PART 2 - How to Build Generational Wealth as a W2 Employee

Transcript:

Welcome to Hidden Money Podcast. Part 2 of our conversation with Gibb Irons.

Mike Pine: Welcome to The Hidden Money Podcast, the only place that shows you how to use taxes to grow your wealth. When you stop being afraid of taxes, you can start using them to your advantage. Every week, Kevin and I will look at different part of the tax code that's specifically designed to help you keep more of your money.

There's truly wealth inside the tax code. Let's go get your hidden money.

We always talk about using the tax code to your advantage versus being a victim to it? The main way, or one of the main ways to do that is to be a proactive tax planner, not a retroactive tax victim. And it's nice and refreshing to get clients that not all clients are as awesome as you, but it's nice when we have clients that actually will work proactively with us.

We're, we still have a lot of clients that do some great things, and they're incredibly smart, but they're so busy we can't get them on the phone or to respond to an email until after the end of the year, [00:01:00] and it's too late in most cases. So you should be doing your tax planning throughout the year, not after December 31st. In your case we've just walked through two years of incredible tax benefits and great financial portfolio growth with you. Again, I believe by saving you those taxes so you could redeploy those into additional investments, you're helping grow the economy doing much more so than my opinion, than the government does.

And if you would've paid that money in tax and not gotten it, it would've reduced the amount of economic growth that your plans and your portfolio generated. So once again, I believe it is our patriotic duty as Americans as citizens to do whatever we can to grow the economy. And it's the right thing.

The whole reason these laws are available, the whole reason you were able to take advantage of bonus depreciation is our society and Congress and even the president got together and said, "Hey, these are the things our economy needs to keep the economy growing, to improve the economy strength and to lift up the [00:02:00] tide for all people in the country.

So you're doing a great job on helping grow our economy. Again, this is good stuff. This is not cheating. This is not playing it loose with the tax. All this is utilizing the incentives our society got together and put into the tax law to follow the rules and to grow the economy, which happens to also grow your personal portfolio.

Gibb Irons: Yeah, I agree completely, Mike! The rent growth that I've seen on these investments has been phenomenal. Like those 14 condos when I bought them, They were renting out for 800, maybe 900 per month.

Now some of those same units are 14 to 1500 a month. So all of these purchases were good investments from the get-go.

These were all solid investments. Like I bought those condos at $75,000 a piece. Did [00:03:00] $25,000 of upfitting, let's say per unit. Now I've got a call basis of a $100,000 but I could turn around and sell 'em today for $150,000. I'm not gonna sell them. cuz I don't want to trigger tax consequences.

They come with that and I'm a buy and hold real estate person when it comes to those particular types of assets. It's a little different with my multi-family stuff that, is a little bit different but you're right. I Provided 14 condominiums for people to live in that are very nice and we've got a housing shortage and these people are making $60,000 to $80,000 a year and have a beautiful place to stay.

And we're stimulating the economy. I am not saving, I'm not sitting on a pile of cash that is losing value every day because of inflation.[00:04:00] Instead of being a saver, I'm redeploying all of that money into the economy, stimulating the economy. And I feel like it is more patriotic to do the things that the government wants us to do. The government is incentivizing us, and this is something that you all taught me, but it's important, for the listener to understand that the government is offering these incentives because that is what the government wants you to do and to do what they're, they want you to do, You capture a benefit that you wouldn't otherwise get. I Agree with you. Put all that money back into the economy and, been able to help a lot of people.

Kevin Schneider: That is great. And I love how you're starting to get this niche into real estate, but even inside of real estate, you're diversifying to remain safe. Like you said, you have the multi-family with some long, steady leases. You got your vacation rental, which is probably gonna see some ups and downs during seasonal adjustments.

But overall you're diversifying within a portfolio [00:05:00] and you continue to look at different asset classes within there. So what's next for you? You got your multi-family personal holdings, you got your short-term rental. How else are you gonna diversify?

Mike Pine: Yeah, this is not the main subject of this podcast, but Gibs another perfect example and shown through all of your proactive tax planning and number of crunchy, you realized, you've invested a lot this year into tax optimized alternative investments.

You realized that you're still gonna pay a little more taxes than maybe you needed to. So you got together with the guys at King Operating, if you don't mind me saying and Eric was one of our Podcast guests and you can listen to him all about the opportunity they offer, but you were able to invest some money in there and get an immediate tax advantage this year at King Operating.

What was the deciding factor that wasn't where you're trying to grow your portfolio? You focus on real estate, but there was what went on in your mind? How'd you come, tell me the thought process that got you [00:06:00] there.

Gibb Irons: Know that there's special laws surrounding oil and gas and there's more favorable tax treatment um, with oil and gas. So that was a big factor for me. I think in terms of a return, they were projecting a 3X return they had underwritten the return for a five year period of time.

But King has been around for a time. Seemed like a highly reputable company. I did my due diligence. Had a couple of conversations with them where we, went through a bunch of questions and whatnot, but the favorable tax treatment was really the thing that interested me the most.

One thing that's cool about that, and you can probably explain this a lot better than I can, told my other attorney friends as well, is not something where your wife has to qualify as real estate professional. This is a totally different section of the tax law and I'll let you [00:07:00] explain that, but yeah, I found those tax benefits to be extremely favorable.

Mike Pine: Yeah, that was awesome. And again, check out our bonus content. Check out our area where we interviewed Eric from King operating. He explained that whole Business world very well and we discussed and probably went into too much detail on the tax attributes to it

Again, it wasn't your main area and your main focus for growing your portfolio, but you did realize, hey there, here's an opportunity here. I'm gonna be leaving a little bit of money on table if I don't make it. You did your due diligence, found an investment, and like you said, oil and gas. If it's structured correctly, if you invest in it correctly you can.

Technically be passive, but the Internal Revenue code under 469 and its regulations flat out state, as long as you do it in a way where you don't have any liability protection, you can take those losses, the tax losses, the intangible drilling costs, the depreciation and offset your active income.

And I think that's just a huge bonus that's available out [00:08:00] there. More hidden money just sitting out there for people that aren't finding good syndications for real estate, that aren't finding short-term rentals, that aren't finding good tax credits, that aren't finding long-term rental and real estate professional abilities.

Just wanted to throw that out there cuz I know it was something that you went through and you and Kevin and I all went through the kind of same struggle, Hey, wait a second, do we really wanna do something like this? And interesting to hear your take on it and why you did.

Gibb Irons: Yeah, I'm really excited about it and is something I would definitely consider doing again in the future. It was last minute add-on to my strategy. At the very end of the year, we were looking at numbers and I said, rather than give this money to the IRS and taxes, Where can I deploy it?

And it was just a perfect opportunity to deploy that money and be able to hold onto it and reap the tax benefit.

Yeah, so Kevin! Next thing for me multi-family syndication. And in 2022 [00:09:00] first became exposed to the concept of syndication. And it was actually something that we talked about on one of our monthly calls. We talked about there's a lot depreciation that is accessible to a general partner in a multi-family syndicated deal.

And I joined a mastermind last year and have been really trying to focus on multi-family investments passively invested in three deals. I Believe there's gonna be a tremendous amount of opportunity in 2023.

Right now you've got a lot of people that are on bridge debt. And they didn't buy, perhaps they didn't buy a rate cap. And now with interest rates going so high, they're gonna find themselves in a bad situation where they may not be able to [00:10:00] be profitable to cash flow. They are not gonna have the opportunity to refinance because of the increasing interest rates.

I'm all in, in multi-family syndication for 2023. I have actually tried to jump into some GP General Partner opportunities as a multi-family syndicator. And right now I'm talking to several operators and working on building out my investor database. And what I really want to do is I want to help other attorneys like me that are high income earners that are paying a tremendous amount of tax. And I want to show them that not only can they achieve quite often, double digit returns than the stock market.

I know you gentlemen keep your eye on the market and I know my own portfolio [00:11:00] has decreased about 20% in value over the past year. And so I'm just really excited to give other attorneys and just friends & family, and other people an opportunity to invest in this asset class because I believe it's where the opportunity's gonna be right now.

Single family was great. It's been good to me. Short term rental properties have been great. I've been successful in both of those, but believe the real opportunity is in multi-family. I think you're gonna be able to buy apartments at a discount right now, and you can already see that the prices have flattened out and they're starting to decrease, and sellers are starting to become more reasonable about the value of their property.

But the deal flow out there right now is just tremendous. There are tons of deals coming available, tons of people that [00:12:00] are gonna be motivated sellers and I think within the next one to two financial quarters just gonna see a huge huge amount of opportunities. And then over the next couple of years, We're gonna see, transfer of wealth like we've never seen before.

And so all in on it and I've put aside as much dry powder as I can. And I think I've been to five multi-family conferences in the past five months and that's on top of my busy trial schedule and I'm doing all that because this is really an opportunistic time to be in that space.

I think Warren Buffet is the one that says, "When everybody else is running from away from the market, that's the time that you should get in". And a lot of people right now are scared to get into multi-family.[00:13:00] They're scared of the interest rates and things like that.

Mike Pine: Yeah, so you're pointing out that through these changing times, through these scary times, a lot of people would say there's incredible value being presented and finds out there that people are gonna be able to capitalize. So you've taken your multiple years of real estate investment experience where you started on your own and across multiple industries and you've learned how to underwrite and do it successfully.

You've learned how to operate and operate successfully and that there's a great opportunity that's starting to form because of the economy's changing times and interest rate cap or interest rate increases. And you see an awesome opportunity out there. Please do visit hiddenmoney.com/bonus, and we're gonna unpack some more details out there for people like high paid attorneys that don't have time to go do what Gib has done and go buy your own properties and manage them or whose spouse would kick 'em out of the house if they ever asked to go manage properties.

There's the possibility of getting in [00:14:00] as a passive investor and there's still tremendous tax opportunities available to those passive investors, so they look different. But there's some incredible tax opportunities too for someone who would join a syndication as a passive investor, let's say, with someone like you when you do become an offerer and you are offering investments and syndications out there, but those are also great things. We're looking and this whole podcast is generated around the idea that there is hidden money in the tax code. And there's so many different types of things like alternative investments like bringing, coming on as a passive investor in a multi-family apartment complex out there that not only will give you good hard assets, not stocks out there, and there's nothing wrong with stocks, but some of us prefer hard assets that are actually there, that you can have some say so you can speak to the people who are running them that will carry an intrinsic value that also offer cash flow in a very tax advantaged way, even for passive investors.

I'm excited to see these investments that you are able to help find over 2023, Gib![00:15:00]

Gibb Irons: Yeah, Mike what you said about the passive investments being helpful and worthwhile. One of the passive LP (Limited Partner) investments that I did in 2022 offered 1.5 times bonus depreciation

Mike Pine: Incredible.

Gibb Irons: and, which is incredible, even a general partner on that deal was just a limited partner, just a passive investor. My liability is limited to my investment. To the capital that I've invested, but yet I was able to capture 1.5X bonus depreciation on that deal based on the deal structure. And years past if somebody told me that, I would've said, that's impossible.

It can't be done. I was pretty skeptical of it at first, to be honest. But it is doable and they've found a way to do it. It's been approved and [00:16:00] we look like we're in a really good position with that. So that was just an LP deal that saved me a tremendous amount of money on my 2022 tax return.

Mike Pine: Yeah, I'm looking forward to seeing that tax return when we get it out. I'm just gonna throw in one more tidbit again. We'll go into detail on it in the Bonus Content, but in some cases, not most cases, but in your case, some people who invest as passive investors into an LLC, even if they're a passive investor, if they have an LLC membership interest, they qualify as real estate professional.

Otherwise out outside of that entity, they materially participate in some Real estate professional activities. It's entirely possible to take that passive depreciation that Gib is getting from this investment he just mentioned and utilize it to offset active income. There are elections out there and that's awesome.

But even for people who can't do that, who aren't real estate professionals, you can get tax-free distributions from your [00:17:00] investment for many years. So I don't know any other way through Wall Street to get tax-free distributions or dividends or interest payments or annuity payments. But people who invest in these syndications passively can.

Kevin Schneider: So if you're out there and you're looking to get into some multi-family syndication or you're wanting to dip your toes into those waters. Gib, how can you help and how is someone gonna be able to reach you?

Gibb Irons: Yeah, Kevin, they can just go to info@ironsequity.com. And send me an email. I'd be happy to schedule a call with them and discuss some of the opportunities that, that I'm involved in and just tell a little bit about some of these alternative investments in multi-family.

Kevin Schneider: Awesome! So that's, Emailing Gib at info@ironsequity.com.

Mike Pine: Awesome. There's hidden money everywhere. And thank [00:18:00] you so much for coming on to our Podcast. We're grateful for you. We continue to appreciate your friendship and working with you. And we hope to reserve the right to have you on again one day soon.

Gibb Irons: Thanks for having me.

Mike Pine: Thank you.

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