Sell Your Real Estate Or Cryptocurrency Smarter With Brett Swarts
Episode 515: Sell Your Real Estate Or Cryptocurrency Smarter With Brett Swarts
We already know that things like the 401(k), IRA, and 1031 exchange are the government’s way of incentivizing us to invest and put money back into the economy to grow jobs and take care of our retirement. But did you know that you can defer capital gains tax and potentially even income tax over a period of time using these tax deferral strategies? In this episode, Brett Swarts, the Founder of Capital Gains Tax Solutions, returns on show with Mitch Stephen to talk about a lesser known strategy called the deferred sales trust. Brett presents the magic of its application in any highly appreciated asset such as primary homes, businesses, commercial real estate, and even cryptocurrency! Sell your real estate or cryptocurrency smarter. Tune in to discover how deferred sales trust can work for you.
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I’m here with Brett Swarts and we’re going to be talking about how you can defer your capital gains tax on things like real estate, Bitcoin, even a big commission check you’ve got out in the future and whatever big lump sum you’ve got coming in. If you would like to understand how you might possibly defer the tax on that, you’re at the right place at the right time.
A lot of people think there’s nothing to do about that. Sometimes when they’re talking about taxes, you just have to pay them and go on. This is not true. There are legal ways all done by the book. There are methods and different financial ways to navigate. They have case studies, which is the reason why we do them. They have law case studies. They have been up in front of the court and there have been rulings. Here you go, Brett. How are you doing?
Mitch, I’m better than I deserve. I’m excited to be with you again. The last time we jammed has been too long. A lot has changed since then and a lot has remained the same. It’s good to be with you again.
There are a lot of people in this world that don’t even know that you do exist. I know that for a fact because I talk to people all the time. They’re complaining about the tax problem. I said, “Do you know about tax deferred trust?” They will say no. They don’t even have a clue. I’m glad you’re on the show because maybe we can let some more people know about these different avenues and choices.
You were talking about deferring tax on Bitcoin or cryptocurrency. I bet you that there are a lot of people out in the world that doesn’t know that there are some possibilities out there. Usually, when people do this, there are some pretty and outrageous big hits. It’s worth sitting down for an hour and having a conference to talk about how you might save tens of thousands, if not hundreds of thousands or millions, by adding to your knowledge base. Where do we start with this topic?
We will try to make it simple for people as best as we can. The government is no stranger to tax deferral. They give us things like the 401(k), an IRA and a 1031 exchange. These are ways that we, as US citizens, workers and investors, can defer capital gains tax and potentially even income tax over a period of time. It’s knowing that the government wants to do that because they want to incentivize you to save, invest, put money back into the economy, grow jobs and take care of your retirement and your kids’ college savings.
There are a lot of things that incentivize them to say, “We want people to do certain things. Let’s incentivize them by not taxing as much.” They can’t force you to do things but they can make it attractive enough for you. The deferred sales trust is another one of these tax deferral strategies that has been legal for many years and has been proven.
The application of it is where the magic comes in. It works for any highly appreciated asset, real estate, primary homes, businesses, commercial real estate and cryptocurrency, which is the topic of this episode. For many years, it has only ever been known for mostly real estate and business sales, veterinarians, dentists, optometrists, car dealerships and multifamily properties.
Can it work for stocks and bonds?
It can work for public and private stock.
I imagine a lot of people are thinking about getting out but they don’t want to take the hit because that’s always the most painful part of getting out. A lot of people think it’s a good time to get out. It’s like, “Get out while it’s getting good. We have made good money for a long time. Things are smelling a little shaky in a lot of people’s opinions. Maybe this is a good time to have a good reason.” You can get out and defer the tax.
We have to say it’s somewhere between 30% and 50% of the game, with the depreciation recapture depending on the asset you hold and the state that you live in. Part of Biden’s proposed tax plan is he’s taking potentially 20% federal to his highest 25%, 26% or 28% federal. It’s going to be 30% to 35% or 38% to 58%, depending on the state you live in and the depreciation recapture.
It’s no longer about cashflow, although it’s always about cashflow. There’s cashflow in the show but it’s more about tax flow. How and when are you going to receive those funds? How much tax are you going to be paying? Why? The government has been and keep spending a lot of money. No matter what side of the aisle you vote for, they’re spending.
That means a couple of things. They’re going to raise taxes and also print a lot of money, which means the next thing, which is potential inflation. We’re seeing inflation and potentially, it’s happening. It’s a great time to sell high and diversify. Get some liquidity and tax deferral. Get out of debt. We did a deal for a client in Alabama, sold a $2.6 million business and deferred all the tax. He got a high multiple for the sale and he’s building tax deferred with the trust 70 multifamily units. That’s pretty cool. It’s like he 1031 out of a business into building.
They don’t offer 1031 for business, for a lot of things and for the $1 million commission you’re getting because you sold 10 billion rubber gloves in the middle of the COVID thing. They don’t offer any exchanges for that. Here’s how you might do it.
It all depends on the fact pattern and the way you structure the deal, especially when it comes to commissions and stuff. It’s not as clear-cut on that. Where we’re staying in are highly appreciated assets. I’ll give you access to three live deals that we closed. This is the exciting part about this episode and why you want to continue to read because for many years, the businesses and real estate sales, including luxury and primary homes and businesses, don’t qualify for 1031.
This is not to be confused with the Delaware statutory trust. That’s another form of 1031. We call it the Hollywood video to the blockbuster, which is 1031. What we want to show you is Netflix. What’s cool about Netflix deferred sales trust is it works for all of those assets plus public stock, private stock and cryptocurrency. We got a call from one of our strategic alliances. She’s a financial advisor in the Bay Area and has a couple that she’s working with.Now, more than ever, is a great time to sell high and diversify. Click To Tweet
This was a married couple with 2 kids and 1 dog. He works in Silicon Valley. She’s an attorney. They’re working hard, long hours for many years. He was smart enough to buy Ethereum and Bitcoin at the very early adoption of these assets. He understands these assets like we understand real estate. He gets it. He had the conviction to hold and never sold.
In 2017, it raced up to about $6 million. He had put around $50,000 to $75,000 and it raced up to $6 million. His wife says, “Sell.” She didn’t get it as much. Cryptocurrency, especially at that time, was still new. He’s like, “There’s a future for it.” She’s like, “We can retire, be done, go invest in real estate and different investments and securities, be a little more diversified.” As far as she knows, the money is out in outer space or on the internet somewhere. She didn’t know.
It was $6 million but he didn’t sell. Part of why he didn’t sell was because he didn’t have a tax deferral strategy. He was in California and looking at 30% of being wiped out of all that gain. As he was looking for the tax deferral strategy, the market crashed and his $6 million went to $1 million or $2 million. He was like, “I’m going to hold.” It raced all the way back up to new record highs and even beyond that. It went up to $13 million. I’m sitting down with them. They live in Oakland Hills in a beautiful home overlooking the whole San Francisco Bay.
He probably had an argument with the wife like, “You dummy.” All of a sudden, it’s going back and forth.
I said, “How did you feel?” She’s like, “I feel terrible. That meant I could retire. The outcome was we could retire and travel.”
It starts before that. “You spent $50,000 on what? It’s worth $ 6 million and you don’t sell.” I can see this rollercoaster of a conversation with your wife.
He didn’t tell her until they sat down. It was like an anniversary date. For the first few years, he didn’t even tell her he was investing in it because it wasn’t a lot of money for them. He was like, “$2,000 here.” It was some. They were making a good income but it was dollar-cost averaging. He was doing it and goes, “I got something to tell you.” She’s like, “What?” “I’ve been buying this thing called Ethereum.” She’s like, “What’s that?” “It’s like Bitcoin.”
In six months, it all crashes. Fast forward and she’s like, “Sell,” but still he’s vetting us, the structure, strategy and legality of this. Make sure the funds are protected. They can’t be hacked. It’s the banks and all of the above plus the investment plan for the outcome. It’s just as important that it’s legal as the next part of we’re in how the funds are invested.
We went through all of this process and I said, “What would you like to do?” He goes, “First, I would like to retire from the corporate tech job. I never want to work for someone ever again.” I’m like, “You can do that.” He’s like, “What’s the income on this thing? What can we expect?” I go, “A lot of clients are about 8% net of fees and they’re living off 5% or 6% of it. At $13 million, if you’re selling everything tomorrow and take a 6%, that’s pretty conservative.” “That’s $780,000. That’s a lot more than what we’re making per year. You’re telling me we’d never have to work again?” I’m like, “You’d never have to work again.”
$780,000 per year should be about 6% on the $13 million divided by 12 is about $65,000 a month. Make sure I did that right. That sounds a lot. They’re like, “That’s much more than we’re making. We can travel.” The outcome was important for them. It wasn’t just, “Are we making a bunch of money?” It was more money than they ever had but it was this process of this. A) He’s intellectual, B) He’s analytical. C) He takes his time to make a decision. He waited and it went from $13 million to $7 million within about a three-week period.
All of our hearts sank. His wife was upset again. It was the second thing. He goes, “Here’s what we got. At least we got the investment and legality done and what the investments are going to be.” They want to buy a place in Tahoe eventually and a big cabin. Everyone from Northern California wants their dream to be big. Some people buy Mercedes or BMW. For people in Northern California, they want to get a cabin on top of Lake Tahoe. It is known if you live in Northern California.
He goes, “I want to go by that. She wants to buy that, the family and all of it. It’s beautiful.” It drops, so the dream is out. He’s thinking about going back to work and all this stuff. Fortunately, Bitcoin and Ethereum made another run within about 45 days of that date. They sold the first $5 million. We broke the four-minute mile. Did you ever see Roger Bannister? No one thought they could run the four-minute mile.
Maybe I put these things on myself but nobody thought we could do this with crypto and Bitcoin. We did it and broke the four-minute mile of about $13 million in value because it went all the way back up. He sold about $5 million of that. Since then, it’s at even more all-time highs. He liked it so much that they did another $2.5 million. The unique part about the trust is you can dollar-cost average out.Nobody thought we could run the four-minute mile with crypto. Click To Tweet
He doesn’t have to sell all $13 million at once. He sold $5 million and his $13 million dropped to about $8 million. His $8 million went to about $10 million or $11 million. He did another $2.5 million and was slowly timing the exit of the coin, part of that was Bitcoin and Ethereum. He’s diversified and completely retired from the day job. He never has to work again. I’ll pause there to see if you’ve caught all that.
His problem was part of his success. The guy didn’t make a decision very fast. He’s very analytical and takes his sweet time. It could have worked for or against him. Lucky for him that it worked for him. It always came back and came back stronger. Who would have guessed? The bigger part of the equation is it’s someone that’s an attorney and well-versed. I spent a lot of time with you. That would encourage a lot of people to say, “If it passed this guy’s acid test, it’s going to pass your lawyer’s test too.” I don’t know who this guy was but he sounds like he was pretty methodical and wasn’t going to move until he was sure of something.
He’s a part of a big tech company and has been doing it for many years, all of the security, the transfers and the legality. His wife is an attorney. We had to answer tough questions and she put us through the wringer. That was the first client. The second deal is even almost more inspiring because she’s in her twenties. I would say the certainty of conviction on something. She works for Google. She’s in the tech industry. She bought Bitcoin at a very low amount a long time ago for about $14,000 to $20,000.
What she’s in for, I’m going to prepare you for this. This is a real deal that happened. Her Bitcoin value went for about $14,000, $20,000 to $50 million. She never sold. She bought the first Bitcoin for a couple of thousand bucks. The next day she lost 8% and sold it all. That was the first day she bought it. She’s like, “This thing is going to do something.” She bought more the next day and never sold. It went to $50 million. That’s 49.99% of $49 million.
It increased but over what time?
That was over seven years. I’ll think of the exact dates. It’s the same thing with legality. Is it real? Is it legal? What’s the track record? Am I getting in trouble with the IRS? Is it safe? Her outcome was she and her college roommate are starting a brand-new startup business. That has been her dream. She didn’t want to work for a corporate tech company forever. She retired from Google and started a tech company.
The outcome for her was transformational. I’m hoping people are catching this. It’s not just, “We’re deferring millions of tax.” That’s cool but what does that enable you to do? Some people sleep well at night. She has a steel spine because the marketplace, even in Bitcoin, has been a wild ride and to be able to not sell when you put in $20,000 to $50,000 in something that’s worth $50 million. She didn’t sell all $50 million. She’s like, “No way. It’s around $60,000 a coin. It’s going to go to $100,000 a coin.” She’s pretty confident in that.
She’s like, “I want to sell the minimum I need to start my startup, which was $5 million.” She sold $5 million of the $50 million into deferred sales trust. We will be doing another $1.5 million on January 1st, 2022 for some tax purposes reasons for that. That enables her to do the startup company. It’s an online educational business, which is cool. It’s educating the younger generation online. It’s a multinational and multicultural type of company. I’ll pause there and see what you think. Do you have any thoughts on that?
I’ve always said it’s not about the money. It’s about the freedom to become who you’re supposed to be. Some people are like, “I want to sit down and do nothing.” For a lot of people, if they sat down and do nothing, it’s going to kill them or they don’t know how to sit down and do nothing. It’s onto the next phase. It allows people to have a higher reason than go to work, survive, make money or work for retirement. There’s an idea. Go help some other people, move beyond their limiting beliefs and go be what they’re supposed to be.
I call it the success or the fulfillment formula, which is identifying those 1 or 2 gifts. Some people call it a superpower or strength. They’re God-given gifts. They have been given to us, invested in us and blessed with that to be a blessing to others, which is the second part of the equation. How do you use that gift to go bless other people? The one in the middle that you want to focus on is that timepiece.
When you have that time to be able to maximize the potential of that gift, where most people are stuck and where I was stuck for many years and maybe you too, Mitch, if you’re stuck trading time for dollars versus having money work for you to give you time, then you can focus. It’s like those fittest people who spend 6 to 7 hours in the gym. Maybe they felt like Arnold Schwarzenegger when they were doing that thing. That’s cool. They have that time to be able to do that. Somehow, they have unlocked that, their parents did or whatever.
Somebody unlocked it because it takes time. You don’t look like those people on accident.
Bill Gates is the richest man and has the biggest company in the world but he gives back and does these causes to try to solve big challenges of the world. Part of it is he has unlimited time. If he wants to, he never has to work anymore and can do those things. That’s the transformation and what we’re trying to do. There are two sides of the aisle here.
We do help the government but realize that the government, a lot of them, want to spend your money pretty quickly. There’s a lot of them too that says, “If we can help people invest these funds and startup companies that create more jobs, education and spur economic growth, that will create more jobs and more tax revenue in the long run. If we can connect these two parties in a way that’s fair and equitable for the taxpayer as well as for the government’s perspective, it’s a win-win.” That’s why we love it and why we’re here. I’m trying to help people out.
I want everyone to go to 1000Houses.com/deferTax. You’re going to be given away a free eBook called Sell Your Real Estate Business or Cryptocurrency Smarter. That’s the name of the book. Learn about tax deferred trust. Over there, you will have a chance to hook up with Brett, his company, his websites and whatever he wants to put over there. You will have everything you need, even to get a consult with him if you want to.
The problem with these tax deferred trusts is you got to get ahead of them and set them up. There are some legal things and some paperwork that has to be done. It doesn’t happen in five seconds. If you know you’re headed toward a windfall, you got to get ahead of the curve and set this thing up a few months in advance at least. How long do they need to set up in advance?It’s not about the money. It's about the freedom to become who you're supposed to be. Click To Tweet
We have done deals in 1 week, 14 days or even a shorter amount of times. Here’s the thing. No one likes the fire drill and rush into a marriage. This is a long-term gig. I’m a third-party, unrelated trustee. Part of why this thing works is you don’t know me. I’m not your brother or an employee. I’m separated from you, Mitch or anyone else that’s reading.
If you’re my brother, I’m sorry I can’t do the deal for you because you’re related to me. It can’t be a college roommate or best man at your wedding. The IRS is a sham. You are doing a sham business thing to do this thing. I’m in it for business purposes and I can make a profit. We may charge fees. These are all things. With that being said, there’s that know, like and trust factor that you got to build up.
For part of that, we do a YouTube channel and podcasts. We do these all the time to try to get people to get to understand who we are, what we’re about, our values, clients and partners out there. We’re there trying to make it very simple and straightforward. You got to get to know the banks. That’s not just me. You got to know the financial advisor who works as a financial advisor across the US and the investments.
This is big. It’s a big part of what we do. The sooner you can get with us, the better because you separate the emotion from selling from the emotion of the exit plan. What I like to say is if you can underwrite the exit plan first, get all the boxes checked on the emotional, legal and logic part of it and then sell the asset. Negotiate and list it. There are MNA advisors and business brokers. Go through it.
I never thought about what you said. Selling your business, your lifelong work or that family farm from the family can be very emotional. What’s cool is if you get out ahead of that, you will know what’s going to happen someday. Maybe the next 2 or 3 years, you’re not sure but it’s in your future. It’s looming. It’s a nice time to go set up the boxes when you’re not emotionally tied up from this very personal proposition of separating from something that maybe you spent a lifetime building or that has been in your family for generation after generation.
I started Marcus & Millichap selling investment real estate properties and multifamily groups in the real estate business. What we found, especially what we learned from our mistakes, challenges, clients and the 1031 exchange is you’re often forced to do the exit plan and the next plan with the sale. It’s all compressed in this 45-day window upon sale and you’re racing for the 180 days. That creates a lot of poor decisions and stress. That’s part of why blockbuster 1031 exchange is not the best plan for most people, especially when values are sky-high. Things could change with the economy.
1031 exchange, the problem with it is that you’re selling because the prices are high. The problem is they only give you this much time to reinvest it and the prices are still high. You’re supposed to sell high and buy low. You can’t do that in a 1031 exchange all the time because you’re trying to compress the sell and the buy within 180 days.
That’s not a lot of time for a market to move. In a tax deferred trust, I read something about how you can sell, put the money over there and wait until whatever you’re particularly looking for comes along until you find the right deal or until the economy turns on its own and it gets a lot easier to find things.
That’s why I started the company. This was in 2006 before the crash. I call this the Monday morning quarterback. It’s the most beautiful deal. He dropped back and played it perfectly. He thought something was on the horizon. He wasn’t sure it was going to be the 2008 crash but this gentleman owned about $250 million of commercial real estate in Minnesota. He’s looking at if they’re going to pay the tax on the sale of a $20 million asset. “I’m not going to do a 1031 exchange but let me maybe try this deferred sales trust thing out.”
He sold the tax deferred sales trust, put it into very conservative stocks, bonds and mutual funds that weren’t subject to the huge crash of ‘08. You can do that too. That’s another secret that a lot of real estate people don’t realize. You can hedge and protect your funds in the stock market. It’s not all bad. Five years later, the bank calls him back and says, “Do you know that crazy 1031 buyer who bought your property?” He goes, “He overpaid for it. We foreclosed on it.”
We were curious and thought it might be a logical thing, “Do you want to buy back your old property that you sold?” He said, “Maybe. What’s the price?” “It’s about 40% less than what you had sold it for.” He goes, “That sounds like a pretty good deal. I can make that deal. Let me get the trust funds situated.” They formed a brand-new LLC. This is the beauty of the deferred sales trust. You can partner with the trust on an active real estate deal.
He bought the property back at $0.60 on the dollar with all tax deferred. He sold hot and bought low. He did what our parents taught us to do because the deferred sales trust gave him time. This is why it’s the Netflix versus blockbuster. You don’t have to show up on a Friday night and guess if your movie’s rented or have to return it within three days. You can show up whenever you want and turn it on, “There are some ongoing fees. We get paid,” but it’s never not rented out. You can diversify, get liquidity, do active real estate and start a new business. It works for cryptocurrency.
I have seen the fees and what it looks like. This is what I say to people that are above, “If you have a better plan, go ahead and pull the trigger because you don’t.” A man has got to get paid but it’s laughable what you pay for what you can receive. It’s a no-brainer. You can’t do it yourself and go take a course on how to set up your own taxes for a trust. That will never happen. Someone has already done it. Pay the man for what he does and receive these huge benefits in the forms of, in some cases like this guy, millions upon millions for a fee. You look at, “This is how much I’m paying and keeping. Let’s do it.”
On that point, this is also where we have our minimum, $1 million net proceeds and $1 million gain. If you bought crypto for $50,000 and you’re selling it for $150,000, we’re not your guys because we charge our fees. Our fees eat up the savings and it’s too small. If you bought crypto for $50,000 and it’s worth $1,000,050, it’s $1,000,000 gain and $1,000,000 net proceeds. That is unless you have two properties or assets that are worth $500,000 each that you can combine into one trust, which you can do.
Let’s say you had XRP at $500,000, it’s a $500,000 gain. You had Bitcoin at $500,000 and a $500,000 gain. Net proceeds and net gain, that two combined into one, you can do that. When we see that it becomes a home run for all parties, we’re happy to give you a no-cost analysis on that to make it make sense for you.
We’re going to take it a little side-step. I’m going to ask a personal question. You don’t have to answer. What do you invest in?
I grew up, fortunately, to learn from my mom and dad about cashflow and value-add real estate, whether it’s the new development or the multifamily rentals. I fell in love with it at a young age, swinging the hammer, driving in the Bobcat with my dad, seeing the project from start to finish and then seeing the cashflow that it can produce. As well as learning, going to college and studying business, going to Marcus and Millichap, studying multifamily investing and learning about depreciation and 1031 exchanges. What has always been my bias, focus and, opinion is multifamily value-add real estate.
A couple of sisters to that, I also invest in mobile home parks and senior housing assisted living. Those are my three favorites. I have also done some industrial and some medical offices. I was a part of a deal in Arizona where it was 50% built after the foreclosure market in 2010. It was a retail center that we bought low. We were able to sell high and finish the construction. It’s real estate first. I also have some holdings in the stock market. I work with an amazing financial advisor who is my business partner, so I have some holdings there as well. That’s my take. I also have a light thing at crypto. It’s not a lot.
You’re very diversified. You like the game. What I heard you say is you were raised on and hung your hat on cashflow real estate. Is there anything else we need to know before we wrap it up? As the host of the show, you will know most of the time way more about the topics than I do. Did we cover it well? Did we leave anything out?
We covered it well. We’re not just talking to the individual investor. We’re also talking to the CPA who’s reading to this, the financial advisor, the MNA advisor, the business broker, the commercial real estate agent or broker or the luxury realtor. We have a coaching program and a lot of free education. Our goal is to empower 100,000 business professionals, the best of the best or the top 5%, who are dealing in ultra-high-net-worth clients and help them out in the next years.
We want to give all of our secrets as much as we can to you because as soon as your client sells, we get the calls, “I sold a so-and-so. He didn’t even know about this. I paid $3 million of tax. Can you help?” I say, “I’m sorry, we can’t. It’s too late.” I remove all contingencies on the deal, “We’re closing in two days. Can you help?” I’m saying, “We can’t.” Unless you’re in a 1031 exchange, we can help with that. If that’s a small sliver, then we can save a failed 1031.
If you’re reading this and you want a backup plan, you should never go out. As Warren Buffett says, “You find out who has been skinny-dipping when the tide goes out.” You don’t want your 45-day tide to come back in. All of a sudden, you’re left with nothing except for bad properties or no options. For the deferred sales trust, you want to work with our strategic alliances or a 1031 exchange accommodator who will give you all options like the Delaware statutory trust, 1031 and the deferred sales trust. Get with us early. Get educated, get empowered and make a big difference for your clients and their family’s lives.
I would like to thank everyone for stopping by to get you some Brett Swarts. I would like to thank LiveComm.com for sponsoring this episode. Check it out. It’s smart phone numbers lead generations text messaging. It works great in CRMs. I have used LiveComm in my business. I average four days on the market on my houses for sale. I put no signs in my yards and have very little cost to sell a house. There are 100 different ways to use this. That’s one way that I have used it.
Go to LiveComm.com. Check out the videos on the homepage and get a feel for how I am using this incredible and simple technology to do incredible things and change my numbers, bottom line, days on market, what it costs to reach a customer and how targeted I can get a customer. For $0.02, I can hit my main customer right between the eyes and it’s a 96% open rate. Check out LiveComm.com. Brett, thank you very much.
Thanks, Mitch. Take care.
Let’s give that link one more time. It’s 1000Houses.com/deferTax. You’ll get a free eBook titled Sell Your Real Estate Business or Cryptocurrency Smarter. Do that. Please get your hands on it. We’ll see you later.
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