Brett:

I'm curious, you mentioned a little bit about what he might be selling based upon some of the things that are changing. I wonder if you could share with, what were his motivations for selling at this time, and why now.

Steven:

I can only insinuate I can only make some hallucinations, or some guesses, or have an opinion on it. But essentially owning this property since 1975. It's been long-term ownership. It's one of the last of 3000 units, these gentlemen own directly without partners, and it's the last property sold because it was one of the most impactful for him in his investing career, and I believe one of the reasons he's selling this is my take on is that, well, he's getting to the end of his life as a real estate investor, he's thinking, My family is not going to want to take on this property, it does have a lot of deferred maintenance, and the markets in a really, really strong place. If that does change, now would be the time for him to sell rather than waiting another 10 or 15 years if he has it to wait, and the other thing is if there are changes in the tax code, and the laws and all these things, he's gonna want to have those changes happen before they do, and so I think from a risk-reward standpoint, it happens to be good timing. He believes the market is at the top even though we definitely don't believe that to be true. But it just ends up working out for him to be selling now and him not having to deal with whatever tax changes come down the pipe for 2021.

Brett:

Reminds you of a deal we just did in Colorado Springs for the owner, he's worth about 25 million sold about a 50 unit apartment complex, and for him, it was estate tax challenges. It wasn't just the capital gains tax which is via 1031, and so we have a unique strategy we use called a Deferred Sales Trust, and what was cool about that was he was able to sell and move the funds outside of his taxable estate without having to do 1031, and also to be able to diversify a lot of the wealth. I’m curious, have you guys explored options or even strategies to attract sellers who have some estate tax challenges such as this seller? That's 40% 22 million or greater? Anything greater than 22 million if you're married is subject to 40% death tax 12 million single those are set to cut in half and 2025. Have you guys explored that? I feel like that's the big elephant in the room, Stephen, and most people aren't looking at the tiger, which is the capital gains tax, or any thoughts on the estate tax?

Steven:

I think it's something people should absolutely be looking at. I think it's not at the top of all of our lists individually or just based on where we're at in our life today and how things change from the tax environment. But I definitely think it's smart for real estate investors to understand these strategies, and to be able to communicate and advise other folks who are out in the community about what's possible. If you're working directly with the seller, you're able to let them know about a strategy and be able to share a trusted consultant that can help them understand that you're more likely to be able to get a deal done. That's going to be favorable if they know that they're going to be taken care of on the back end. I think it's really great. We're 1030 wanting some money into this deal, and that should be really strong for us. But DST is a great option for people, especially if that's one of their concerns.

Brett:

Just to clarify, not the Delaware Statutory Trust, where there's another form of a DST, this is a Deferred Sales Trust, and I absolutely agree with you. The key what I always say is real estate investors or brokers or buyers or people who help attacks, we're on the, we're not in the business of selling that 1031, or the property, or the or the tax solution, we're in the business of solving problems, and so once you can identify what the problem is, and the motivation, and then have a creative solution and be willing to work with that seller, on that deal, we have another one in Texas, it's a $50 million deal, and he has a $25 million Ranch, and then 25 million worth of mobile home park multifamily, and then some parentals, and his big thing is like Brett, all of these are fully depreciated. I have no depreciation left. I've owned them for over over 30 years, and I'm just getting the cash flow. I'm getting hammered on that, and he goes second, I don't want to 1031 and overpay, and he's also older He's in his mid-60s, and it's all of its inside of his taxable estate. He's looking at this and he's going okay, and we offer the Deferred Sales trust. He's like, Brett, this will solve so many of my problems. But more than that, I don't have to go back into real estate under the 45-day gun or the 180. Day close, and so I learned about this at Marcus and Millichap back in like 2009. Steven, and it's changed everything for me. I'm curious, have you ever heard about that before? have you ever explored how that can help win more deals or if solve more problems?

Steven:

I've absolutely heard of it. I've heard of both Delaware as well as the Deferred. I have not personally used it have not been leveraging it with any of our sellers, or when we've actually gone out to sell a property. But I think it's one of those things, this is just another tool in the tool belt, and the more that the better that you're going to be.

Brett:

That being said, I'm want to transition to the biggest frustration with Capital Gains Tax and the 1031 Exchange, you mentioned in 1031, and that's awesome. You have to carve out some of that into that deal, perhaps and I don't know if you're doing a Reg D or if you're getting other investors to raise funds. But besides all that, what's been your biggest frustration with the 1031 exchange when you guys sell. Are you guys typically 1030 wanting to the next one is the whole entity half the move, or what's kind of your strategy there to defer capital gains tax.

Steven:

We like the idea of moving and using 1031. It's not a tool we've used with our investors, most of them, we've simply cashed out and moved on to the next property. But it's a tool that we're actually bringing in, we're having a lot of conversations going in with our investors with the plan to 1031 to the next deal. Most folks want to have the option, but they don't want to be required to do it. We haven’t had any frustrations because we haven't really gone down that path. But I think it's one that's really strong, and what's great about it as an operator is that it allows us to, to continue to work with those same investors to save them on the taxes, they would have us and to be able to continue to leverage that in the next deal, and so there's no reason why an investor who doesn't need the capital return most of our investors are quite wealthy, high-income earners.

They don't necessarily need the money back, they might want the option to, but most of them are going to want to invest that the next deal, and then we can then they can do that in a smart tax planning way, then it's going to be to their advantage. It’s definitely something that we're looking at. We're doing it on this first deal bringing in investors who are 1030 wanting, and we have had a good experience thus far it has caused some complications, it does require some additional paperwork, it does require a lot of additional conversations with the investors, and with our consultants and attorneys and everything along the way. But with the risk to reward and the benefit versus the extra time it takes, it seems like it's quite worth it, especially when you have investors with large enough gains, that it makes a difference on a deal where you're raising 16 million in equity.

Brett:

When it's, especially when it's a big enough opportunity for you to carve out or tenant a common zone into a deal, then it can make sense, but the smaller ones can be a challenge. Very cool. Steven, I appreciate you going back and forth on some of those things. Because I can tell you're a higher level thinker, right and strategy with investing. I'm glad to have you on the show. That being said, Are you ready for the lightning round?

Steven:

Let's dive into it. This has been fun.

Brett:

All right, knowing what you know now if you can go back to your 20 to 25-year-old self with the one Golden Nugget Make sure to tell yourself to do.

Steven:

I mean, here's the biggest golden nugget, and it's true for all the investors regardless of your age, and it's true for me. It's to be patient, to understand that the best things in life take time to have that drive to go after things. But then to also immediately at the moment that something doesn't go the way you want to let go to accept it and to look at it from a fresh perspective of the way things actually are and make decisions from that place. I know back In the 20s, and 20, fives and probably even sometimes today, we'll get into that place of really pushing things, instead of just letting things happen. Sometimes you got to just let go you can just move forward and do the right thing.

Brett:

We'll set what's the number one book you've recommended gives you the most in the past year.

Steven:

One of my favorite books is a book called The Go-Giver. It's a great book. It's a short story that really talks about the power of how when you give without expecting to receive, you end up receiving so much more than you could ever be expected or ever imagined, and it's just a phenomenal book. I read it every single year, and it's one that has definitely impacted me and the folks that I've shared it with. Beautiful.

Brett:

I love that book, too. I was just reading it last month. Next question, what's the biggest challenge facing multifamily syndicators?

Steven:

I think the biggest challenge is the unknown, of what's ahead, right at that level, and living in a place of uncertainty is always the place that most investors are working from or living from. But when you're in that place of uncertainty, when you're buying in markets, like we're, we have a deal coming out. That's gonna be in Phoenix soon, and what's interesting about is that market obviously had about 21% plus rent growth last year. The question is, is that going to continue? You can't plan for that in your underwriting. But there is a chance that rent growth is going to be much higher than the 3% that we might project typically, or on an average basis, and so that is one of the most challenging things for operators is to really understand, what are we planning for in the future, most of us want to be conservative, most of us want to underwrite for a place of always protecting the downside, and in for some of us, that might actually prevent us from getting involved in deals, and for those that didn't get involved in deals, or the last year, you missed out on one of the largest growths in value that we've seen in our history, and it just goes to show that sometimes you got to take risk, but it's the biggest challenge is knowing how much risk to take, and then how to really cover that downside. I think we're doing a really good job of it. But it's something that we're constantly thinking about and constantly going back and readjusting and re-tuning.

Brett:

It's 2008, and the crash Sacramento was in the hardest-hit cities, and then we saw the most rapid appreciation and Neil, to the last five years, we were number one in the nation with a year over year rent growth, it finally popped, and then you add like these fires the unknowns of like these fires that are taken away housing, right and exasperates the thing I know Denver, too, is on fire and fire meaning the marketplaces keeps they seem to be rapidly appreciating rents keep pressing on more and more pressure. That I think the other unknown to is at what point does housing catch up? I mean, how many units can be built and how many can be absorbed, and so it's just, there are the stats still seem very favorable and very strong for multifamily. Especially if you can buy, value-add deals like it sound like the one you're buying that's 36 years old. I think that's, that's wonderful. That being said, second last question, what are you most curious about right now?

Steven:

Well, I'm always curious to keep learning, I'm always looking to understand, how can we grow? How can we get better? How can we change the way we think, how can we improve the way our brain works, really just be able to operate at a high-performance level, and so that's what I'm really focused on, I have a podcast called the investor mindset show, where we dive into the way successful people think, and I just love being able to bring really smart people on and learn from them. That's always exciting. The other thing, I'm very curious to see what the next two to three years brings I am and the same feeling and vibe that you have that I actually believe there's no way that they can drive up interest rates significantly. Because we're just in a position where they may make some changes, and there will be some modifications are going to happen. But I have a strong feeling that this market will continue to be strong because there's just so much demand, there's not enough supply. That's really what's causing home prices and asset prices to go through the roof with the amount of inflation we're dealing with. I’m very bullish on the market on things that are had always looking to be conservative and cover the downside, but excited about what the future holds.

Brett:

Last question, How do you stay centered in your values and stay encouraged to charge forward to reach new heights?

Steven:

It's all about surrounding myself with really great people, great coaches, great mentors. I've got people who support me and help me to see what I can't see. I work with a number of clients doing exactly the same thing. I think the biggest thing for me and what I recommend everyone else is to get in community with some other people go and talk with other experts and get your board of directors that are going to help keep you on track and be able to share this is what's actually true. This is what's actually Going out in the market you don't need to be scared you don't need to be afraid because this is what we're actually experiencing and when you can see things as they are not worse than they are if anything maybe a little bit better than they are you're going to be in a much better place in a better state to really be able to execute and do great work

Brett:

Steven, I want to thank you for being on the show. By the way, you can learn more about Steven Pesavento I'm afraid I said I okay said it, and investormindset.com any other place they can connect you with and make sure I pronounce your last name correctly.

Steven:

Head over to investormindset.com if you're listening to this on your favorite podcasting app, go click over and listen to Investor Mindset. If you're interested in investing in the same types of passive investing deals we invest in, had to VonFinch.com, VONFINCH.com and learn about some of the institutional style deals we do. You can always reach out directly to me Steve Pesavento on any of your favorite social media platforms from LinkedIn to Instagram and I look forward to serving you. If you do reach out shoot me a DM someone from my team or myself will reach out and share some resources that are helping get you where you want to go.

Brett:

Steven, thanks for being on the show. I want to encourage you to keep making the complex simple helping people create and preserve our wealth in commercial real estate, and being an expert in the space we so appreciate you being on the show. I also want to thank our listeners for listening to another episode of the eXpert CRE Secrets Podcast also streaming on Capital Gains Tax Solutions Podcast where we believe most most most commercial real estate brokers and syndicators. They struggle with clarifying capital gains tax for options looking for creative solutions to help win more deals, and we're here to bring on people like Steven and introduce and talk about topics like the Deferred Sales Trust, so you can help yourself and your clients create and preserve more wealth. You go to expertcresecrets.com to learn more about that and you also can go to capitalgainstaxsolutions.com. To learn more about the Deferred Sales trust please rate review, subscribe. We so appreciate everyone out there.