Can You Avoid Paying Taxes - Legally - With Real Estate?
12/31/19 • 16 min
Dave Zook, an experienced real estate investor and syndicator will talk about the tax benefits of investing in real estate, as well as self storage, and a different kind of investment: ATMs. He has acquired more than $100 million worth of real estate since 2010. Dave has been actively investing in multi-family apartments, self storage, and ATMs.
You can read the entire interview here: https://montecarlorei.com/can-you-avoid-paying-taxes-legally-with-real-estate/
When you understood that you could have a lot of tax benefits to real estate, what happened?
What pushed me over the edge was that around the year 2011, I made my quarterly tax payments. I was getting the feeling that we might have a tax issue, but it wasn't totally prepared for what was coming. I got the call on April the 13th from my CPA saying that we took all the deductibles, you paid your quarterly payments, and you still owe $373,422. So I paid around half a million dollars in taxes that year. Prior to that time, I was having a lot of fun. I was busy. I was putting a lot of time and energy into the business, but it didn't feel like work. It was so much fun. But when I had to pay almost half my earnings back to the government, it wasn't so much fun anymore. After that, I realized during my research that multi-family apartments can be a really good tax shelter. I bought several hundred units of multi-family apartments and I've been tax free ever since. I haven't paid federal tax in a lot of years now.
You are not alone in the real estate world, which is great. So let's talk about taxes. What are some of the great real estate tax benefits that people may not know about?
The Trump tax law change that came through in late 2017, early 2018. There are some things there that really sweetened the real estate game for investors, and it now enables investors to take bonus depreciation on new or used equipment. Combine that with some leverage. Combine that with some cost segregation studies. It's a ridiculous amount of relief that you can get from investing in multi-family apartments.
Can you avoid taxes forever? Or are the people who will potentially inherit some of these properties end up having to pay these taxes?
That's a good question. I get that question a lot. There's a lot of people out there that think like I used to, that when you make a lot of money, you've to pay a lot of taxes. The next question is, well, you've to pay the tax sometime, so might as well pony up and pay it now rather than later. And those two questions are almost the same. Yes, if you don't know what you're doing, then you have to pay a lot of taxes when you make a lot of money. If you don't know what you're doing, you also have to pay the tax sometimes. So you're only just playing the deferral game. If you don't know what you're doing, you're going to have to pay at some time. But if you're strategic, and you have a plan and you've good team members around you, you can make a lot of money and you can pay no tax, ever.
As a syndicator, you actually are fundraising for a very interesting class which is ATM machines. Can you share with us how you came across that as an opportunity, and why did you decide to fundraise outside of real estate?
ATMs is a form of real estate. It doesn't sound like it. You're investing in an ATM location, and instead of having a building sitting on that real estate or instead of having thousands of square feet, you're getting a location agreement that 3 foot by 3 foot. So it is a real estate play, but you're extracting value from that 3 foot by 3 foot space
Dave Zook
[email protected]
www.therealassetinvestor.com
Dave Zook, an experienced real estate investor and syndicator will talk about the tax benefits of investing in real estate, as well as self storage, and a different kind of investment: ATMs. He has acquired more than $100 million worth of real estate since 2010. Dave has been actively investing in multi-family apartments, self storage, and ATMs.
You can read the entire interview here: https://montecarlorei.com/can-you-avoid-paying-taxes-legally-with-real-estate/
When you understood that you could have a lot of tax benefits to real estate, what happened?
What pushed me over the edge was that around the year 2011, I made my quarterly tax payments. I was getting the feeling that we might have a tax issue, but it wasn't totally prepared for what was coming. I got the call on April the 13th from my CPA saying that we took all the deductibles, you paid your quarterly payments, and you still owe $373,422. So I paid around half a million dollars in taxes that year. Prior to that time, I was having a lot of fun. I was busy. I was putting a lot of time and energy into the business, but it didn't feel like work. It was so much fun. But when I had to pay almost half my earnings back to the government, it wasn't so much fun anymore. After that, I realized during my research that multi-family apartments can be a really good tax shelter. I bought several hundred units of multi-family apartments and I've been tax free ever since. I haven't paid federal tax in a lot of years now.
You are not alone in the real estate world, which is great. So let's talk about taxes. What are some of the great real estate tax benefits that people may not know about?
The Trump tax law change that came through in late 2017, early 2018. There are some things there that really sweetened the real estate game for investors, and it now enables investors to take bonus depreciation on new or used equipment. Combine that with some leverage. Combine that with some cost segregation studies. It's a ridiculous amount of relief that you can get from investing in multi-family apartments.
Can you avoid taxes forever? Or are the people who will potentially inherit some of these properties end up having to pay these taxes?
That's a good question. I get that question a lot. There's a lot of people out there that think like I used to, that when you make a lot of money, you've to pay a lot of taxes. The next question is, well, you've to pay the tax sometime, so might as well pony up and pay it now rather than later. And those two questions are almost the same. Yes, if you don't know what you're doing, then you have to pay a lot of taxes when you make a lot of money. If you don't know what you're doing, you also have to pay the tax sometimes. So you're only just playing the deferral game. If you don't know what you're doing, you're going to have to pay at some time. But if you're strategic, and you have a plan and you've good team members around you, you can make a lot of money and you can pay no tax, ever.
As a syndicator, you actually are fundraising for a very interesting class which is ATM machines. Can you share with us how you came across that as an opportunity, and why did you decide to fundraise outside of real estate?
ATMs is a form of real estate. It doesn't sound like it. You're investing in an ATM location, and instead of having a building sitting on that real estate or instead of having thousands of square feet, you're getting a location agreement that 3 foot by 3 foot. So it is a real estate play, but you're extracting value from that 3 foot by 3 foot space
Dave Zook
[email protected]
www.therealassetinvestor.com
Previous Episode
New Year, New Life: How to Make Your Real Estate Dreams Come True
In the light of setting goals for the New Year, improving our personal lives, as well as our professional lives, we're going to talk about a course called the Landmark Forum that has had a huge impact in my life, as well as my friend Bronson Hill's life. Bronson has been investing in real estate since 2006 and is an active general partner in over 700 multi-family units.
Link to available courses throughout the world: https://www.landmarkworldwide.com/searchResults?prgid=7&pgid=117&crid=840&ctid=-1&sdt=-1&ofr=true
You can read this entire interview here: https://bit.ly/35DoNkb
Why did you decide to take Landmark after we were having a conversation at an event earlier this year?
I'd heard about Landmark from several people and they all were very successful people. Then I heard your endorsement when you said, hey, you have to take it, it's just going to change your life. I was like, OK, I guess I have to take it now. I guess it's going to change my life. That's what got me to sign up. I really didn't have much by way of expectations. I just kind of just went in with an open mind and the results of it were pretty profound. It really lived up to that endorsement that you gave that it really has substantially changed my life in the areas of communication, becoming more authentic, particularly in areas where I've been inauthentic with people, correcting some of those things, and really opening up all different types of new possibilities for business, and for relationships. Just pretty much in every way in so many aspects of my life. I have not found a personal development event that is better than this event.
One of the distinctions that is near and dear to my heart was when they told us to, "Give up being right, even though we think we might be right." I was thinking what do you mean? If I'm right, I'm right. What do you mean give up being right? And I vividly remember when someone close to me said something, and I was doing my homework of giving up being right. So I was going to react to what that person said. And I chose to zip it. And it turned out that that person was saying something completely different than what I thought he was saying. So that has been super helpful as well. What other distinctions are now part of your life?
Being right is an issue for a lot of people and of me, I've always right, but everybody else isn't. It's something that we all think that we're right. It can be hard to let go. And I felt like this gives a real, authentic way. And I keep using that word authentic. I think there's a lot of ways we can move forward, but we really lose connection with people or we don't really live out of a place of integrity with ourselves. And this program really gives the opportunity to walk in a way that feels more authentic, where you can actually be closer to people. And I've experienced that. I think when we can let go of having to be right, and this will give you tools on how to do that.
Landmark Forum classes available can be found here: https://www.landmarkworldwide.com/searchResults?prgid=7&pgid=117&crid=840&ctid=-1&sdt=-1&ofr=true
Let us know if you end up taking it: https://www.linkedin.com/in/steffbold/
Bronson Hill
www,growingcashflow.com/
Next Episode
What Are Entitlements?
Devin Lewis is a California Licensed Architect that has spent the last 10 years working with real estate developers determining the highest and best use for properties across the country, and around the world.
You can read this interview here: https://tinyurl.com/uj4bqos
What are entitlements?
Entitlements, in a simplified explanation is what you, as an owner, are promising the city that you or someone that purchases your entitled design will build and it ultimately determines the value of the property. An entitled design is thought out enough to where the city can understand what will be built, what’s propose, what taxes it will receive from any of its operations. And the entitlements are based off of what architects consider a schematic design. So the design of the building will, after entitlements, develop significantly. And development for an architect means something different than development for a real estate developer. But the project will architecturally develop after the project becomes entitled with engineering systems. In order to entitle a project, you need a good idea of the square footage, the functions and what you have planned for that piece of property.
What are some of the best pieces of advice that you can share with us in trying to get a smooth entitlement process as fast as possible in a very difficult city?
As a property owner developing a piece of property, I think the most important thing is to strive to have an understanding of the process. As an owner, you could experience a great deal of frustration if you’re not aware that an architect is your agent and the architect really is there to help you facilitate the process and that process In most cities it looks like this. You’ll get a schematic design, go to the planning department, set up a meeting and you’ll work with different departments like the police department, the fire department, traffic, public works, sometimes the trash management services for the city to really make sure that at a high level, your project will fit in to the city’s fabric, the city’s functions, and the way the city will tie in to what you’re proposing. You’ll work with a staff member and you’ll present to the planning department. The planning department will actually grant you entitlements. If it’s a large project, it’ll be presented to the city council. When the staff member feels that it’s ready, they will recommend the project for approval. During this process, the architect is folding in the requirements and desires of many different parties. The city is going to bring its requirements and you’re going to meet with community members in community meetings, folding in their desires.
Can they give an estimate of more or less how long it would take to get all the approvals from a particular city?
We put together a timeline schedule for each project. Entitlement is a difficult thing to quantify in terms of time, especially in San Francisco, because the neighbors have such huge influence over what becomes approved. And it's a great thing that the neighbors have say in the character of their city. One of the main drivers for the amount of time that a project will take is CEQA, The California Environmental Quality Act which requires an environmental impact report for large projects. It's tough to say how long a project will take to get planning commission approval because the neighbors can form large, powerful groups and create lawsuits that actually will stall projects for a number of reasons such as traffic in their neighborhood, the density, and type of use that is being proposed.
Devin Lewis
[email protected]
https://www.linkedin.com/in/devinjameslewis/
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