The Matt Chambers Show
Welcome to The Matt Chambers Show, where we explore the world of traveling, living and doing business internationally. Hosted by Matt Chambers, this podcast connects people, places, and ideas, offering inspiring stories and practical insights to help you design a life beyond borders. Whether you're seeking adventure, remote work tips, retirement ideas, or entrepreneurial guidance, each episode brings you closer to turning your global dreams into reality.
The Matt Chambers Show
Building Wealth With Alternative Investments
What if the financial crisis of 2009 turned out to be a blessing in disguise for you? Tune in to hear the inspiring story of Chris, a former aviation industry employee, who faced a massive financial hit, losing 55% of his assets. In our latest episode of Matt Chambers Connects, Chris takes us through his transformative journey, from reading Robert Kiyosaki's "Cash Flow Quadrant" to embracing alternative investments that multiplied his wealth. Discover why financial education became his compass for navigating the tumultuous waters of economic setbacks and how he challenges conventional investment strategies that many Americans swear by.
Ever wondered how tax strategies can be a game-changer in your wealth-building journey? Join us as Chris shares insights inspired by tax experts like Tom Wheelwright and George Antone. We uncover how the U.S. tax code is designed to favor businesses, fostering job creation and economic growth. Learn the advantages of being a 1099 contractor, the pivotal role of a competent CPA, and why financial freedom is more than just a dream—it's a strategic plan. From tax-saving strategies to the frustrations of inaccurate tax filings, Chris sheds light on the often misunderstood world of tax and wealth management.
Multifamily real estate investment is teeming with opportunities and challenges, especially post-pandemic. With wisdom from Brandon Turner of BiggerPockets, we delve into the current trends and potential pitfalls in this sector. Chris breaks down the importance of due diligence, finding the right partners, and staying informed about market dynamics to capitalize on distressed properties. Don’t miss our discussion on navigating rising costs and non-paying tenants, and how even without substantial initial capital, you can make significant strides in real estate. This episode is packed with actionable advice and thought-provoking insights to help you achieve financial freedom through smart investment choices.
Hello and welcome to Matt Chambers Connects, a podcast hosted by Matt Chambers. This is the podcast that transcends boundaries, empowers cross-cultural connections and fosters a more connected world. I'm your host, Matt Chambers, and I invite you to join us on this quest to expand our understanding and build bridges between my two favorite places on the planet Latin America and the United States. I've been traveling, living and doing business in Latin America for nearly two decades.
Speaker 1:So, Chris, after following conventional investment strategies for decades now you mentioned you faced a major setback in 2009, losing 55% of your assets, I believe and now you've discovered a better way through alternative investments, and, after recouping those losses, you've multiplied your wealth and you're here to share that knowledge and help others achieve that same financial freedom. You've been on a mission, from what I understand, to show people that you don't have to be rich to invest like the wealthy. You just need the right financial education. And I completely agree with you the majority of us don't get the financial education we need. So, Chris, welcome to the show. I can't wait to get into it.
Speaker 2:Well, thanks for having me on, Matt. I really appreciate it. Looking forward to it.
Speaker 1:Absolutely. I can't wait. So why don't you tell me a little bit about your background, so that people can kind of put your history in perspective, and then we'll get into the details?
Speaker 2:Yeah, if anybody's ever read Robert kiyosaki's book cash flow quadrant he called he talks about the four types of investors and when one of them are four types of people really, and one is an e, which is an employee, and then there's an I, which is investor. There's a big business and small business. I grew up in a family of ease. We were all employees and you know I was taught to go to school, get an education, get a job, work there until you die, retire.
Speaker 2:But I liked I, was a very good student, I liked working with my hands. Anything with a motor cars, motorcycles, airplanes, it doesn't matter but I really liked airplanes. And so I went down to Embry-Riddle Aeronautic University in Daytona, east Florida, to get a to become a licensed FAA airframe and power plant mechanic and I had so much fun down there. I actually managed to go two more years and get enough credits to come out with a bachelor's degree. And then I worked at the McDonnell Douglas, at the Space Center for a while and at Kennedy Space Center. Then I moved out to Seattle and worked there and did a little bit of a lot of overseas travel, a little bit of living overseas, but I spent my you know whole working career in the aviation industry, which I really loved, and then, like you mentioned, the illiquidity event. But anyway, that's just. That's kind of the answer to that question. Just my background. I grew up, I grew up in the suburb of Cincinnati.
Speaker 1:So you were basically just a W-2 employee, I mean albeit a successful one, you're still W-2, you're paying high taxes.
Speaker 2:Yeah.
Speaker 1:Yeah, I also read Robert Kiyosaki. That was actually one of the things I wanted to get in to with you, because I saw on your website that you know, one of the books that you recommended is that one. I've read that three to four times, in fact. I just finished it for the last time, about 30 days ago, and that book changed my life as well.
Speaker 2:Um for sure after I got got divorced and I was in this emotional and financial kind of funk I, I would guess, and a friend of mine that I worked with. He said hey, chris, you should read this book, and it was robert kiyosaki's. And I'm always amazed today when I hear somebody who doesn't know who. This man is right. But back then I didn't know, and so I bought the book and I promptly sat it on the nightstand and walked by it every night and day for way too long. And then one day I was going somewhere on a business trip and I was like, darn it, I'm going to grab that book, I'm going to read this book. And I did.
Speaker 2:And that was the beginning of the journey. You know, it's like, wow, there's a whole. And I guess I grew up and maybe, maybe this is typical we didn't talk about money much. There was really no education there and there wasn't much in the school. So I guess it's a good thing that I didn't have to have too much brainwashing done, because I didn't really know much to begin with.
Speaker 1:Yeah, I mean, I think that was kind of my case as well. We were neighbors, actually where we grew up. I grew up in West Virginia for the first 22 years of my life and then you know, I would say that I was definitely the same Grew up to blue-collar parents. My dad was a coal miner, mother was a secretary, so all we knew was get a job with some really good insurance and a 401k and you know where they'll match your 401k. And then you know, once you get out in the world and start reading, that book would be the first the place I would also tell someone to start as well. You know, you start learning that that's just not the best way, right? I mean, if you're making enough money, you really don't need that insurance plan they offer. You really don't need that, and maybe it's just really not doing you any favors anyway. Right yeah?
Speaker 2:And you know the 401k. It's not just the 401k, it's the 401k and then just the conventional. Conventional investments are everything that's publicly traded and everything that's not publicly traded is pretty much an alternative. And most Americans are buying conventional investments through their 401k and they're building up this mountain of money that they're going to spend down in their retirement years. But the problem is it doesn't work for 91% of the population. So to have a financial system in the country that doesn't work for 91% of the population is really bad. Now, the 9% that it works for, if you have a high income and you're wealthy, then that will work for you, but for the rest of the population, they're never going to be able to save and invest enough money in this to build this mountain, enough to make it big enough.
Speaker 1:Where that burndown thing is going to work, it's just 91 percent don't get to the finish line the way they they wanted to get to financial freedom or the place where you can make work a choice instead of a necessity, and they're not even going to get to an abundant retirement lifestyle.
Speaker 2:They might get to some type of retirement, but it's going to be a really subpar lifestyle compared to, because they won't be able to replace the income they had when they were working.
Speaker 1:Yeah, because you're constantly drawing down that value. You don't have any cash flow from it at that point and you're paying taxes, right, I mean, you're paying really high taxes. I think that those accounts work really well for the government and they work really well for the employer. That can convince you that, hey, he's going to match you another 4% on your 401k.
Speaker 2:and people buy into it Like, hey, I'll give you a small salary but I'm going to give you insurance and match your 401, right, and you know I've changed my tact a little bit over the years. If you're not going to do anything and you don't want to put any effort into this, then you know, putting your money in the 401k and getting a match is better than nothing.
Speaker 1:it's really it's it's just a sub optimal way to invest yeah, if you are a w-2 employee, not taking that 401k match from the employer is stupid. Right, you should take it. It's free money. But I think what you're saying and you're 100 right on, I totally agree is um, you're trying to create these alternative investments. So let's get into that a little bit. What alternative investments do you like?
Speaker 2:Well alternative. So, personally, various classes of real estate Alternatives include every class of real estate. That could be single-family rentals, which I don't have anymore, but I have had in the past, Multifamily, which I have. I've had some self-storage oil gas and none of this is none of these are shares or public stocks. I'm talking about private ownership and working oil wells out in oklahoma and atm machines has been a has been a really good investment, just precious metals. Gold is doing really well, bitcoin has done really well. So all that alternative stuff, those are all alternatives.
Speaker 1:Basically, anything that's given you relative, like immediate cash flow, and is going to keep, will also grow in value, right?
Speaker 2:Well, I would say not. You know, robert Kiyosaki's definition of an asset is something that puts money in your pocket, and a liability is something that takes money out of your pocket. Now, if you buy, I've got five one ounce gold coins sitting in a display case right there. That is a alternative investment, but it doesn't provide any cash flow. So cash flow isn't really a requirement for an alternative. It's one of the things that a lot of alternatives do that the stock market doesn't do, and most people are investing in mutual funds that don't produce dividends. So that's the problem.
Speaker 2:It would be like having, let's say, having, a million dollars in a 1K. Would be like owning a million dollar apartment building that only broke even. You're balance sheet rich and cash flow poor, so your million dollars in stocks, funds and mutual funds doesn't produce any cash flow. So the way you create cash flow in retirement is you sell off pieces of that portfolio monthly, quarterly, whatever, to generate cash flow. The problem is with a piece of real estate, you can't sell off bits and pieces, but if you had a million dollar cash flowing piece of real estate, you would have two things. You would have the monthly cash flow that comes off of that, and most likely the value of the building is appreciating at the same time.
Speaker 1:So you get both and you get tax benefits. Crazy I was going to say crazy tax write-offs, right. 27 and a half years depreciation Plus, you know, if you have that under an LLC anything. Well, even if you're doing it in your own name, you know you're getting tax write-offs for anything you do for that particular business, right. So you're sort of you're getting four things, whereas if you're in the, the stock market, you're only getting added about, hopefully getting added value right yeah um.
Speaker 1:So what are the best you know besides robert kiyosaki? I know obviously that's. That's a start. What are your um opinions and recommendations for the best way someone could start learning about these alternative investments? Or or maybe just going back like, aside from that book, what are some other books or educational resources that you know someone who knows absolutely nothing about this to start reading and learning?
Speaker 2:Yeah, continuing on the Robert Kiyosaki trend, I would say that Cashflow Quadrant is right up there, if not maybe even a better book than Rich Dad, poor Dad. So Cashflow Quadrant is one, and one of the most famous tax guys in the country is a CPA named Tom Wheelwright.
Speaker 1:Yeah, and Tom.
Speaker 2:Wheelwright wrote a book called Tax-Free Wealth I believe his second edition is the most recent one and paying less taxes is actually the low-hanging fruit, but with alternatives you're going to get real diversification. You're going to have the potential to get way higher ROIs, but it's really easy to lower your taxes. So that book. And then there's a guy named George Antone, and George Antone used to put on some live seminars. Now I think it's all virtual, but he's got one's called the Debt Millionaire, one's called the Wealthy Code, one's called the Banker's Code, and this is a little bit kind of like Kiyosaki, just a completely different way of looking at money, and I think there's going back a way, the richest man in Babylon is a really good back.
Speaker 2:So you know these concepts have been around for a long, long time and you know there's kind of in some quarters of society, a demonization of money and success and we've probably all heard the saying that money can't buy happiness. Well, zig Ziglar said something. He said well, neither can poverty. That's right. I mean, when you have more money, you have more choices and more options to do things with your life and help other people and make work a choice instead of a necessity. It just makes life easier all around when you're not preoccupied with do I have enough money to pay these bills? Anything worthwhile, worth having, takes work. And I just think the whole investment thing, the 401, you just put it on autopilot and you get out of life what you put into it. You're going to get out of your investments what you put into them, and if you're going to put them in a 401k and let them sit there for the next 30 years, it's not going to grow at a high enough rate to do you a lot of good.
Speaker 1:I actually just ironically, I just finished a Wheelwrights book as well for the first time, and you know I've read a couple of different tax books. I was in the furniture business for a long time and that business I was a 1099 rep. But by being 1099, if you're doing it right and you have the right mentors that show you the way and the right tax accountants, you learn a hell of a lot about being a business owner. I mean, you technically do own a business. There's plenty of segments of running a business that you don't get with that type of work, but I would say you learn about 80% of what it's like to run a business and taxes is one of those, because you start learning that, hey, I can write off this gas, I can write this car off, I can write off these business dinners and all this.
Speaker 1:Will Wright's book was interesting for me because obviously he's one of the best tax accountants in the country and he teaches a lot in there about trusts, which I thought was incredible. He teaches a lot in there about trusts, which I thought was incredible, and the majority of people just aren't going to go take the time to get this education right. They're just going to go do their job, do what's easy and forget it. So they don't understand that the tax code. There's all kinds of really cool things available to us in the tax code if we take the time to understand it, and I don't think you have to go read the tax code book. It's like 60,000 pages. But one of the things I learned about the tax code is that I think it's about 96% of the pages in the tax code actually teach you how to not pay taxes.
Speaker 2:Yes, that's right.
Speaker 1:And still you've got people out there saying well, god doesn't pay his taxes. Yeah, he learned that he doesn't have to if he follows the rules.
Speaker 2:Yeah, it's interesting that and I don't remember if this is a wheelwright quote or not. If it is, then I'm happy to give him all the credit. But when you think about it individuals, employees we pay taxes on our gross income. We pay taxes on our gross income. We get paid and the government takes their piece from the gross, and then we pay all our expenses and have what's left over. Businesses get their gross income or revenue and then they subtract out all their expenses and then they pay taxes on their net income.
Speaker 2:So, you could see that the government is favoring businesses heavily over individuals in the tax department.
Speaker 1:Yeah, and they do it for their own benefit, right? I mean, I think the idea is that, and tell me if I'm wrong, but I think the idea is hey, if Amazon, if we give Jeff Bezos a tax break but he hires 10,000 W-2 employees, we're going to make more money off those 10,000 W-2 guys than we are him. And then, secondarily, they're giving entrepreneurs and business owners the chance to do what the government can't do themselves. They're like hey, if you go out there and start this business, if you go out there and provide housing for people, we'll give you a tax break for it. Yeah, right, and they know they're going to get their money back from the other 10,000 guys that you just put to work or just put in housing and you don't have any homeless people on the street as many as we could have, I guess.
Speaker 1:Yeah right as a result.
Speaker 2:Most of it's geared toward what's good for the economy, and business creates jobs. That's right.
Speaker 1:I don't know if I told you in our conversation the other day or not, but I've lived a lot internationally in Latin America and the way these tax codes were set up in Latin America is the exact opposite. Business owners are the ones that get hammered. So as a result, you can see it very easily If you're in the United States, pretty much if you want a job, you can get one because of the way our tax code is set up, I think. And then if you go to Latin America, most people are out of work, right. Everybody's trying to sell their wares on the street, whatever those wares are, in order to make a living because they can't get an actual job. Businesses just don't have the money to reinvest in their people or their business. So it's very. If you compare just those two the US versus anywhere in Latin America it proves your point a thousand times over. I definitely think we've got that. We can't argue with the US government on that for sure.
Speaker 2:Well, excuse me, yeah, some aspects of the tax code anyway.
Speaker 1:For sure, some of it probably needs to be.
Speaker 2:And you know before you not to say that we're going to leave this topic, but you know, I'm not a. I don't consider myself an entrepreneur, I consider myself more of an investor. I don't have a business other than selling a book. You know I don't have products or services that I sell, but I do have businesses because my business is investing. And so, instead of Chris Odegaard investing in something, one of my companies invests in something and I get paid by my management company to manage those investments. So I have a corporate structure. So I don't want people to think, yeah, well, I don't. You know, I'm not an entrepreneur. I don't want to go out and start a business and try to make this or manufacture that. By investing through a business structure, you get the same tax benefits and asset protection benefits that businesses get. So just to be clear for people who get stuck on well, I'm not a business person. I don't want to start a business. You do want to start a business if you want to take your investing seriously and your business is investment management.
Speaker 1:To your point. When I was in the furniture business, the first couple of years I was repping a couple of different manufacturers, just as self-employed, just as Matt Chambers. And once I started making money my account was like, hey, we need to get a corporation set up here. And once I got my corporation set up it was amazing how much that changed my tax basis. And it was back then. That was 20 years ago. Back then it was a little bit harder to set up a corporation. You know you were having to go to an accountant or a lawyer to get it all set up and all that. It was a few grand to get it all done. So it was a little bit of a pain. But today you can get right online. I mean Zen Business is where I set up all my corporations. Now Get up there and sign up in what 10 minutes or something. Now get up there and you know, sign up in what? 10 minutes or something. In a couple weeks your llc arrives in the mail and you can pay to get that expedited.
Speaker 1:So, yeah, it's super easy to do that. I think a lot of people are scared, and I think that goes back to your point of just becoming more financially literate yeah, well, there are certain.
Speaker 2:I mean there are certain things. I mean there are. Garrett sutton has a company called Direct and I use them for most of my corporate setups and stuff and he calls it the corporate formalities. So just because you set up a corporation or LLC, that's not the end of it. You know you have to have books and financials and you should probably unless you're a bookkeeper, you should probably have somebody help you with that. And, depending on how you set it up, it may have a tax return and you know you should be doing minutes on some type of basis. So there is some corporate formality. You know there's administration that goes along with that, but you get benefits from these structures.
Speaker 1:So yeah, depending on the you know, and each structure has a different set of requirements, right, like a C-court might have something completely different than LLC, and you know, llcs, I think, have more flexibility in changing the way that you're taxed and all that you know. Another thing I thought was interesting and I'd like to get your thoughts on this as well, and I think it was in Tom Wheelwright's book. Actually he was talking about the difference in CPAs. He was like a lot of people think that just because someone has CPA on their name, that that guy knows the same as a CPA that really gets in there and studies it, and that's just not the case. I think he said this. I might get a little bit wrong, but I want to say he said about 90% of the CPAs in the country don't understand these trusts. Right, when he was talking about I think that's where he was talking about.
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Speaker 2:Yeah, they call. A lot of people call the estate taxes the dumb tax because they're so easy to get around that if you pay the state tax, you paid the dumb tax Is that right and I'm not. I don't know, I don't know the specifics of the trust about how all that works, but they're supposedly pretty easy to to to legally. You know, you know, avoid those, those taxes.
Speaker 1:There was a lady the other day that I had on the show and she sells something called the Spendthrift Trust. Sells it for a group of attorneys out of Texas and she was telling me all the benefits of that trust and basically, if you have your house, your business or your 1099 income going through that trust, you save like 90% on your taxes and it's buried in the tax code she actually gave me. Now I haven't. I'm going to speak to her attorneys this week and just to confirm all the information. I trust her wholeheartedly because I know she's working directly with him, but I want to be able to say that I actually talked to the attorneys and this is the information that I got. But yes, she gave me several different books and then also the pages of the tax code that explains the Spendthrift Trust. But there's so much stuff that's just buried in the tax code that regular Joe like you and I used to be have no idea about, unless you really just stumble upon it.
Speaker 2:Yeah, yeah, cpa. Good, cpas are one of the hardest people to get on your team. I've probably I'm probably on my fifth CPA now over the last 10, 15 years. Some of the some of this, I would say, is kind of normal, but you know, you outgrow them. When I, when I know more than the CPA, then it's time for me to find a CPA. And when, when the last firm that I used, it was just I was like I just don't think this is right, so I'm spending all this time to, because I think the advice that they're giving me is bad and it was. And so now I'm in a new place and I'm actually having some, you know, problems, uh, you know, at the new firm, where the firm, where the CPA, is telling me that something I've been deducting for years is not deductible, and I'm like so anyway, it's a constant, it's a constant battle.
Speaker 1:It is. You know, I just had my first issue with my guy. I've had it for 15 years and I didn't know then what I know now after reading this, these books, that we're talking about these financial education books. So I wouldn't have known. I was definitely one of the guys that thought a CPA was a CPA and he was going to help me write off whatever. But now, looking back on that, I don't think that was the case and he's a guy that just doesn't even want to talk to you on the phone. He just wants you to email him all the stuff and then you go back and forth a little bit. We might have a 15 15 minute conversation before he actually does your return. But yeah, I'm like there's just no way that we can do all this via email and so I kind of knew this, started seeing this 70 years ago.
Speaker 1:I didn't want to talk on the phone and he was doing a couple different corporations plus my personal return every year, and I just got a letter last year that I took fifty thousand dollars worth of distributions in um 2019. I think he didn't report on all my tax return fifty thousand dollars of the distribution. So the government six grand. I'm like you know, six grand is not huge, but it's as easy as what if I would take, taken much more than that and owe them 30 grand or 40 grand. He was like, well, I didn't see this. Well, it was in the spreadsheet that I had sent over. When his assistant looked at it, she was like oh, there's your taxes. I couldn't believe we missed this. You missed $50,000 in distributions.
Speaker 2:It wasn't $5,000, it was $50,000 in distributions.
Speaker 1:It wasn't $5,000. $50,000.
Speaker 2:And the problem is when you know at least for me personally when I'm reviewing the draft tax return every year, it's like, oh God, you know where do I start. It's like learning a new language all over again. Just even for guys like me and you to review this tax return and I'm trying to look for things that might be wrong, numbers that are missing, income that's not there, expenses that aren't there. If it's very different from last year, there should be a reason and I ought to know what that is, and if I don't, then this shouldn't be drastically different, because I know not much changed this year, last year, so it's really hard as a consumer or a business person to figure this stuff out.
Speaker 1:You know, in my opinion I'm like I sent you this in a spreadsheet. It's on paper, right, whether you print it or look at it digitally. That should be someone there's job to go through every single line item in that spreadsheet and make sure we have all this right. And so when I forwarded that email back over, his assistant was like I can't believe you missed this. And then at that point there's nothing you could do. You can't go back and say well, you know, add these write-offs.
Speaker 2:You can't just start adding write-offs to you know, so I guess I would add something to and I think this is a Tom Wheelwright talks and this is not a tax thing, but this has to do with diversification. So Tom Wheelwright says there's four, you know you have the conventional investments and the alternatives and Tom says there's four asset classes and that's paper assets, real assets, commodities and businesses. Private businesses, not public shares of businesses. Commodities and businesses, private businesses, not public shares of businesses. And so if that's the whole investing landscape, paper real estate, commodities and businesses stocks are a paper asset. So when you're going to your financial planner that you may or may not be paying and he says I'm going to build you a diversified portfolio of stocks, bonds and mutual funds, he's building you a diversified portfolio within one of the four asset classes. So you're not really diversified at all. You don't have any real estate, you don't have any businesses and you don't have any commodities.
Speaker 1:No energy at all. Yeah, energy is always an interesting one, because the government I don't know if it's very, very, very frequently they offer significant tax benefits for investing in energy. I don't know if it's every year, but they that seems to be the one that they kind of always throw out some additional benefits for.
Speaker 2:Yeah, well, like that relates to a good tax story, let me make sure I get my get the information right 2019, and this shows you I'm really not a fan of 401ks. You've got all these limitations how much money you can put in, and if it's a typical employer-sponsored 401k, you can only invest in some paper assets maybe not all, maybe just the mutual funds that they allow you to invest in and then you have distribution requirements and and there's just all kinds of restrictions with what you can do with your money inside of 401k. So, um, after I quit my corporate job, I'm like I I want to get this money out of the 401k so that I can invest it the way I want and not have be restricted by all these 401k rules. So I took a $100,000 distribution, so this is a taxable bet. Let me just add a hundred thousand dollars to my income, and I knew that was.
Speaker 2:I knew that was going to be the case, but I made a corresponding $100,000 investment in an energy category that not only zeroed out the taxes on the $100,000, but in 2019, the same year that Trump paid $750 in taxes. You remember that was a big story, Trump only paid $750.
Speaker 2:I paid zero that year. So Trump was underperforming because I paid, paid zero. You paid less than he did, and so I'm like, okay, I'm gonna get this money out of the 401k. I got this huge taxable event. Let me marry that up with the tax benefits from this other investment. And it was it. You don't want to. We always say you don't want to let the the tax tail wag the investment dog. You don't want to. You don't want to let the tax tail wag the investment dog. You don't want to make a bad investment because you got tax benefits, made a good energy investment and I saved myself probably $30,000 in taxes. So right off the bat, when I made this investment, I made $30,000, because that's $30,000 I didn't have to send off to the government, and then I had the cash flow from this investment for some period of time.
Speaker 1:I'm glad you brought that up, because I actually talked to a guy the other day and I was asking the same question, because we were talking about something called closed-end funds and closed-end funds they don't grow that much in value, but you get consistent cash flow from them. But what I was asking him is hey, if I took out a hundred grand, I use your exact same number. I said if I took out a hundred grand out of my 401k and invested that back in, let's say, a multifamily real estate, do I get credit for that investment? He said no, you got to pay the taxes on the a hundred grand, as if you made a hundred grand as a W-2 employee or based on whatever your tax rate is. And so I'm glad that you cleared that up, because I didn't think that was right either.
Speaker 2:Well, it's tricky. So there's different types of income. There's ordinary income, like from wages, w-2 income, then you have capital gains income and you have passive income from, let's say, like a multifamily thing. Now, if I had, a nice thing about energy is, when you invest in energy you're allowed to use the tax benefits across any type of income, including W-2 income.
Speaker 2:So if I had taken that $100,000 distribution from the 401k and put $100 thousand dollars into a multi-family syndication, I might have, and especially, uh, with the, the bonus depreciation that we that is kind of now phasing out, uh, I would have. I could have gotten maybe anywhere from an 80 to so, in some cases more than my investment in a deduction. Let's just say I made a $100,000 investment to a multifamily syndication and I get a K-1 at the end of the year and it says you've had an $80,000 paper loss. Well, I wouldn't be able to use that loss against the 401k distribution because that's ordinary income. I would only be able to use it against other passive income from, like another multifamily investment that was producing cash flow. But with the oil and gas, when you get that tax break on that investment, you can use it across any type of income. That's the real benefit of the energy tax situation.
Speaker 1:That's right. So wait, you talked about two different types of investments into the syndication. So in the first one you said you would have to pay that as ordinary income, and then, the second way, you invested in syndication, you didn't. What was the difference in those types of?
Speaker 2:Oh no, sorry, I didn't. If I said that, I didn't mean to say it that way, or?
Speaker 1:maybe I misunderstood.
Speaker 2:I'm just saying that with a syndication you get these tax benefits, but the tax benefits can only be applied to a similar type of income, a passive income.
Speaker 1:if you were in a real estate multifamily syndication, so if you were just a passive let's say 10% investor in a $10 million project, you would get that right.
Speaker 2:Yes, yeah, you would get depreciation, you get depreciation, you get depreciation.
Speaker 1:Well, except for 27 and a half years. It's more on multifamily though, isn't it? Or is it still 27 and a half?
Speaker 2:I don't really, I can't remember, I can't remember if there's a longer period on commercial.
Speaker 1:No, actually for commercial. I know there's a difference. If multifamily is considered commercial, there's definitely a difference in depreciation. I think it might go out to like 36 or something. Yeah.
Speaker 2:So I guess think about it like this way so with multifamily things you get a depreciation, with energy you get a depreciation, but with the energy depreciation you could use that against any other type of income. And if you're a passive investor in multifamily, not active, you can only use that deduction against other passive income.
Speaker 1:I got it. You seem to be pretty in authority on multifamily too Well.
Speaker 2:I know a little bit about a lot of things.
Speaker 1:Well, no, the reason I asked that is because multifamily is something that I've been looking into really seriously. In fact, I just made a plan within the last few months, my one year plan, to study multifamily. I made a book list and all this other stuff that I'm going to do for the next year. I'm already doing it, and so that's an area that I've been wanting to get into for a very long time. The more I read, you know, guys, like it's a guy's name, brandon, uh, famous guy, no, the no, the guy that does bigger pockets oh yeah, yeah, that's what.
Speaker 2:That's who I was thinking, but I can't remember brandon holds a tax guy. I can't remember brandon's last turner, brandon turner.
Speaker 1:Brandon turner yeah, yeah, um, I've been studying brandon turner on and off for for a little while. I'm gonna take a deeper dive into that ASAP, but I think he would probably tell me I'm overthinking it because I made this big plan to study it for a year. I think what he tries to teach is you can do this with. You know, you don't have to have a million bucks to put into that to get started, because if you have the deal, there's going to be people arrived with the money to help you make it happen. Would that be accurate, you?
Speaker 2:think, yeah, I would say that's true. I mean, there's money out. There's lots of people with the money who are looking. You know, if you look at it, you've got people that got capital and people that have know-how right. And the people who have they know how to find the right property. They how right and the people who have they know how to find the right property. They know how to put the team in place to manage their property and that may not be the guy that has the money to close the deal. So there's yeah, there's always, there's always, there's always deals in money and you know, real multifamily has gone through a tough time here in the past, in the past couple years, but but there are going to be good buys that come out of that for the people that are ready to take advantage of them.
Speaker 1:Why is it taking a hit when everything else you know, residential single families shot up right?
Speaker 2:So I think there's, I think it's kind of like the perfect storm. So you have the multifamily was just on fire and then the pandemic hit. So the pandemic hit, so the pandemic hits. And I look at it like I kind of take a really simple let's say you had a single family rental that was generating fifteen hundred dollars a month cash flow and your expenses were a thousand dollars a month. So you've got a five hundred dollar a month positively cash flowing property and then in a very short period of time interest rates go up and lots of multifamily is done on shorter, can't evict people.
Speaker 2:So now you have non-paying tenants that you can't get out of the property and we've had rising cost of insurance and property taxes over the past few years. And so all of a sudden, interest expense, property tax expense, property insurance and the cost of everything, because a lot of multifamily, the business plan is to find something that needs some work, do the work to it, improve it and sell it. So in a very short time all the costs went up and the property that was cash flowing now is not cash flowing Because you can't collect rents. Yeah, and the rents that you are collecting aren't enough for the rise in all the expenses, and so it was just a perfect storm. And so there will be properties that will be foreclosed on and will be fire sold, and so there's an opportunity in every crisis. It just depends on which side of the fence you're on. You might be on both sides.
Speaker 1:It's the beauty of capitalism right, creative destruction, the beauty and the beast, yeah, yeah, no, I love multifamily. When do they anticipate this crash happening in multifamily? Asap, probably no.
Speaker 2:I don't know, I wouldn't call it a crash, but there's just going to be. There's been very there has been very there has been. There hasn't been a lot of transactions, so it hasn't been a lot of buying and selling, but those things are, and I'm not actually following that much anymore because it's kind of depressing. Yeah, but there are going to be. There are going to be. There will be deals out there as people are exiting properties or they're being forced to exit properties or forced to sell. So, uh, you know, I'm in the in the coming 12 to 24 months there'll probably be a pickup in activity.
Speaker 1:Awesome.
Speaker 2:I think there was also some supply. There was some building of multifamily that had come on the line at the same time, which didn't help anything. It's putting a whole bunch of more supply into the market.
Speaker 1:Well, I think multifamily you know so many people have gotten into it over the last. I don't know if they were always into it or not. I know the internet has just blown up over the last five or six years and you see people on there promoting these courses on multifamily, real estate and all this stuff. And you know I hate to prejudge people, but some of these people that I see on Instagram I'm like man. I really doubt me ever investing in you as a, as an owner of a $10 million property with my money Right.
Speaker 2:So you gotta you gotta be, you gotta be very. That's one of the uh and I used to. I used to kind of call these. When I look at conventional investments versus alternatives, I used to say, look, there's risk in any investment. And now, after I've had some experience, I would say there's more risk on the alternative side because the regulations you know, you don't. If you're putting a company, taking a company, public, you have to go through all the hoops and you know the audits and everything. And if you've got $15,000 to pay the attorneys to set up a multifamily syndication, you can go raise money. And so you have to be very careful about who you're partnering with on these deals.
Speaker 1:Yeah, yeah. So what are you doing now? I know I read on your website that you're doing some speaking right.
Speaker 2:That's kind of yeah well, I'm trying. Website that you're doing some speaking, right, that's kind of yeah well, I'm trying. So I have a talk called the People Versus Conventional Investing Wisdom and it's about a it's kind of like a keynote speak, like an hour long, and basically I'm putting the conventional investing wisdom on trial, which is I'm the attorney, I'm the prosecutor and the audience is the jury. I define conventional investing wisdom as planning for your financial freedom or retirement by investing in a balanced portfolio of stock bonds and mutual funds, typically through a 401k, and so that's the conventional investing wisdom. And so I basically present three different pieces of evidence to the jury to convince them that conventional investing wisdom is guilty of being an inferior way of investing. And I have a little interactive voting thing that we do. Everybody can get on their cell phone and it's like guilty or innocent or a couple other stupid little things I put on there.
Speaker 1:And I assume you're showing you're defending alternative investments in that same speech, right? Just In order to properly show. That sounds incredible, man. I think you'll do well with it.
Speaker 2:It was well received up. I spoke at a Nomad Capital up in North Carolina.
Speaker 1:Oh, the Nomad Capitalist. What's that guy's name? He's all over the internet.
Speaker 2:Well, Clint Harris is one guy, and then the founder. I can't think of his name right now. It's a father and son team.
Speaker 1:Well, I thought you were talking about the Nomad Capitalist, oh no, no, this is a different company.
Speaker 2:Oh, okay.
Speaker 1:Well, there's a guy called the Nomad Capitalist who helps guys. I don't know if you know him, but he helps Westerners. Yes, you know that guy. Yeah, yeah, yeah.
Speaker 2:I.
Speaker 1:Yes, you know that guy.
Speaker 2:Yeah, yeah. Yeah, I don't know him personally, but I know who you're talking about.
Speaker 1:Yeah, I mean, he's expensive too. He has a lot of really good education, but I think I heard he charges like $80,000 to help someone just restructure their taxes and all that stuff. But yeah, he definitely has a lot of good information. I've been following that guy for a while but yeah, so hey, I think you'll do great. Do you have a copy of the book that we can show people?
Speaker 2:Oh yeah, I always have a little stack here. So this is Get Off your Ass and Manage your Money. Why you Need Alternative Investments and I basically have 13 categories, things like return on investment, taxes, asset protection, and I basically take one of my investments, which was an ATM syndication, and I kind of rate it across all these different categories with real numbers. And the nice thing is because it's a very predictable cash flow type of investment. So I, you know, I talk about the stocks, bonds and mutual funds and 401ks, and then I and then say, hey, here's all the characteristics that I think we could all agree we would want. We would want liquidity, we would want cap, you know, capital gains, We'd want cashflow. And how does the how does the mutual fund or stock compare to an alternative?
Speaker 2:And so I go through that and and and some resources and there's there's an action guide that you can download, because I mean, if you're trying to make this move from here to there, my move was not a very straight line, you know, it was trial and error, and I thought maybe I could smooth that path out for people if I could, because it's really it's an education. It's, you know, unlike stocks, bonds and mutual funds. You don't just, you know, push a button and send your money. It involves work and education, and so I tried to lay out a path to help make that easier for people.
Speaker 1:Good, yeah, you know. Just, I intended on getting to that book this last weekend. I know it's about it's only 120 pages and I started with it. I opened it and then I got a perfect storm of all this other stuff that hit me and I just couldn't get it done. But I it's a perfect storm of all this other stuff that hit me and I just couldn't get it done. Um, but I am going to read it and I'll send you a text when I, when I do read it this way, I can, you know, confirm and tell people that you know.
Speaker 2:Hey, leave a review if you like it.
Speaker 1:No, absolutely, absolutely no. I can tell you I'm going to like it. And then these conversations are fun.
Speaker 2:It's a real easy book. Like you said, it's a little over 100. It's all kinds of color, a lot of graphics and charts and things in there to kind of help explain things.
Speaker 1:Perfect. Yeah, I'm going to get to it ASAP. It's definitely first on my list. I just did not get to it last weekend and I was trying hard to get to it before we had this conversation.
Speaker 2:No worries.
Speaker 1:But I thought with the other financial books I've read, maybe I could get through the conversation pretty well. So I was like I'll have to do this after. Well, chris, I really appreciate it. I really appreciate you coming on the show.
Speaker 2:Well, my pleasure. I appreciate you having me on. It was a lot of fun.
Speaker 1:Thank you so much for joining me on this episode of Matt Chambers Connects. Stay tuned for upcoming episodes where we'll dive deeper into these two fascinating worlds. If you enjoyed today's episode, please subscribe to our YouTube channel, matt Chambers Connects. You can also find us on Spotify, apple Podcasts, youtube Music and many other major podcast platforms, so you don't miss a show. Also, please join us on our social media channels so you can connect with other listeners and ask your most pressing questions and also tell us what types of guests you'd like to see on the show. Thanks again, and I'll see you next time.