what I call a transactional exit plan, which is just carrying paper for the buyer, right. In other words, you come with a down payment, I will become the bank and I will lend you my equity on the deal, therefore are to first some tax is called a seller carry-back or owner financing. That's probably the most traditional way folks have done things. But the challenge with that is you're tied to that buyer Ricardo. So it's nice it has as well-intentioned as you may be if I'm selling you my business, I may have to foreclose on you, I might have to take the business back, the market could fall apart, you may not be able to pay your bills, COVID-19 could happen. In other words, you're not diversified. You're counting on one person or one group who's buying your property or your business. And you're putting 100% or a lot of your blood, sweat, and tears, you're carrying back that equity. And that person may foreclose on you, right. And I like to call that the transactional exit planner, also known as a kind of like the blockbuster way of doing things, Ricardo.

Do you remember back in the blockbuster old days, about 10 years ago, you'd show up on a Friday night, you want to get that favorite movie, you see the movie, at the end of the store, you'd walk over to it, but guess what someone out there before you and so that movie that you want, they get and so you're frustrated that you grab another movie and you got your first choice, but that's okay, you're still gonna make the best of it, right? But then you go home and you have to rewind it. Also, you're waiting another five or six minutes to rewind it. And then fast forward, two days go by and you forget whether you don't re-send it back. And now you get a fee after three days. This is the transactional type of plan that most people do, they're stuck in these really small windows with no diversification, no liquidity, they might have to take it back. Whereas you now have that Netflix, which is known as the deferred sales trust. It's a better way of doing things, right. There are no timing restrictions. You don't have to find someone 100% You don't have to find someone, anyone at all, you just have to finance the trust. And then you can invest it whenever you want stocks, bonds, mutual funds, you can use it to fund your next business venture.

In fact, we just had a business owner, he sold a $2.6 million business in Alabama. He was faced with $600,000 of tax Ricardo, he sees his partners they didn't want to sell but he did and there are three people total. So his partner said, We'll buy you out. And so they bought him out. But he's looking at the $600,000 tax liability. So that was his brick wall. He was like, I don't know what I'm going to do. And he also wants to go start a new business afterward. And how am I gonna get funding for all this? Who am I going to borrow from? Yeah, so into the deferred sales trust, he gets connected with us. He has his CPA, his legal team goes through it. We go through it all with him. For the first time, he sells for all this tax and then puts a big to go start his next real estate company, which he's doing right now development business of multifamily investments in Tennessee. You see it became transformational for him because he could separate from this big partnership issue. He could defer his tax, but then he can use it to launch his next business dream, without having to count on venture capitalists or hard money lenders or a bank over there. In fact, no he could use his trust to fund his leverage for this venture.

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Ryan Condie:

So this is a perfect example. Let's keep going with this example here, Brett. So someone exits their business, they have a $2.5 million windfall. Most people think, oh, cool, that's a ton of money. And you know, but by the time all the taxman comes and kind of eats away at all these different fees, you got broker fees and lawyer fees, if you're not walking away from two and a half million bucks, especially with your tax burden, he said, the $600,000. So he's able to put, you know, say the 2.6 million minus some of the fees with brokerage and the transaction and stuff into like a separate account. And then what does that look like he has certain restrictions, can he invest in stocks, real estate, other businesses? How does that work in terms of the next steps for him?

Brett Swarts:

That's a great question. So the IRS gives these tax incentives they call legal tax loopholes to incentivize the money to keep working right. And so what they don't want to do is, you know, for example, you and I sell a business and just take our money to sit in the bank, right? Or just take it and just spend it on boats and cars, in our houses, because that doesn't necessarily incentivize the economy. And that's kind of cool for us, right? So what they say is, hey, we'll allow these legal loopholes as long as you put it into investments, investment purpose, such as stock market, right stocks, bonds, mutual funds, such as a real estate investment, real estate, such as a new business venture, why? Because that spurs economic growth, which in turn creates more jobs, which in turn actually creates more tax revenue. So it's a completely legal way to do this after 1000s of closes. Now 1920s tax law, originally known as a seller carry-back, we just perfected it for this niche for the deferred sales trust. So it's really flexible. And what's nice about it is you can either receive income or not receive income, you can invest it again in real estate or not in real estate. And you can use it as a kind of funding source for your next business venture. So it just all depends on what your wealth plan is and what your vision is. And oftentimes, it depends on what stage of life you're in. So some of our clients, their baby boomers, and they're part of the largest wealth transfer in the history of the planet. And this is according to the American Bankers Association, that's about 17 to $20 trillion, that's going to pass and the next 20 years. In fact, there are about 10,000 baby boomers turning 65 every day, about 70. That's a lot. And there they're really struggling with toilets, trash liability employees, these businesses, they poured blood, sweat, and tears on for the last 20, 30, 40 years. But they didn't know how to get out without getting again hammered by that 30 to 50% capital gains tax. So we got to just kind of clarify your vision, look what you're trying to do, and then just do a mathematical equation. At the end of the day, as long as your deals at least a million or more net equity, and at least probably four to $500,000 again. Then you're looking at the deferred sales trust as I think is a real, real, solid viable option.

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Gino Barbaro:

So, Brett, you may not be able to answer this question. But to me, it seems like it's almost like the self-directed IRAs of the world. Not many people know about them. Everyone should. Why don't more people know about the deferred sales trust?

Brett Swarts:

Yeah, you're absolutely right. We're kind of like a 1031. We're kind of like a self-directed IRA account, like a 401k. The reason is that it takes a group of professionals to actually execute this, it's not like just forming an LLC, okay. And when I first started 11 years ago, I didn't know a thing, right. But after 10,000 hours with the tax attorneys, going through the CPAs, you know, all of the overcoming all the false beliefs of is this thing legal? It's too good to be true. You know, it's that belief part. And it's actually seen the deals close, that creates the momentum for people to do things right until they have a guide or a coach. And it's not unlike probably what you guys do for people buying their first multifamily property, or their first 100 units, or their first indication, right? It's too good to be true. I can't do it until somebody does it. And so the answer is (a) it's proprietary to also answer your question, right? There's literally one law firm in the entire United States that were my business partners that do this. There's just a handful of individuals like myself are forming the trusteeships. And the last thing is we have financial advisors, thousands now across the nation that also offer it for their clients.

The best way to really answer that question is by telling you another story of a gentleman who worked for PIMCO, and this gentleman, if you have a guy named Bill Gross, but Bill Gross is one of the most respect he's like a Warren Buffett for the financial advisor world, you want the most respected guys, and he had five guys that took PIMCO about 20 years ago from about 80 billion to 1.2 trillion. And then they all retired, got a big payday? Well, for the five got bored. and gentlemen, particularly in David Young, got bored, and they formed a group called Anfield Capital. And realize these guys have been in business for 30 years, they get approached with stuff all the time, and especially tax strategies, and they just say no to everything. About two and a half years ago, they get approached the deferred sales trust, and they have the exact same question. Why isn't everyone knows about this? Why isn't everyone doing this seems too good to be true? But they did their due diligence, and they just didn't do it for a month or two, they did a full two-year due diligence. And they brought the legal team they bought, you know all of their folks, and sat down with the tax attorney laid it all out for two days on a table. And after that two days, they walked out with two conclusions. The first thing is this, and which is what everyone I think has come to realize once they meet with my business partner, that's the smartest guy we've ever met. And two, we're all in. Not only is it legal, but we were willing to put our names on this and they became a part of the inner circle. They are the advisory team. So the simple question is this if it's good enough for David Young, 30 years in the business, his entire legal team, is it good enough for you? And sometimes the answer might be “No” because some folks say I need to have my trust in general, you know, CPA says yes, but he's just a general practitioner. He's not a brain surgeon deferred sales trust capital gains tax expert, and that's really the rub there. It's that emotional thing of getting over. I don't know because I've never had a friend do it or my trusted advisor doesn't know about it. However, we will do no cost due diligence and will help train and coach those CPAs once they sign the NDA is and oftentimes they end up joining us.

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Ricardo Matos:

Can you give us a little insight information of how you started into the capital gain? What is your background overall? What is your expertise in general or who you are and what you are? I know you gave me really nice insightful information about capital gains. But can you enlighten us a little bit more in detail? What is it that you do and who you are?

Brett Swarts

I'll tell you a little bit about my story. Thanks for asking. So I started out in the real estate business as a real estate commercial broker at a company called Markus and Millichap in 2006. At that time, Ricardo, the market was that deals were happening, people were making a lot of money in real estate. I was just a brand new agent in the business, just learning for the first time here in Northern California. You see, I grew up in the business of my dad building houses in the Bay Area. I played sports in high school in college. I was excited to launch my career. So I was going in learning a lot, but maybe your listeners know or don't know. But even as a business broker, a real estate broker, you don't get paid unless you close a deal. And so I was newly married, just trying to make it in the business. I don't know if you've ever been so scared Ricardo, where you're not sure how you're going to be able to support your family at home. But I had a brand new daughter at home and my wife at home. It was tough. I just started to get some momentum going and learning the business, could take a while to get going. And just when I get some momentum, the 2008 crash hit. It’s like that brick wall hit, I do what every good entrepreneur does. And I wouldn't get a side hustle at a place at work working a side job. And that place is actually a place called Cheesecake Factory where I work night and weekends serving cheesecake and serving food. By day I'd be making calls, you know how people sell real estate. And by night I'd be selling cheesecake. And so it was a humbling experience. But at the same time, it's a part of my journey to persevering and striving through a tough time. Fast forward. I learned a little bit about a strategy, which we're going to talk about here today. That transformed the way I do business forever. It transformed the way my clients and this is for when it comes to selling your highly appreciated business or real estate. And so I started to apply this strategy.

In fact, my business manager at the time brought in a gentleman to speak with my business partner. And ever since I learned about this Deferred Sales Trust, I just couldn't help it and show it how it works. So fast forward. I now coach and train Business Brokers, financial advisors, and commercial real estate owners on how to use this to create and preserve more wealth when they help their clients sell real estate or a business or if you're listening for the first time and you own a franchise how you can to defer capital gains tax when you go to sell your business.

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Gino:

So Brett, why is it different than a 1031? What pitfalls do you typically see with 1031?

Brett:

So, I'm gonna give you an analogy to help you understand this. We don't get too much into technobabble. So basically, I want you to think about the 1031 exchange, like the blockbuster way of doing things. So Jake and Gino, do you remember going to blockbuster on a Friday night? You're excited to rent that movie, and your parents bought posters there. We'd hang out at the local Taco Bell, get our tacos, go get our movie right on Friday night. But remember if you didn't get that movie, because someone steps right in front of you and takes that movie, right. So you got to settle for another movie. But then you got that movie to return within three days. And you got to what you got to pay that fine that penalty. And basically, it's a restrictive way of doing things. If you live in a cold environment as you know, I don't know, some parts of Tennessee or some parts of New York have to drive your car. Well, that's blockbuster, right, something happened. There's a Netflix that came in, right. And Netflix is seamless. There's no time pressure. You know, there's some ongoing fee sure. But it's a new way of doing things. And once you understand that, I believe for most cases, unless you can find a value add for depreciation deal. There's no reason to ever use blockbuster ever again.

So, what is the 1031? First of all, you have 45 days to identify. And 180 days to close. We call that the shotgun wedding. Right? And back in the crash, what we found was people were overpaying and ‘04, ‘05, ‘06. And they knew they were but they didn't they had no other solution. But the blockbuster 1031. And so they're taking on equal or greater value, which is typically equal or greater debt. They're not having diversification. But they feel like they have to buy this deal. So we actually set a recent deal. We say to fail 1031 exchange, this gentleman was selling 128 units in Georgia. Okay, he's own properties for 30 years, he's a multifamily value-add guy. And for the first time he's looking around, he's out of California, and he's buying out of state, North Carolina, he's looking at deals at four and a half caps, deals that have been squeezed of the value add, the rents are already sky-high. He's going to why am I buying this? I've seen this story before. And so and then COVID-19 hit and he went, I'm extra cautious now. So he goes, instead of replacing four and a half million of debt, buying a property at 8 or 9 or 10 million bucks. And overpaying because I know I'm not I don't like these deals on the intrinsic value of the cash flow per se. How about I do a deferred sales trust. So he did. So he got out of all of his debt, he parked 3 million into the deferred sales trust. And he's also in his 60s to guys like he's like I've made my wealth. I don't necessarily need to be so active in this. I like to put it with some other operators that have proven track records. So what do you do, he's diversified those funds into multifamily value, add funds, and into some single deals where he's passive, not using a 1031 exchange. And so it solved a number of things for him, retirement, partially diversification, being out of debt. And it allows him to do something that he wanted to do for a while, which is a legacy play. He wants to and bought a big property in Montana. And his passion is to help build corporate leaders by giving back and create a retreat for them. So that's his passion legacy project, rather than being so active on the real estate side, all while being able to defer about 1.1 million of tax. And so what we like to say is the deferred sales trust is the Netflix because it provides transformational wealth and exit planning, versus the old blockbuster, which had forced him to overpay for a property, maintain activity, take on all that debt, and be in a position where he doesn't want to be in right. So the transformation can be different. But the key here is, what does the client want. And the timing piece with a deferred sales trust is the second thing. We don't have to buy back into properties at any time. In fact, one of the best deals is a deal for a guy in Minnesota, he sold a $20 million asset in 2006. And he played the Monday morning quarterback, he dropped back and he played it perfectly sold at the peak. And he parked the funds in the deferred sales trust. Now, this guy hates the stock market. He's a commercial real estate guy. But he said I'm not going to 1031 and overpay. I'm going to take a chance on this deferred sales trust. Parks the funds there, okay, puts it into conservative stocks, bonds, and mutual funds, which is another thing the deferred sales trust can do. You don't have to put it into Litecoin real estate. And he sat there safe. Five years later, the bank calls him up and says, would you like to buy the property back that we just foreclosed on? And he goes, Well, maybe what's the price? And they said, 60 cents on the dollar? You know, that sounds like a pretty good deal. So he reallocated the funds into an LLC. And then he purchased it all tax-deferred at 60 cents on the dollar. So he did what he sold high and he bought low, which is what our parents taught us to do. They didn't teach us to sell high and buy higher 180 days later. So once you understand how to do this and that it works and there have been 1000s of closes billions under management. Again, you're probably never gonna go back to blockbuster ever again.

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Jake:

Okay, I'm an infant with this stuff. Okay, I know I don't want to pay capital gains tax. Tell me what a deferred sales trust is? How you ended up here? I've never even heard of these things.

Brett:

Yes, great question. First of all, a deferred sales trust is not a 1031 exchange, it is the biggest thing to understand. But it is a tax deferral strategy that allows you to sell any asset of any kind and defer capital gains tax like a 1031 exchange. Okay, very similar, like a 401k, like an IRA. But the foundation of it, it's based upon a tax code known as IRC 453. You, Jake and Gino, and your listeners might know it as a seller carry-back right where a seller can carry paper for a buyer and when they do that they are in a deferral state for whatever amount they haven't received and what's called actual or constructive receipt. So short story is it's a seller carry-back and now how you apply that and how you use it is where the secret sauce comes in.

Gino:

So before we get into the secret sauce and everything number one, I want to congratulate Jake on reading that bio. I don't think he's read a bio that long ever. So Dude, I mean, three paragraphs, I'm really proud of you, Bro. You did a great job. You nailed it slowed it down the inflection points. Number two. Brett, let's go back to your background?

Brett:

Let me start there at the origin story. So you know, I grew up in the Bay Area with my dad and fell in love with real estate at a young age, you know, building custom homes room additions, I call this the MC Hammer days, my brother and I would you know, driving the bobcat, we would be hammering nails, putting up drywall and seeing him buy rentals buy land. And this is the early 80s. Okay, and it was the Silicon Valley, a lot of things that were going on there. And so fell in love with real estate, but also learned the value of hard work, learn the value of being an entrepreneur, and went and want it to be in real estate of some kind as I got older, so I played some sports in college, played basketball in college. And then I had an opportunity to get take an internship at a company called Marcus and Millichap and that's where my kind of intellectual financial underwriting education began. And so I got to learn from some of the best in the business on how to buy real estate, how to reposition real estate, how to broker real estate, how to underwrite deals, and in particular, it was multifamily. But it wasn't always easy, right. So, I came from a background of a very successful father, and also a very dedicated mom. But the challenge was, they were divorced when I was young. And I went from seeing a lot of wealth to being kind of on the other side of wealth, because 90% of the time I was with my mom, and about 10% of the time was with my dad, and with the bad divorce. And at that time, let's just say, you know, the child support wasn't paid the way it should have been paid. But it taught me the value of hard work and perseverance. So, in Marcus and Millichap I know I want to succeed. I don't want any financial challenges coming between my family, I want to have a lot of margins. I knew that was a big thing for my life and something I valued. And so I started to get some momentum and this is 2006 by the way, and things are rocking and rolling. People are 1031 exchange and people are buying deals people are making a lot of money but guess what something happened in ‘08 so I went from making a little bit of money in brokerage just getting my business going to overnight literally like just zero and along with a lot of other brokers in that office. And so I did what every good entrepreneur does, you know, you get a side job or a side hustle to keep the lights on and so when my wife and I were in a very very low income living with my brother and his condo working I was working side and nights and weekends just to support her and our first baby daughter at home. And so I got the job at Cheesecake Factory and the guy looks at me like what are you doing? Like I mean, why are you here? And I said I'll tell you why I'm here I love real estate and it pays zero unless I close a deal because once you close the deal tomorrow you're gonna walk out and you know 50 grand after I do all this training for you he goes so I will not and he says why I got a baby at home and I love the real estate game and I'm not leaving that he said okay well tell you what if you give me a two-year commitment all you can stay here I'll and you can work nights and weekends. I said great. So by day, I would make cold calls negotiate with banks, I was going through this financial struggle. So was my client see some of my clients had overpaid and taken on too much debt. They didn't have enough liquidity or diversification. And they were feeling trapped with the banks and a lot of ways. And so by day, I tried to negotiate with them try to reposition the properties and by not I make it sell cheesecake. And fast forward. I did that for two years. But during that time period, my manager brought in a gentleman to talk about the deferred sales trust. And this is where everything changed for me. And that all of a sudden there was a new way to do something that we thought we had figured out. We thought that 1031 was the end all be all. We thought we were the experts in all of these things are commercial real estate and tax deferral. But all of a sudden, he said he looked for all of that pain, all of that struggle. You know, they could have avoided that if they would have known about this. And so like most people, we thought it was too good to be true. But I was very hungry and very open to does something that would work. So, what did I do? I started to apply to the deferred sales trust started to talk about it? I started to get in front of clients and talk about what happened and how we can we could avoid potentially happening what happened before. So my business started to grow and fast forward. five kids later here in Roseville, California.

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Ricardo Matos:

Can you elaborate, for our listeners, what a 1031 is? If it fails, what is the difference and what is the benefit behind it?

Brett Swarts:

Great question. So 1031 is part of that first category, blockbuster or transactional exit planning. It's not really even an exit plan. It's more of a continuity strategy where you're selling like kinda investment, real estate, for another lifetime investment, real estate, or a business for like kind of business. Although most business owners I meet, never do 1031s with business because there's just too complicated, okay. But essentially, you can sell something you can defer tax. Here are the challenges with the 1031. This is why it's a transactional tax deferral strategy versus transformational. I call it the shotgun wedding recording here we have those friends who got married real fast, they met somebody who fell in love within 45 days, got engaged, and got married in 180 days, I have those friends. Some of those marriages don't work out so well, right, because it's like this forced shotgun quick decisions. And that's what 1031 forces you to do. You see, you have to identify within 45 days, that like-kind property you're going to buy you have to get engaged to it, put it on your list, and then you have to close on it and marry it within 180 days. Not good Ricardo, our parents taught us to sell high and buy low. They teach you to sell high and shotgun weddings into 180-day later deal, right. That's what happened in ‘06, ‘05, people were doing the shotgun weddings, overpaying for properties. Some of them lost everything. So I was going through my journey of trying to survive and making the business. My clients were also going through a similar journey just trying to hold on to what they had made, not to the banks. And the number one thing we identified as the biggest challenge to this was the capital gains tax. By the way, the 1031 because they were buying for equal or greater value. With more debt. They felt trapped Ricardo they didn't want to buy they knew it was a seller's market into the deferred sales, trust Netflix, you can park the funds on the sidelines and wait for as long as you want.

You never have to buy real estate ever again, Ricardo, if you don't want to face the toilets, trash, and liability. In fact, you can put it in stocks, bonds, mutual funds, or other business ventures that someone else is managing and operating. You can wait and not have to have any debt. And that becomes transformational. Why? Because it frees up your time. And when time is your friend, guess what you can make better decisions. When time is not your friend. You're stuck swimming in what's called a Red Ocean. What's the red ocean, Ricardo? It's where all the sharks are famous for all the blood in the water to everyone's chasing all the jellyfish you want to be in the blue ocean, where it's calm, diversify, and the Caribbean where you know you're making a good deal and it's a good time to buy. Right? So with COVID-19, we think right now is the best time to sell, to get on the sidelines, to get out of debt to get diversified. Then just to be patient. Let all of the other chaos and madness go on and then buy when it makes sense for you. So, that's the power of the Deferred Sales Trust.

Learn more about Deferred Sales Trust
Visit: www.capitalgainstaxsolutions.com

Juan Vargas:

Ideally, when should someone reach out to someone like you? I mean, if I'm not for sure, right now that I want to do the Deferred Sales Trust, the first time. I'm thinking about it, if I'm gonna have a sale, you know, she'll reach out to you, two months in the head or like, whenever I have a contract or a deal.

Brett Swarts:

We think the best time is now, meaning if you want to create and preserve more wealth and create what's called a tax-deferred wealth plan. Ideally, you're exploring all of these tax deferral strategies before you're in the emotion of selling a property and you got 21 days to close. And there's all this stuff moving, you just want to be clear-minded, and you want to bring in your trusted professionals and, you know, ask all the tough questions and really understand it, get educated. We want to educate you and really grasp it, so you feel empowered by it. And that's really our goal, our goal is just the guide. We're just going to guide you along the way. We're going to guide you through our deals, and we're going to educate you, and then you're going to bring in your trusted advisors to get their blessing. Just like the 1031, imagine 25 years ago, would want you to know about the 1031. Then all of a sudden you learn about it right? And then you get empowered by it, how much that helps you to grow your wealth, right and have strategies.

So now touch on two of those two, by the way, part of what you'll learn in the education is how to get a brand new depreciation schedule. So with the 1031 exchange, you don't have a brand new depreciation schedule. In fact, your depreciation schedule travels. So we'll walk through an example one, imagine you own a $10 million multifamily property for the last 27 and a half years. And imagine you took all the depreciation so you have zero depreciation. Well, if you sell and buy another property for 10 million, guess what you have still have a zero depreciation schedule. But if you sell and buy that same property after you sold, you put the funds into the trust and bought that property, you get a brand new $10 million depreciation schedule. So that's really powerful. So as soon as you understand that, and as soon as you execute this strategy, you can buy about the same property. What about the 1031, you just buy through the trust? All of a sudden, you know, those fees are just go out the window, because you've just saved maybe hundreds of 1000s if not millions of dollars on on on income tax, right? Because you've been offset the depreciation, you can also do accelerated depreciation on that new deal. And the second one is the estate tax. So if any ultra-high net worth individuals are listening to this podcast, understand that that the estate tax has nothing to do with capital gains tax. So a lot of people have this misconception that I can just own real estate 1031, get a stepped-up basis, and walk away, tax-free. It's true, you can walk away, capital gains tax-free, and by you, it's really your kids, right or your heirs, they could walk away capital gains tax-free, but it has nothing to do with the estate tax. Okay, so the estate tax is anything above and beyond the exclusion amount, so 22 million if you're married, and 11 million if you're single. So imagine one year worth $52 million. Imagine all this inside your taxable estate, you die, you get a stepped-up basis for the 52 your kids do, but that other 30 million, the 52 minus the 22, which is 30 is going to be hit with a 40% death tax. That's painful, right? Very painful. Yes. So the intent is to get it outside the taxable estate challenges the 1031 doesn't do that. Now, most people do this gifting, and then they run out of gifting. And they just they don't run out, they run out of time, they can't get it out fast enough. The solution is to get it out all in one day. And one transaction by selling let's say that was a $30 million apartment complex. And moving into the deferred sales trust, and also moving it outside of taxable estate one day one transaction, and you need to save your estate 112 million dollars, which is 40% of that 30 million. So those are the reasons why we want to have this tax-deferred wealth plan created, we want to essentially take a snapshot of everything you have going on and chart out the course of it. And one course just stays with the 1031 and keeps doing that or when choices go with the deferred sales trust. And then we start doing the ROI for all of the benefits on this site and you do the ROI for this site and you match it up and you decide what you want to do. But we think as soon as you get empowered with this, it'll change the way you sell and buy real estate forever. Also, by the way, DST works for businesses 1031 doesn't work for businesses. It works for work for works for Bitcoin, it works for high-end primary homes, the 1031 doesn't work for those things and works for private and public stock. It's also a seamless partnership separation. So we want to touch on these syndicators out there who are listening right now as syndication most of the syndicators we work with are opportunists. They don't allow 1031 into their deals. I mean, they might carve out a TIC into common for some but most of the time they it's just too complicated. They also don't tend 31 out of their deals, meaning everyone brings in, pays their tax comes in with the money and then they sell this big profit everyone pays tax and they bring it to the next deal. Well guess what the deferred sales trust is great because the whole entity doesn't have to move, we can have, let's say, 10 investors, and all 10 could have their own individual deferred sales trust. And we're saving that 30 to 50%. Okay, now follow me here, some of them may not want to do deferred sales trust, which is fine, let's say five don't want to do is pay their tax, the other five can, we don't have to follow the rules of the whole entity moving like the 1031. So we have a seamless partnership separation, then again, it also works for carried interest, which is capital gains tax right now, if you didn't know that. And so, this empowers the operator to not only attract more wealth, because someone might say, sell a high-end primary home, or sell a business or sell Bitcoin or sell something, and then put it into the trust and now they can invest into your syndication. And it also empowers the syndicator on the way out to give more of their investors a better return on their money, because we're saving that 30 to 50%. So I'll pause there said a whole lot. Make sure you caught all that.

Learn more about Deferred Sales Trust
Visit: www.capitalgainstaxsolutions.com