What is up? Investors Happy 2023 if you haven’t heard of it yet, or you’re still making that mistake of writing in 2022, but here we are, another year, and another new group of folks coming to the retreat. and I am excited. It always we’re getting better and better at getting people over the hump of, investing in alternative investments, getting over that queasy feeling that, taking out debt outta your home and getting your lazy equity outta different places and putting into stuff such as real estate that can power other tax benefits and better returns.
Today we’re gonna be doing a coaching call, and if you guys like these coaching calls, you guys can volunteer for one for yourself in the future. Make sure you join our investor club@sypasocasual.com slash club and email the team and we’ll try and get you lined up if you guys are more than willing to do something like this in the future.
Now as I’ve been getting better and better, I’ve been seeing different case scenarios such as the doctor that we’re having today. And you know what, I wanted to just briefly talk specifically today, and this probably was one of these categories.
A lot of people here are first generation net worth. You weren’t born with money, you weren’t a trust fund kid. Now maybe some of you guys are, and I would probably, I look down our larger investor list. I think more than 800 of you guys. The US said at least $50,000 with us thus far. And I would probably say less than maybe 5% are people who were born with more than a million dollars net worth.
So that means most of you guys out there are folks who’ve saved hard, worked hard, maybe put your money in the four oh places you shouldn’t have. And I think you’re starting to learn what a mistake that was. , it’s all a transition. It’s all part of the journey. And what I’m seeing is, you have to have a high amount of W two or 10 and nine income, or in other words, ordinary income.
And you, if you’re a good investor, maybe you have some stocks, funds, mutual funds, or playing around with that type of stuff, and you have portfolio income. Portfolio income, order income bad, right? Because passive income is what we want, not only for the fact that it’s, it’s passive lay on the beach mailbox money, but more in terms of taxes, right?
Because when you talk about passive income can be offset with passive losses. Pal is what we call for short. The new tax PAL fund that we have coming up which you guys can get access to the info page through the member site is going to give you guys passive losses so you can knock out those passive income and offset that.
Now, for a lot of you guys, especially the people starting out, you have a predominantly majority past. Ordinary income, and you’re trying to get to that point where you can cap more and more of this ordinary income. And if you’re watching the YouTube channel, you’re seeing me put my two hands together and be a big kind of needle showing that the majority is ordinary income.
And over time, as I’m getting my arms, the other way, the needle goes back to more passive income. To a lot of myself and a lot of the higher net worth investors who have gone to many deals and gotten a. Passive income, passive losses, you start to get to a point where most of your income is passive as opposed to ordinary.
And the reason, part of the reason is, or maybe even the biggest reason other than the better returns, but the fact that you can offset the passive income with the passive losses and stay a whole boatload of taxes right there, that you wouldn’t. Able to do and shelter yourself on the ordinary income side.
I’m, we’re all running these synergizing, these ideas are much better in my next book, which is gonna be rolling out, hopefully by the end of this year, where it’s gonna be talking about these, these nuances of really, we’ve, I think in the past book we talked about a lot of these in generalities, but what are like the steps?
And real briefly, I’m gonna be going over this before we go into the coaching call, what I’ve. Putting together here is this idea of there are different use cases here for different people in terms of, a lot of you guys just, depending on if you do income household some people are single and that’s cool, but I would say the majority of our investor group are married with kids and have, small, two large families and with the two people at the house at least I don’t think we have polyamorous folks out there. I’ve never seen people with more than three incomes. Some people joke that their rental properties or their syndications are multiple spouses, but for the most part, there’s two people kind of building widgets, right?
Or in their income. A lot of putting. Putting ordinary income into their income pile, and that’s what you’re gonna need to do, especially when you’re not a trust fund kid. You don’t have a lot of money to begin with. You have to build your net worth to a million, 2 million, and I’m gonna say loosely two and a half million with a range of a million there, because this is the point where you’re building that critical mass.
To be able to get over this hump. And that’s what I see is down. Now, once you get to two, two and a half million, you’re coming downhill and you’re gonna hit that four or 5 million in-Game Mark. But there are few use cases here. A lot of your folks, especially when you and your spouse are making about the same amount as high income earners, it makes more sense for you to both work your day job not do rep status and burn the afterburners, hopefully, and at some point shut it off. And what we call this is , there’s the, I call this like the Ford Raptor, big truck, you gas guzzler kind of snare where you’re working hard, making a whole bunch of ordinary income. You’re still saving it to put to investments and put to the simple passive cash flow cycle.
And, but you are paying a lot in taxes and that’s just how it is. When you have ordinary income, you’re gonna have to pay taxes on it. There’s no way around it. When you have a big truck like that, you are gonna pay a lot of gas. the next stage. On the opposite side of the spectrum is the, I’m not a big fan of Teslas.
I don’t have one, but they’re clean, efficient energy electric. Type of car and it goes fast too, which is cool. And they’re sleek. But in this analogy, what I’m gonna pull from it is it’s like switching over from like this gas going to electric and what that is, it’s like cleaner, efficient, seemingly if you don’t count all that damn coal that battery, the lithium charging up, the lithium battery and all that stuff.
But if you’re just looking from the cart point of view, if you follow me with this kind of loose analogy, is, or at least people who are more experienced, like I said, like myself or people in dozens of deals, most of their income is passive and that way it’s very clean and efficient in terms of taxes that their passive income is essentially wiped out by.
Passive losses or most of it is, and they don’t pay that much in taxes. A lot of folks, who’ve been investing, go look at your 85, 82 form, you probably have more than a quarter million, half a million in passive losses. Some of you guys have a million or few million dollars that spend a passive loss and yeah.
If you got around a lot of the other accredited investors that are doing this too, you probably scratch your head around and you’re wondering, when am I gonna pay any taxes? In fact, and you may. , and that’s the Tesla kind of side of it, which it’s electric now for a lot of you guys.
And this is where it really gets more personal finance. This is the Prius and yeah, of course the Prius is a much Suckier car than the cool Ford Raptor, which I personally own, and a Tesla. But the Prius was the only car that I could think of that, is a hybrid where it uses gas and it also switches to electric.
and this it’s, this is a tough place for a lot of folks. It’s maybe the incomes are disproportionate where you have a guy who makes. Some gal makes 200,000 and their spouse only makes a hundred together. They make a great salary, right? $300,000 a year. But it’s a little bit disproportionate and it makes sense for them to keep working, but maybe one or the two don’t like their job.
And there’s kind of two case scenarios where. Maybe the higher income earning one, the person making $200,000 a year isn’t doesn’t like their job. And ideally they’re the ones that they want to quit or go part-time first and get rep status. Now that is tough because they make more money. and oftentimes what I’ll advise based on their personal situation, this is where, nice to come to retreat, build a relationship, and understand this.
Or you can learn this from your peers, which is why people join the family office group to synergize over these, these bigger concepts or these more, less high level financial topics. It gets into more personal finance. And for these people it may just mean to just suck it.
and you are the breadwinner and you’re just gonna have to keep working even though you don’t like your job more than your spouse. And where it works better is around, for these Prius owners, all these are Prius owners, right in the middle, in this hybrid. They don’t make too much.
But you have the person who doesn’t like their job making a hundred grand a year. Stop working. Go part-time or just quit working at all. Then, your breadwinner can carry your household and this is where I think is a huge improvement in quality of life.
Maybe that person can get rep status and now take down that barrier where you can use your pals, your passive activity losses to offset all your ordinary income. Now you’re seeing why people are diving into our next tax PAL fund and using these things and using a couple synergic strategies. And two, of course consult your own tax attorney, c p a.
If you guys, most people need a new one. 95% of people, I would say, change their CPAs cuz they don’t know. They have, that’s why the CPAs have day jobs. They haven’t figured this stuff out. But if you guys need a referral, let me know. Shoot us an email. This is a beautiful situation.
Right now. The person who doesn’t like their day job doesn’t have to work and they can spend time with, most of you guys do have kids out there, quality of life, right? It’s great. And sure you’re not like burning both ends of the candle. With ordinary income. And if you’re making $300,000, you’re not able to save a hundred grand a year, and it goes down to maybe 50,000 a year, but, We don’t need that much.
My whole simple passive cash flow prerequisite is, being able to save 25, $50,000 a year, that’s really all you need to do. Some of you guys blow that outta water, a hundred, $200,000 a year, that’s great, right? That’s just gonna accelerate you to get there and blast past 5 million, $10 million net worth.
But that’s not needed in this case. Of course there’s, I think, what we might talk about today with our coaching call participants, doctors typically doctors, dentists, or folks at high income earners that make over 300, $400,000 a year by themself. It typically makes most sense for them to just get rid of the spouse’s job and have them do rep status, especially if you’re above that $340,000 a e i for 2023.
So there’s a few Prius scenarios. What I wanted to say was like, every, there’s a few scenarios here. There’s the raptor, there’s the few Prius scenarios, and then there’s a Tesla scenario. And this is why, I think what makes it a little confusing is because you’re getting advice from all kinds of angles, yet, you don’t know who to really trust and you know what’s really for you.
And that’s my kind of, my job is to simplify things. So if this is new to you guys, welcome to the channel. Welcome to the podcast. Join the club. I give everybody kind of a short time to, if I can get in there and just punch you in the right direction.
And, I still do these onboarding calls with you guys. Would like to get, let’s know you guys a little bit and share this with a friend or interact with our community because likely your friends are co coworkers, family not doing any type of this stuff. Join the simple passive cash from a clan.
A simple passive cashflow listeners today, we have a, another coaching call and you guys love these things. You guys eat this up like candy, it’s like financial fans, lawyers call it that. So I have Brian on the line. He is a doctor and he’s been heavily invested in private placements since. So I’ll have Brian tell his story a little bit, but so do other great accredited investors all here.
So enjoy and thanks for jumping on Brian. Yeah, a little background on me. I am a physician and kind of fell into the standard path, what physicians are told to do and channel all of your. All your earnings and into your 401k and get a nice little stash of equities going.
And maybe if you accumulate enough, by the time you’re 60, you can retire. And a couple of years ago I was on vacation in Asia and I discovered that I didn’t want to work. Ideally I wanted to be totally retired by the time I was 55. I was about, I dunno, 47 at the time. And I looked at my portfolio and discovered that.
Pretty much, all of it was equity and bonds and it was yielding about 1%. And I was thinking there’s no way I’m ever going to get to where I want to be with 1% yield on my portfolio. So that’s when I started educating myself on passive investments in alternative investments. And was there some kind of like thing that happened at work or you just had some free time on vacation?
Oh yeah. No, it was just. For the first time, in about five years, I had a nice two week vacation and we decided we were going to go to Asia and we had a lot of downtime and you just, I kinda self-reflect and thought I really liked this relaxing stuff I could get used to this, can turn in my 80 hour work weeks for this.
Certainly. So yeah, I guess that was the epiphany. It’s there’s more to life than slogging in the office, 80 hours a week. And you’re married. You got kids. So I have a long-term partner. I have two kids. Daughter is a freshman in college and son is a sophomore and got divorced about five or let’s see that’s about eight years ago now.
And still so paying some of that off. I have two and a half years left of that. And then it’ll be clear that. So at this point in the game, are you doing. So let’s just paint a story. You, did you buy any rentals? Did you go through that? Yeah, I did. I did. I bought a single family rental on the east coast in 2007 in a nice little seaside town that had a lot of vacationers from Connecticut and New York.
And got it. Ready to roll. In 2008, then you know what happened in the market in 2008 and it lost about half its value. And so that wasn’t the best experience ended up having various tenants. Some were good, some were bad. One of them ended up being a mobster. After finally getting out of that deal after about 10 years and not making any money out of it, I soured beyond to honor the single family thing.
But when did you start to get into the private placements? That syndication 2018 was my first one, actually, maybe 2017 was my first one, but I really started taking the plunge in 2008. Okay. So yeah, the whole 10 year period. You just work the day job and manage your work in the day jobs, shoveling everything I could and to index funds and all that good stuff.
Yeah. That’s unfortunate. What has been a one or two years later, maybe it would be different, right? Yeah, the syndications, thank God because it’s essentially, the value add deals are doing what I would want to do if I was doing it myself, but there’s teams of professionals that are doing it that are actually good at it.
Like I know where my strengths are and being a landlord is definitely not one of them. Yeah, the property manager is definitely not one of them. Yeah. It all comes down to what your highest and best uses. Like you might be at eight out of 10 in terms of being a landlord, which might be a hell of a lot better than the average Joe listening out there.
Who’s a five and a half out of 10, but because you’re a nine and a half doctor making that hourly rate, it just a no-brainer you spend your time on what’s your highest and best uses. And you focus on that. See, we’re also showing on the screen here. If you guys check this out on the YouTube and I would probably suggest handing off to YouTube channel for this one Brian’s got a plethora of different, all kinds of syndications as private places for the, what are you looking like more than a couple of dozen of these things?
I think it’s, I think it’s up to 22. Yeah, very, yes. Investments between 25 to a hundred, $200,000 minimum. Take us through the, like, how did you first discover syndications and what was your kind of first steps? Because this is the hard part, right? Like you hear about this mythical creature called private placements in syndications where there’s value, add there’s cashflow.
You don’t do anything as a passive investor. You don’t get dead in your own name. You don’t get the high liability, which is a huge deal for doctors. And it all sounds amazing, but you’re stepping out into the a bit. How did she step forth into the, yeah, so the, probably the first thing I did is I found a community of people online and they were.
Vetting some investments and I didn’t, I knew nothing, absolutely nothing. I didn’t know it, a debt fund from a, from a syndication from I mean I knew absolutely nothing. And the people in the group said, Hey There was a triple in lease fund, which is basically a fund that takes over the leases for Walgreens and Rite aids and, Michael’s stores and stuff like that.
And you get like a monthly check every month. And that was probably my first. My first swing and I just went, I cause everybody in this community said, oh, it’s great. It’s great. It’s great. And then they said, Hey, this this is a really good sponsor. If you want to get into apartments, I’m like, oh, okay, cool.
Except they’re like stabilized class, a San Diego. Type apartments. And I didn’t know anything about a, B, C any of that at the time. So I just thought, oh yeah, these guys recommend it. That’s good. So I jumped into that and I still have that. And that’s probably been my worst performing investment since I started.
There’s just the cashflow in that thing is like one and a half percent, I think. Yeah. Class a. C class classic in California. Doesn’t cashflow. I saw a deal. I’m not going to say where it is, but it’s near Disneyland. And I felt like I should put in a bunch of grand just so I can write off my trips to Disneyland.
That’s really the only reason why we do pop up meetings when I go to Southern Cal or Cal. So I can write off my personal trips. Know why you’re investing, right? Yeah. But I decided, I didn’t know. I was investing just going through this I got into some more clubs and met some more people, and then I discovered value add, and the numbers of value add, made so much more sense.
It’s okay, you take this property that this mom and pop wants to get rid of for $25 million. And if you can get it up to par, renovate it, get good tenants in, you can make it, just like that. You can force the appreciation. 31 30 $5 million and. Boom. You’ve, you have an instant return right there.
So the numbers of that made sense to me. So it was like, okay, I gotta find some more of these deals. So just some trial and error and found a couple of sponsors that I really like. I’ve been back to do a couple of deals with, and there’ve been some shiny objects in there. I think I’m in like muse of music royalties.
I saw that. Yeah. I wouldn’t recommend that. At least not in a taxable account. There are no tax advantages to music royalties, and that’s been a stinker, but. If my life settlements, if I was going to do that, I want to invest in like specific songs as opposed. I think he did a fun, he did it. Yeah.
Yeah. Yeah. There’s no fun. No, say it all. No final. And it’s pretty funny too. Cause they send you like the list of the sign that they bought rights to. And you’re like, nobody who listens to this crap. It was listening to that. And about 30 years, what do they do? But that’s probably what makes it a good investment, right?
Like you’re not going to like a Beatles song or instinct song, actually, boys SBA class. You’re always going to over pay for that stuff. Like a sexy California class C property. Yeah. Someone told me once that I forget the exact quote, but it was something like, you never want to show off your real estate portfolio at a cocktail party.
Yeah. So just saying that you don’t want it, you don’t want to buy the shiny as class, a assets. You want to buy unloved, class B minus C that you can make into a nice class B. Yeah. But as you can see, what’s happening in this podcast right here, I’m digressing and going down this rabbit hole, that’s like.
Half a percent of your portfolio and it doesn’t mean anything. It doesn’t return it, but that’s all we want to talk about. Don’t do what I did. Okay. So going back, so a lot of the listeners, they jumped into this world and it is very laughable after the fact, that you just jump into stuff off random referrals and recommendations, but it is what it is. That’s what you do. What are some things that you. Thought initially that you later learned to be not. You got. Tiffany, kinda like I said is more of a live where you want to live, but invest where it makes sense, just because, oh, it’d be so nice to live in San Diego, but it doesn’t necessarily mean you want to invest there.
Like you want to invest where the numbers make sense. Like Huntsville, Alabama, do I want to live in Huntsville? I don’t know, but the numbers, if you look at the numbers of Huntsville, Alabama to invest there absolutely totally makes sense. So I think, yeah, definitely look at the numbers more than the emotions of the investments.
That was the, that was a big one. Try to expand your, talk to as many people in your network as possible because you will learn about some stinkers sponsors and you’ll learn about some really good sponsors. And. No, this alternative investment space is all personal connections. You’re not going to be able to go check a Google review on a sponsor.
So it’s all word of mouth from people who’ve been there, done that. And I’ll just say cause it frustrates me. We have people like, I don’t want to do the family office, a Honda mastermind. I want to start investing a little bit. I’m like, dude, you’re the most exposed right now. This is the time to do.
Yeah, but anyway, you get off of that, but yeah, what, most people that don’t have a single friend or family person that invest in this type of stuff, they’re all investing in the wall street garbage. What do you do? Where do you go? I always tell people that, there’s the free stuff, but I always tell people to be very careful about that stuff.
You always got some shady people trying to sell IUL, ELLs and random stuff like that. You gotta be careful. Yeah, absolutely. Absolutely. Yeah I don’t do IUL, but I am a huge fan of the the infinite banking, the cash value life. God, I wish I knew about that about 20 years ago and we are doing that for our community.
You guys can get the free e-course at simple passive cashflow.com/bank. Yeah that’s a game changer right there. The other thing I wanted to tease out of you is, like you mentioned meeting other people, you’re a fun guy, you, a lot of people are very abundance mindset.
Once you find the right people that aren’t the salesmen or the syndicators of the sharks, trying to find those pure passive. Are there some ways that you build those connections? It, was it just an expensive bottle of wine or no, it’s funny you realize that the whole like passive investing space, it’s a pretty, it’s a pretty small club.
And I actually, lane, I, I. Met you through another friend that I knew from another investing club and you spoke at his club and I’m like, oh, this guy lane just got to figure it out. I got to meet this guy. And it’s just, I think it’s just, you can’t. Go in your little shell, it’s find your people.
And then by, by talking to your people and your network, you’ll learn about more people and you talk to them and you’ll, they’ll tell you to talk to some other people and you just keep expanding your horizons there. Yeah, you can’t shell up. You gotta be, you gotta get out there and actually talk to people.
Yeah. I just got off the phone with somebody and I was like, dude, you gotta get out there. If you’re unwilling to meet other people, you’re just going to be stuck. You’re. That lonely guy who has 20 rental properties and he’s cranky all the time. And if the best thing you got is investing in these garbage, private money lending deals, reinvesting in class C paper and no ordinary income.
Exactly. No, like just keep at it, just put yourself out there and it might take a few years, your course is great. Just learn as much as you can. Because no, one’s gonna, you’re going to have to find this stuff out for yourself. No, one’s no, one’s gonna, you’re not going to have a a rep come into your office and say, Hey, look at this, look what I’ve prepared for you here.
It all is, you really got to get under the hood and learn. And I find it interesting. Much more expense, more, it’s more interesting than learning about stocks and PE ratios and book devalues and all that. Yeah.
So last thing I want to tease out of you and then we can go into your overarching questions that I can do to help, you’re a very, you’re not like in the weeds type of person, which is why you’ve actually invested and they’re seeing the good results.
I think that’s the right attitude. You open up a pitch deck. Are you checking your inbox, seeing a bunch of deals? What are like the first couple of things you’re looking at? Just from a real high level? How long do you even look at that deal? So I think number one is the sponsor. What helps is if it’s a sponsor that I’ve invested with before and I trust.
The, you don’t want to read the thing. You got to read a little bit, but for the most part, it’s okay, I know what I’m getting with this deal so I can just skim over it. What have you. Yeah, that’s a tough one. So if it’s say we’re looking at a multifamily deal. First thing I look at is the market, is it a market that I believe in?
Is it, something like a Phoenix or a Dallas or a Huntsville, or is it, San Francisco? It’s do I even want it, do I even want to be in this market? Bird’s eye view look at the market. So I, okay. Is it the market I want to be in? And then I look at what kind of deal is, this is a class, a stabilized asset type deal.
Is it a super heavy value add like C minus they want to bring up to a B, or is it a, somewhere in between? I the kind of, in-between like maybe C plus that they want to bring up to a B minus or a B minus. They want to bring up to a B plus, I think that’s the sweet spot as far as value add.
And I do like value add as opposed to stabilized. I get personally get scared on development deals just because I want to know that the money’s going to come in sooner rather than later. Obviously the returns are bigger. Potentially in the development deals, but I just, my, my sweet spot is the little value add.
So then once I, once I check those boxes, then I look at it and look at the numbers a little more and say, okay they say that they’re projecting 17% IRR and. Do P 2% return on equity and five years and whatnot, how are the numbers going to make that work? So then I look at and you always gotta remember, you can only trust the proforma so much, it’s kinda it’s like doing a medical study.
You can make the data, say whatever you want it to say, again, it goes back to the sponsor. If you know what you’re getting, you can, you can take the numbers a little more seriously than someone you never did, but still. I want to see what they’re planning to do for the value, add what they’re planning to do.
As far as rent increases, how much that’s going to increase each unit, what that’s going to do to the overall value going forward? What the like the debt service coverage ratio is those types of things. Like how many people are. Are, how many tenants can they lose before they can’t pay the mortgage type thing, breakeven point and the break even point and those types of things.
And if it seems like, checks all the boxes and take the next step, talk to the sponsor, see what they’re all about and go from there. Did you do this by syndication? E-course any kind of, there’s such a things in the numbers to look out for. I did. Yep. Yep. I did do it. You have to remind me what, which ones you’re getting at though.
Like the reversion cap rate increases per year, the annual escalators become expensive. Yeah. So rent increases per year. If they’re projecting over 5%, I kinda, have to look a little closer to say really reversion cap rate. Ideally, I’d like to see 1% above where they’re buying it out.
If it’s a super hot market, I may go down it’s maybe 0.7, five. It has to be really compelling if they’re presenting an exit cap rate that’s 0.5 or less. I think that’s bordering on speculation. So yeah, I mean it’s, after you look through, if you just kinda, you get a sense of what you want to see in the big picture and it’s it’s unconscious, you just go, it’s oh yeah, there’s the cap rate.
There’s the excess cap rate and that, comes to practice, I guess you just gotta do a bunch of them. And then you’re like, yeah, that makes sense. Oh, that one smells fishy. Yeah. Yeah. And then you parlay that in meeting other people, talking the story about this type of stuff. Yeah, totally.
Do you like those kinds of, you mentioned you liked those class C plus. Hi cashflow deals. You’d like those kinds of deals that people do in like Memphis. They’re a little bit more higher cashflow. I haven’t done any Memphis yet. I’m looking at one in Indianapolis and again, goes back to my markets.
Like I’m not real sold on Indianapolis for a market, but the cashflow in this one deal looks pretty kid. So looking at the numbers. My, I kinda like to balance my portfolio. Okay. Half of it is more of an appreciation play, like a heavy value add that doesn’t cash flow a lot. And then the other half is the more, we’re looking at cashflow between six and 9% type thing, still safe assets, just a little higher yield.
Yeah. I haven’t done Memphis yet. I just haven’t. I was just curious. I don’t have any good reason why, and I’m open-minded but that’s a good example for folks like, this is where these are the conversations you have. I don’t know when this podcast were released, but we’re having the retreat in January.
Probably have it again the next year, but that’s where you have those evening cocktail discussions, or if you’re not a night person, that’s where you have breakfast. People are encouraged to have informal breakfast as with each other, have these kinds of conversations. And, you just get your mind open to people’s arbitrary.
Here’s what I like to invest in my personal portfolio, whether it’s right or wrong. Just another few point, totally BS. Nobody is writing some stuff, the end of the day you’re picking pick and resources. Exactly.
But what can I do to help Brian? You think you’ve given the folks a lot of good information. Yeah. One of the things look looking at my portfolio is a little more than 50% of it is tied up in a solo 401k. And the problem with that is there’s obviously no depreciation benefits to being in there. The cashflow is, it doesn’t really do much good imprisoned in the solo 401k, and I would like to start getting that out.
And I’m only 50, so it’s nine years before only like saying that, yeah, it’s nine years before I can start doing it without penalty. And I know you’ve walked some people through how they can gradually exit the solo 401k is, or the work 401k is and try to minimize the tax. Getting out of that what’s your, and by the way, like you, I think he did this exactly the right way for your income level.
Whether you did it on purpose or not, but just for a review for some folks, you can guys can go to simple passive cashflow.com/qrp to read about this whole argument. But generally you want to take, not invest in these retirement accounts because you don’t get the passive activity losses to play different games on your tax.
But the only reason why it makes sense is number one, you have to have a high income you’re already in the highest tax bracket, which should Brian is already number two. You have to have a lot in your retirement. What, a lot more than half a million in there. If it’s less just take the sucker out, it’s just going to befuddle and confuse your life, simplify things.
And what Brian did here, because he qualified. He’s in both of those camps, essentially what he did is he played. You put some stuff into these retirement accounts just to delay the taxes cause he’s already in the highest tax bracket once again. So then now there’s a point, here’s a point where he’s already got him proof of concept with these couple dozen deals and he’s looking for more capital to harvest and now’s the time that we can strategically take it out.
So here’s, let’s go to the questions here, Brian. Where approximately is your AGI. So this year, make it up this year. It’s probably going to be a three 50 K, but next year I’m cutting back considerably. So my bet is next year, it’ll be somewhere around 200 to two 50. Perfect. Must’ve been thinking about this.
This is all coming to comment play, right? When you’re in investing this much, you ideas to quit your job at some point, or to titrate down like how you are. So what you’re having is this opportunity where you want to stay below the highest tax bracket. So anything, when you go over three 30, that’s when you’re in the red zone.
So if you go down the 200, you could ideally beak out one 30 every year. Okay, but let’s before we go there you’re married, filing, jointly, actually hit a household. Okay. Okay. Yep. Is your significant other partner? They work in or what’s yeah, she she’s a nurse and we, we have, we’ve lived in the same household for quite a while, like six plus years, but we just said, we’re not getting married ever again.
Yeah. It’s archaic.
yeah. It’s just that just for us, we’re much happier and she keeps her finances under her belt and I keep mine under my belt. Yeah. Some people think marriage is forever. Some people think of it as, Hey, let’s just renegotiate every day. Everyday you, you don’t sell as another day chosen to buy it’s the same for rental properties, of course, which, by the way, I’m selling out my second to the last one.
Very happy. I thought that so in Y in Birmingham, yeah. Yeah. Yeah. Together, you guys make you guys, aren’t going to be doing real estate professional status. Are you guys thought about that? That might be another talk to have down the road is once I’ll be part-time next year.
You know how to go. I guess the question there is how to get reps without being the landlord. You’ve got to talk to the right CPA. Cause I have a bunch of people who are exactly like you, where you have a boatload of investments and I’ve seen it where they work. They’re still full-time jobs and their CPA is yeah, man, I’m just gonna check this box off for you now.
Totally defies all the little rules, but it happens. You can bet your butt, that Donald Trump is checking that box and real smooth. But he’s obviously the president of their freaking United States for as a full-time job plus. But how can the men not check the real estate professional? He’s checking the box.
Yeah. Maybe he should, technically he shouldn’t right. Is what we’re trying to say, but, that’s where you’re going to work with your CPA. In my non-tax legal opinion. You have a lot of stuff. It’s becoming a full-time job. I actually think you have too much stuff. You should probably go down a little bit and bump, bump your minimum investments up.
But that’s another side thing, but I think what you’re doing is very typical for people getting started, right? Like you go into a lot, you’re trying to see which jockeys are gonna invest more heavily on in the future. So this is very typical, but. But yeah, real estate professional status may be going KP on some deals.
Get some of that carried interests in there. As a loan guarantor to that helps to build the optics, but don’t listen to me talk to your CPA but what that will do, that will be a big thing because now you can, instead of just taking. The default I think is to take out that one 30 or so a year.
So stay right around that three 30, I think that’s the default, that’s the prudent thing to do here, but if you want to get a little more, how much do you have in your retirement accounts now? Just say I think it’s around 1.2 million. Yeah. So it’s going to take a lot of years to leak it out.
A pain to do, to do this. It’s going to take you a decade to do. That’s just, this is use that as the bookend, right? I think that’s a no brainer. You want to take it out. You don’t want to leave it to when you retire because your income is probably going to be higher in a decade.
So you want it to get it out now under that three 30 mark or whenever that changes next year and the year prior. So one 30 a year. You’ll get it out in 10 years. What I, if it were me and I was going to be playing it a little bit more aggressively, what I would be doing is I’ll do real estate professional stuff.
You got to jump through the hoops to get that, obviously, maybe I’m sure you have a boatload of passive activity. Losses builds up right on your 80 to 84. Do you know how much? Half a million probably around there. Yeah. And you’re guessing, and you’re a prime example. People always ask the question.
What happens when I exit a deal and I get my $50,000. Dude, you should’ve been like Brian, you should invest in a dozen plus deals. So you have, you’re sitting here and passive activity loss, Nirvana, and you’re untouchable. Yeah, there’s a deal that went full cycle this year and it was a pretty, pretty nice gain. And I’ll be okay, but a lot of the other guys in the deal, they’re like, oh God, I gotta get something before the end of the year. I gotta share this. I gotta buy something. I got buy this.
It’s yeah, it’s funny. We have guys like yourself. This is the one at school. When you come on their cheat and you meet other people like this, but they have a rap sheet of a dozen plus deals.
They have a half, a million million dollars plus a passive activity losses. And they’re like, yeah, man, I haven’t paid like taxes in seven years. I feel like I should, like at some point, I don’t know if I’d ever get to that point, but I’ve definitely paid enough in my first 30th, so years of work.
Yeah. Yeah. But you’re cutting to the point where you technique, especially FICO real estate professional status, you really shouldn’t pay taxes. You shouldn’t need to pay tax. You can, if you want to hold the passive activity losses to the end, but the way my CPA does it is he just burns up my passive activity losses.
So I pay zero taxes. Gotcha. And, you only live once, right? Or may never see the next time. Yeah. Have you ever heard? I was talking with someone and they said, oh one way you can get reps hours is to take over a triple end, lease for a Walgreens or something like that. Have you heard of anyone doing that?
Yeah. So the easy, like low hanging fruit is like a short-term rental. Maybe your spouse enjoys doing that, or maybe you enjoy. I would not recommend buying some crappy class C rentals. That’s like going backwards or like you said, getting a little triple net, but then the problem with that one is big money.
And kinda gotta be, know what you’re doing when you’re doing that type of stuff, but it is relatively easy. That’s it? I don’t do it. I don’t know. I’m just talking about it, but here. Yeah. Those are your three options, but that’s where you talk to other people doing this and similar situations.
It’s I’m working my doctor job on the side. What are you doing to get the rep status? And so 130 K taken out of that a year. So I’ll owe a third of that, which is what about 45? K? Yeah. But what I would recommend is make for you, it makes a lot of sense to make that jump to rep status, especially peak Fisher point depart time.
And especially with, in my opinion, with your rap sheet here, you have a lot of stuff. You might be a passive investor, but the scene is like a full-time job that somehow you can justify. It takes a good amount of work just to stay on top of everything and don’t waste it on just practicing right.
For your CPA now, or that totally. You don’t want to talk to have your CPA talk to them. Of course, that’d be. Oh, no definitely doing 40 hours a week working on that. Yeah, definitely. Yeah. But yeah if you were to do that, maybe I would two X that and take out 200, $300,000 out of there every year, extinguish that with most of your passive losses.
And then now you’re out of, you’ve withdrew the whole thing out in a handful of years instead of a day. I would play it that way. Yeah. I’ll wait and see if the reps happens or I guess when the release happens, one of the other things I’ve been doing, how I’ve been paying my.
Life insurance premium is with the solo art 401k. You’re allowed to take a $50,000 self-directed loan. And so what I’m doing is I’m taking $50,000 out of that, just paying myself back in that. And then when it’s time for the next premium, just taking that loan out again and paying it back. I still have to pay it back, but nice being able to pay yourself back.
And yeah, that’s a nice little hack there. Yeah. But yeah. Just the hard thing is this is an art form. Like we don’t know what’s going to happen with bonus depreciation in a couple of years. It’s supposed to phase down a little bit. In 2024, it’s still going to be fine, but we don’t know if that’s going to get extended.
We don’t know if you can use a hundred percent of your losses to offset your income, but we don’t know if that’ll be Kat, like how like conservation easements are all a gas where it’s your captain, like 30 or 50. We don’t know how the world is going to change it, that type of stuff.
So a lot of this is a risk and uncertainty, which is most people aren’t comfortable with that type of stuff. And it’s not an exact science, but that’s why I would say, like right now, there’s a clear path on how to get it out in a few years with if you’re able to rep status. And I would take it before it closes up.
That said you could sit around for three years and something really video will Wade better could come down the road. But you’ve also missed out on deploying those funds to right now, it makes so much more sense to have that, not locked up in jail, give it so much more flexibility and yeah. And when you crack those open those retirement funds, then you get more passive losses from that.
So it is a multi-gender dimensional. But that’s how I would play it. I would take it now, or in the next few years with rep status, start researching rep status more. And I that’s where I’ve, it’s really suggest meeting other people that are doing the rep status because now you have a specific target, right?
You’re trying to find those right people to high income earner. With disproportionate incomes that were ideal. You’re unusual where you’re the high income earner yet. You’re great. Part time. Normally that doesn’t happen, right? Yeah. Not really other people’s relationships. You just suck it up and go to work. And then the other person takes over their rep status, most cases, but where you do it all, man.
I’m gonna do it all. Yeah. Yeah. Make them make the money and bring it home. Cook the baby. Also do a 750 hours of the side, right? Yeah. It’s all in documentation. Yeah. Yeah. Any other questions you got or anything you want to talk through? I don’t know.
I think you said maybe I’m a little over diversified, but just going forward, what I, what. Bird’s eye view of what I should be focusing on going forward. It’s, I love multifamily, but I think I’m about like 65, 70 5% or, yeah, multifamily. And I’m trying to get in a little bit of self storage here and there, and a little bit of mobile home parks, but I don’t know if there’s any other directions you think I should be looking into.
Yeah. Just the fact that, your percentages, you’re probably a lot better than most people. Again, like most people who are new, they go into all a bunch of stuff like the Las Vegas and Fay, and they just file, they just go into all these random asset classes, in my opinion, that the way to do it is going deep with one asset class, it learn it, learn the people and then branch out.
As you find other passive investors who also investing in self storage deals, office deals. I’ll just say for myself, right? Like I’m an operator of apartments. I know that a thing or two about that. So I would say 80 to 90% of my stuff is apartments. Vast majority. I don’t know exactly. But I, when I go outside of my comfort zone, apartments, office, self storage, mobile home parks, I want to invest with the institutional operators, especially when I’m not controlling my own debt.
No everybody listing here is our passive investors. You guys don’t have the luxury of being, behind the curtain, on the operation side of apartments. So they have take it for what it’s worth. But yeah, when I invest in stuff where I’m an LP, I don’t want to invest with somebody who just did a weekend bootcamp or on their first dozen deals.
I want somebody who’s more institutional, even though I’m willing to give up return. I’m okay. Doubling my money every 10 years instead of every five. Does that make sense? No, that makes sense.
But if you’re a passive investor and you don’t know one from one first of all, you should know you should meet the other people doing it too, but then maybe if that’s the case and it’s all shades of gray to you anyway. Maybe just to diversify or I guess, yeah. You were saying before, do you have any advice, w you wish you could give to your rookie self when you’re just starting doing this and that would be.
No exactly why you are investing in a certain investment. Like when I was doing it before, it was just dartboard, it was like, oh, this looks good. Throw the dart, oh, this looks good. Throw the dart, throw the dark. And now it’s okay here’s what it looks like. And here’s what I need.
And oh, I need some more higher yielding, higher using plays. I need to start looking at some more, some more of those deals or, oh, I just, I need more cash flow from this. Maybe I’ll double down on the ATM investment or, really think about before you, you pull the trigger, what that’s going to do to the portfolio as a whole.
Yeah. Yeah. But I think one thing. That was really good as you got your skin in the game, that we can have conversations, other paths and investors that you’re not just some newbie accredited investor that has invested in check and adds no value. And that’s why I say go learn one thing first. So you can use that as your ticket to get in cahoots with other people.
Totally. I totally agree. Yeah. But know why you’re doing it just don’t do it because everybody else is doing it. That’s the other thing, right? You have a lot of, there’s a lot of like doctor groups or investor groups where they all like group think their way into, oh, this, these guys are good.
These guys are good, but I would never invest in them because you have this thing called sponsor creep. They become more institutions. Yeah, we’ve got people lining up around the block. It’s I think everybody who’s listening who has gone through the single family home, like turnkey circuit, like they know that there’s two or three companies that everybody talks about, but you only buy from them.
If you’re a sucker that wants to pay 10 to $20,000 over market price. Sure. They’re reliable. That’s the way to invest in my opinion. And it goes same for this type of stuff. There’s some people. They can put garbage out. People will invest because they’re more institutional operators.
Any last thoughts or any questions come to mind, Brian? No, this is helpful. And that is a lot of fun. If you guys want to do one of these calls, even if you’re less experience reach out team@simplepassivecashflow.com. And we mentioned the retreat.
We’re not doing like a really open house type of events these days. I think we’ve realized that a lot of people have figured it out that simple passive casual is a bunch of passive investors. So we got a bunch of those, like newbies syndicators poking around and we have enough live investors, like 700, if you guys out there.
So everything is more closed circuit only to passive investors these days. So that’s kinda why things are the way they are. But yeah. Thanks for listening folks. And we’ll catch you guys next time.
But anyway, enjoy the show here.