MFREE 098 Full Episode with Brett Swarts: How Can You Achieve True Passive Income and Impact?

In this episode of the Multifamily Real Estate Experiment podcast, host Shelon Hutchinson, also known as Hutch the Marine Investor, interviews Brett Swarts, CEO of Capital Gains Tax Solution. 

Brett is a leading expert in Deferred Sales Trust (DST) and shares insights on how DST can help high net worth individuals, business owners, and real estate investors defer capital gains taxes while maintaining control over their wealth. 

Brett details his journey into real estate, his challenges during the 2008 financial crash, and how he discovered DST as a revolutionary tax-deferral strategy. 

He explains how DST works, compares it to the 1031 exchange, and provides real-life examples of its application. Brett also touches on the legal aspects, common mistakes to avoid, and how DST fits within larger tax strategies like Opportunity Zones and Charitable Remainder Trusts. 

Listeners will gain a deep understanding of DST and how it can be a game-changing tool for creating generational wealth.

00:00 Introduction and Guest Introduction

02:16 Brett Swarts' Background and Journey

10:57 The Deferred Sales Trust Explained

14:01 Comparing DST and 1031 Exchange

15:16 Client Success Stories and Tax Implications

21:01 Entrepreneurial Opportunities with DST

22:16 Introduction to Advanced Strategies

22:34 Types of Assets for Transactions

24:26 Mindset Shift: Promissory Notes

25:50 Tax Implications and Strategies

29:47 Diversification and Investment Strategies

33:58 Common Mistakes and How to Avoid Them

38:19 Comparing DST with Other Tax Strategies

41:22 Focus Round: Personal Insights

44:21 Conclusion and Contact Information

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Thank you to all of our listeners!!! We would love to hear from you!!!

Email me at:
hutch@hsquaredcapital.com

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www.hsquaredcapital.com

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Transcript

Track 1: 0:00

Welcome all you multifamily enthusiasts to another episode of the multifamily real estate experiment podcast. I'm your host Shalon Hutchinson and look, if you've been connected with me in real estate, you know me as Hutch the Marine Investor. And today we have a conversation that is a little bit advanced and we're going to try to get to some foundation questions and some questions that may not be as, as we would say, or you young folks would say"Googleable". So our guest today, Brett Swarts is the CEO of Capital Gain Tax Solution, which he functioned as a real estate investment advisor. He's a leading expert in deferred sales. Trust. He helps high net worth individual business owners and real estate investor legally deferred capital gain taxes while keeping control of their wealth. See, if you ever thought. how can I sell a property without a 1031 exchange and still keep your money working for you, then you're really in for a treat today. So Brett is about to break down the Deferred Sales Trust and this can definitely serve as a game changer for you if you're looking to create generational wealth. So welcome Brett. Hutch It's great to be here. Thank you for having me. Hey brother. so before we get into the meat and potato of a deferred sales trust, do you have a favorite real estate quotes or mantra that drives you? I would say it's a real estate quote that drives me, but I have read a book. Am I being too subtle? Sam Zell. Okay. And Sam Zell is one of the most prolific real estate developers, owners, investors. He's masterful. I would say, listen to that book and just start learning about real estate and putting deals together and structuring. And, I think he, in that book, he says something like. If you're going to be in a partnership, you got to make sure there's equitable amount of risk for equitable amount of return, right? So something along those lines where if you're going to go in, like you're going to try to, and sometimes it's 70 30, sometimes it's 50 50, sometimes it's 60 40, you got to figure that out. sometimes he would structure partnerships, he would start out 80 20. And as those people prove themselves, he'd give them more and more. And so it's just a, it's a mindset. It's not just, it's more caught than taught is what I'm saying. so check out that book. Am I being too subtle? Sam Zell. Sam Zell is definitely a credible source, before we get into the meat and potato of the interview, can you tell us a little bit about your background and what brought you, to become the expert in deferred sale trust? Yeah, so I grew up in real estate building houses with my parents in California, the Bay Area, Silicon Valley, the East Bay, Fremont Mission, San Jose, that area. And then my brother and I worked really hard with our arms and our legs, building stuff, moving bricks, hammering nails, putting up drywall. In understanding that, real estate, you can make wealth in it. But at the same time, my parents said, Hey, look, we want you to go to college. My brother was the first to graduate college on any side of the family. I was the second. And we, we still want it to be in real estate. he started at Marcus Millichap. And then I followed His lead there and at Marcus Millichap, I started helping people buy and sell multifamily property. So using the brain more than just the hands in the sweat equity. more negotiating, underwriting. And so that was all in 2006 when I started, then everything was going great for a little while until 2008 and a crash happened. And then friends, family, and clients, lost a lot of wealth. And we are also, we're going through a really tough time, my wife and I. We're newly married and we're looking for a way to keep our lights on and food on the table and our first baby on the way and keep her home full time. And that's, during this time you do whatever real estate or entrepreneur does. My side hustle is cheesecake factory nights and weekends working as a server selling all kind of egg rolls. And by day I negotiate with banks and underwrite, deals to try to help my clients hold on to them, renegotiate tax assessments, figure out ways to get creative with tenants and rentals and essentially become like a real estate investment advisor in a distressed market. I did that for two years. So I kept it I was like two different people. Seven to five. I was in the commercial real estate office. And then, five to nine, I'm going to do, cheesecake factory. And then I do that all over again. Do that for 60, 70 hour weeks. And I do that for, two years. And, this time I got to learn a lot about what not to do. And the problems with the 1031 exchange. And see, our clients were losing half or all of their wealth. And so they were going through their own financial struggles as well. And so I had a person who came in and became a mentor who taught us a new way, a better way of deferring capital gains taxes, which doesn't require you to stay into debt, doesn't require you to overpay for a property, doesn't require you to have to be in real estate right now, a hard illiquid asset, all on your own, but it changed everything, right? I started to learn like this could have been. They say, the game changer for everybody. And so I thought everyone would just, jump on it much So I'd call people Never heard of it. Call me back, three years ago when my property values are up, call me in three or four years when you've closed a bunch of deals. Like basically I was like the profit not accepted in his hometown. And it was devastating because I was like, this is the future. This is Netflix and everyone's stuck in blockbuster, but if they can just understand what this is. I would say more, passionate salesperson that was just cold calling and trying to bang on the phones to bring people's attention to this, to try to get them to move so I can get a listing so that I could retire from the Cheesecake Factory. It took my vote for two years and it was brutal. and, but eventually I got some momentum and eventually I started getting these bigger meetings. And then fast forward, in between multiple other side hustles between, that and four other kids that came along the way. But we've launched this company and now this is all we do. we went national on a podcast, on a bestselling book. And now we help people across the country exit any asset of any kind, I was able to retire from the cheesecake factory. But the most important thing is for us as a family, we are able to stick to our core values, right? Which was keeping my wife home full time with our children. She really wanted to be a mom full time. And then also not giving up on the dream, but cutting to the bare bones, like jumping, going to my brother to live with his small condo. and so because we couldn't afford to own or to rent our own place. Right? And so that's the encouragement for people. I'm going to make sure that your start where you're at, or if you're going through a tough time right now. there's always a beginning for this success that you see on this side of things, but that makes it a touch. Oh man. I like that. The beginning of the success. Look, one of the things you talk about that I want to hold in just for a little bit, maybe a minute. And you're talking about working 60 plus hours per week, right? because he was going through some tough times. In some situation, a lot of folks who worked that many hours, they'd say that I'm reaching, approaching burnout, but it sounds like you was on fire. Tell me a little bit about that time. part of that, too. I was working these side hustle jobs on the weekends for basketball tournaments. I was the bouncer at the door that would, take them, take the money and give you the wristband to get in for the weekend. and then I quickly figured out that I could do that and make 20 an hour. But if I also was the snack shack, I could buy a bunch of stuff in Costco and I could make another, 10 to 15, 20, 30 an hour. I was making at one point, I think we maxed out at we calculated like 60 something dollars an hour over the weekend. We do these eight or nine weekends during the year and we have three basketball courts. so I negotiated a deal between the A. U. guy who ran all the tournaments down the street and he had like 10 courts of his big complex, but they're always looking for more courts. And instead of just going to work for somebody, I said, how can I help him expand? And then also, how can I get on the front of that? And then how can I also take snack shack okay. And so we had courts going on another site, so he's making good money. So I got 20 from him, and then I was working out, again, at one point I was making like, I think it was like 57 or 59 dollars an hour, and it was incredible stuff. So this wasn't all boring, like this was entrepreneur, I call it the honey badger stages, right? Where you're looking for any little angle to get it, So my wife would show up with the Costco pizzas. I've been selling bananas for two bucks. People are like, how do you sell a banana for 2? I'm like, people are gonna pay for it. I go, every single one of those kids that are coming in here, in my mind, they had 20 in their pocket, and they needed to buy, they're gonna buy the snacks for me. Now, we had some healthy stuff. We had smoothies. we'd make fresh smoothies there. We'd have, pizza from Costco, so that's maybe not really that healthy. We'd have Clif bars from Costco. We'd have the candy and stuff. We'd have the water balls. But we would make a killing at the snack bar and, that made it exciting. my mom would come in and she would bring some notes. She'd do a Costco run. We were running out of Gatorades. She'd run and get the Gatorades from Costco, come back and I'd pay them. So I was running this little, little mini business, if you will. and that was fun, right? So honestly, I think when you have a clear passion and a vision for where you're going, the drive and the fire, naturally comes, right? Now, also, my wife is uber supportive, believed in me, also willing to move into my brother's small condo, drop our expenses all the way down. So she didn't, she was with me, right? We were a team. this is not something that I just did. We did it together. And we had a vision for if We can grow and learn during Marcus Millichap, because that's really where I was growing. I was growing both sides of things, but during the day, I just kept growing and learning at Marcus and Millichap. What was going wrong, how we can do this, solve these challenges moving forward, but who's doing well, what they were doing right, right? How to negotiate these deals in tough markets. If you could sell and make it through those couple of years, you can make it in any market. And so that kept me going like all of those things. I think the biggest thing would be my faith. I think if you're in the center of where God wants you to be. Even if it's challenging, honestly, those are the most rewarding years because the journey itself helps to, build what's called a growth mindset versus just a goal mindset. A goal mindset is you just get there and you achieve the thing and you get stuck, Whereas a growth mindset is, no matter what, I'm just gonna keep growing regardless of the results or the immediate outcome. I'm going to keep growing and eventually if that guy can do it, I can do it. And that's what my mantra was at Marcus Millichap. I would show up and I'd say, that guy's not working as hard as me. That guy's not as hungry as me. Yeah, that guy's more experienced. And he's smarter than me right now. I go, but I'm going to catch them all. I'm going to catch up. And, that drove me. I just kept, I kept going and going until here we are now, no longer just in Sacramento selling multifamily. We're national and we're helping all brokers across the country and all high net worth individuals and M& A attorneys like it's a thrill to be on this side. So that's what I would say would help me get through it. Now that is amazing, man. It's not like he was definitely on fire. And it's really cool to hear your story because, one of the things that you mentioned that our leader, John Maxwell talks about. is the focus on growth over the goals, right? Especially it's beginning of February right now to record in this podcast, where a lot of folks just came out of January and they did a lot of goal setting, right? But how much of that goal setting was focused on growth, right? And when you don't accomplish. All your goals throughout the year. How much did you grow and your ability to measure backwards, right? And be able to be proud of yourself and your accomplishment. Be like, I did that. I didn't die and I didn't quit. So thank you for sharing that with us, brother. Absolutely. Let's get into it, man. let's talk about the basic of deferred sales trust, so for those who are unfamiliar, can you break down this in simple terms? What is deferred sales trust and how does it work? Yeah, it's an installment sale or known as a seller carry back. So if you're in real estate, you probably know it as a seller. You can finance the buyer who's buying your property. So let's say Hutch is selling a 10 million multifamily property that he used to own in San Diego for 30 plus years and it's fully depreciated. So he has no basis and he, let's say he has no debt to keep it simple. And let's say he finds a buyer named George and George wants to buy it. And, George's Hutch, I can't get financing, and Hutch's that's okay, it's, I'll finance you, just put a two million dollar down payment, and I'll finance the other eight, that's known as a seller carryback. Now Hutch, you know that the tax that you pay is only on that two million that you receive, you don't pay tax on what you haven't received yet, that's in a deferral state, right? It's known as a seller carryback, so this is very common, and so that's the foundation of what we use, a seller carryback, the difference is, we say, George, Don't show up with two million like I mean go get a bank loan show up with 10 million bucks Like we don't care how you get the money, but we're not financing you george, right? But we will finance the trust and what we do is we set up a trust that comes right in between Hutch the seller and george the buyer and simply the trust buys it from hutch for 10 million and asks Hutch to finance 100% to the trust for 10 million bucks And the trust immediately sells it for 10 million to George, who gets bank financing or whatever. Smoke clears, and guess what Hutch? You're in a deferral state because you have$0 received so far. And that 10 million is at Charles Schwab, and this is where the magic happens. You can invest into whatever you want, whenever you want. No timing restrictions. You can put it into Bitcoin. You can put it into business sales. You can put it into hard money lending. You can put it into a real estate development in Hawaii. You can put it into stocks, bonds, mutual funds, money market accounts. But here's the best part. There's no timing restrictions. And so this is where we're moving and shifting the entire mindset around this whole 1031 exchange. That's so archaic. It's old, it's broken in many ways, and the people that it's the most broken are seeing it now that overpaid 2021 and 2022. And now all of the loans, a lot of the loans are resetting, their debt is shooting through the roof, and the whole ship is sinking because they overpaid over, 1031 didn't think they overpaid, oh, the music stops, and now they overpaid, they have too much debt, their debt's reset. And so the mistake is thinking that the 1031 exchange is your best friend when it's not. The mindset shift here is looking at our strategy because if you want time, if you want flexibility, if you want leverage on your side, right? And then the last part I would say is that the method is. We have crystallized how to do this. and that's the key. You want to find a team to help you execute this because it is new for people, right? If they haven't been in it, it's hard for them. But that's the basics of what we do and how it works. Gotcha. Now, you bring up a comparison between 1031 exchange and DST. Now, when you're talking to a person who is considering exiting the property, How do you structure that conversation, with the DST and also 1031 exchange to guide them in making the right decisions? Yeah, it's a great question. the first thing is you got to get clear and the second thing is you got to get unstuck and the third thing is you got to get going. Okay, so we've all heard of the Rich Dad Poor Dad book. We love the book, right? And basically teaches us how to get financial freedom, right? True financial freedom, right? Our passive income is able to pay for our living expenses, able to pay for our lifestyle, and eventually our money's working for our money. Most people never get to that bottom fourth quadrant. And part of that is they're so consumed with the day to day operations of these deals and they're not able to scale and leverage. The problem is they're running out of time. their time is getting shrunk. part of our mindset here, a long time ago was say, how quickly can we get to truly passive income? Where you don't have to trade time dollars. we don't trade time. We don't have to trade blood, sweat and tears. to be able to just get, be able to just collect income passively, right? So I'll give you an example. We had a client Warren and Catherine They had done a 10 multiple 1031 exchanges and they ended up with about a 2.5 million dollar apartment complex in Sacramento and so I sit down with Warren and Catherine. I say Warren and Catherine. What do you really want? They what we really want is You know less toilets less tenants less termites. I said why are they so painful or is it really hard? They know they're actually good tenants and we have good property management and the place is 100% occupied and but there's just always something You know, and i'm like, okay. But okay, so that's what you don't want. But what do you really want? what we really want is the other two t's I go, what's that? They go, our twin daughters. I go, tell me more. I go, we had kids a little bit later in life and they're 10 years old and we realizing that from 10 to 18 is probably the time we have the most amount of one on one time with our daughters. And we don't want to trade Warren driving two, three, four hours, every other weekend to the property. I said, wow, that's pretty clear. I said, then let's look at the numbers. what's your NOI? They go, it's about 120, 000. I said, okay, what's your ROE? Your ROE is return on equity. What's 120, 000 basically divided by 2. 35 after closing cost is a basic way to do it. Okay, what if we can increase that ROE to about 190, your cash on cash from 120 to 190, plus we can remove that obstacle, which is. This property that's taking up your guys's time and energy that you could spend with your dream. Your dream is spending time with your kids. It was a no brainer. once you clarify those important things and they were free from it. Warren shares his story. Catherine shared their story. This is amazing, like we thought we had to just keep grinding through and maybe change the 15 units for 30 units and then 30 maybe for 60 units and this whole thing and we didn't have to go into these other alternatives that are lower cash on cash and so we're able to put them into double digit, cash on cash return. Diversified assets. A lot of debt is what we went into, which is really important. Debt is paid much higher than equity these days, generally speaking. And that's what they wanted. They wanted cash flow as their biggest thing, plus time flow, right? They wanted multiple time. Energy with their kids. And so that's what I would say to get really clear what you want. And then get unstuck on what's blocking you. And let's get going on that. And I'll leave you with this quote here, right? This is probably the most important thing. I'm going to say this entire interview, right? That truly passive income is to your freedom and impact as compounding interest. It's to your money. Truly passive income is to your freedom and impact as compounding interest is to your money. And this is a complete game changer, even though this was, technically passive in the traditional, real estate world that we would think about Hutch. Yeah, property management, you're 100 percent occupied emotionally and even just headspace wise, Warren was still feeling drawn to take care of the tenants fix something on his own versus the property management to save a few bucks here and there. He's got millions of dollars, like he's so in it because his habits and his rhythm and his, that's, he's been the worker bee for so long to get to this point and then to be able to say, Oh my gosh, I can harvest this gain. I can defer all the tax. I can diversify my wealth and I can make more income and I can actually have more time. Is it this easy? I'm like, yes, this is what we'll do. And so we did it. And here we are. It's completely transformed their lives. So if I understand it they have acquired a property through 1031 exchange. Now, when you go from a 1031 exchange to a DST, are there any tax implications? No, not if you properly structure it. And so on their sale, what we did, we set up the trust prior to the exit. Then we had a buyer lined up. I happened to broker this deal, so it was really neat. We got to do the whole thing and keep every step by step. and the trust, Bought the asset for, 2. 5 and sold it for 2. 5 to the buyer, right? Yeah, it paid off a little bit of closing costs and then the net was about 2. 35 and the seller got a promissory Note for 2. 35. I think we wrote the interest rate at 9%, right? It's a 10 year term and every 10 years they can renew for 10 years and they can live up all of the interest or just partial interest Kind of a key note here. They live in California, one of the highest taxed states, as we know, in the country. they're able to defer their income tax. In fact, what they found is they didn't need as much income, especially the first couple years here, when we put this thing set up. And so they actually, their taxes went way low, because they're not paying any tax on anything right now, because they're not receiving payments. So we can delay the payments, which is so important here, right? If you don't have depreciation left and you're having to take a cash flow What happens is you don't have what's called tax flow depreciation to offset and you pay tax in this trust scenario You don't have to take the cash flow the trust itself typically doesn't pay any tax at the trust level and so they're able to get another roi here Which is no income tax, at least for a couple of years. Now eventually they will take some income and they will pay some tax, typically in year two or three. But this is a dynamic structure that I want you to catch here. The mindset is not just ROE, not just cash on cash, but also tax flow. how does that offset my cash flow? And is there ways to structure? We did another 8 million deal in Palo Alto and the client moved to Nevada. when he moved to Nevada, he established a residency. And when he did that, the income coming in is based upon his state residency. 0 percent Nevada, California, much higher. We had another one that's, Pennsylvania sold an 8 million, 6 million, 6 and a half million dollars self storage. They're moving to Florida. Same concept, right? And so we do this over and over again with clients and it's a game changer. You can partner with the trust. And so if you're the entrepreneur saying, Brett, I want to run my own deals. My name is Hutch. I buy and syndicate multifamily deals. Are you saying that I have to be passive and just retired? No, just the opposite. You can be if you want to be. but our best clients are the entrepreneurial ones that partner with the trust. And so it's real simple, Hutch. You can set up an LLC post closing. We just did a 16 million exit for a client out of Oregon. They sold the whole dental practice. And then they partnered with the trust into an LLC. And then now they're in the process of buying an office, complex in, Washington. With a new depreciation schedule. and the trust puts up the money as a silent partner. So this is huge here. They're now able to get additional, larger, much greater upside than just a promissory note. They're able to run their own deal. They control that LLC. They do the management just like they would otherwise. the trust just happens to be a silent partner. they would have paid about 30 percent of that 16 million in tax, but now they're able to use all of that and more to partner with them to do more deals. If they want to start another business, they could. If they want to do lending, they could. it's truly, a Netflix version to the old blockbuster, right? So you could be an entrepreneur if you want to be as well. that's some phenomenal stuff If you, advanced while sitting down with this episode, get a piece of paper and a pen, and start writing things out and drawing things out, and I'm pretty sure by the end of this podcast, we'll give you some resources, as well to help you to get a deeper understanding of this concept. So the next one is going to add for you Brett, and you touching to just a little bit, right? What type of real estate assets or businesses are qualified for this kind of transaction? Yeah, we mentioned businesses already. We mentioned real estate. Bitcoin. We've helped multiple clients exit Bitcoin and cryptocurrency. I think we're up over 16 or 17 million now. And that's just across four clients, right? So if you're a capital raiser, I say, don't raise capital, Hutch, I say unlock it. But just think about this for a second, right? Both commercial real estate syndicators, operators, fund managers, they go to their network, right? They look for the people that are selling real estate, all the stuff that you said, they want to be passive, they're tired of the active, right? They want to get scale. They want to come with someone like yourself, who's doing a multi family syndication and all the cool stuff that you do. But they still focus on just the real estate world which is 50 percent of our sales But a big chunk now and it's really growing because bitcoin's over a hundred thousand a coin these days Is bitcoin they can exit and defer the tax out of bitcoin and move it into your syndication or your fund all tax deferred That's amazing. Okay. It also works for stock. So if you have Nvidia stock or Tesla stock if you have, a private stock so we just did an automotive sale for eight million up and up in massachusetts Yeah, it works for land flipping, where people, they buy the land for 4 million or 3 million and they sell it for 10 and they do this, entitlement play and we can double close that within a short period of year and we can defer that tax. so it works for business sales, it works for primary home sales, so big luxury houses, it works for investment real estate. and so really any asset of any kind, here's the key, needs to have 1 billion net proceeds, 1 billion gain. So it's gonna be big enough, right? If it's too small, it's not a good fit for us. Now, if you had two at 500, 000 each, we can make it work, right? We can combine them. You can get one trust and multiple promissory notes. so the Mindset shift here is to say, okay, how do I collect promissory notes versus just selling assets? first you're an owner and then you sell it on terms, right? You become the bank and the trust owes you the money. It's like the, go bank on yourself, right? Concept a little bit here, right? Tax deferred. And then you partner with the trust into a new LLC. And you buy a new asset and now you're a new owner again. And so you're going from owner to lender to owner to lender. And you're just keeping this over and over again. And every time that you're doing this, there's an extra 20 to 50 percent of the proceeds more because you're able to defer typically a hundred percent of the capital gains tax and the depreciation recapture, just depending on what nature you took there and if it was accelerated or not, and if you have debt over basis, there's some caveats here. Okay. The point is. If you can build a capital gains tax exit plan, spend a couple hours with us, get the book, go to our website, start to learn about all of this, like you're going to compound your freedom and your impact, right? And that's really what we're trying to help everyone achieve. Now, as you start building this massive empire, of deferred and collecting promissory notes, At what point does the tax guy come calling? And if that doesn't happen, what are some of the things that we could do to really, to disrupt that process? Yeah. the trust will pay you back. And you'll get, you'll pay ordinary income tax. So let's put a 10 million exit back to your, San Diego deal. Let's say you did 9 percent interest on the note and let's say for the first two years you delayed all of those nine, the 900, 000 of interest, you let it just accrue. And say in year three, you start taking, I don't know,$600, 000 of payments. You're going to pay tax just in that year on what you received. Ordinary income tax 600. Now, you might have done some structuring where you JV partnered with the trust, established some new basis, and did some cost seg. And since you're a real estate professional, you might be able to wash all of that off. Okay. Check with your CPA, all of those things, a little more advanced stuff here. But that's what we're saying here, right? So you will pay tax. To the extent that you don't have lost to offset it in the given year, but to the extent that you don't receive payments from the trust. You pay no tax. No, we got to make some payments, right? We got to keep it commercially reasonable. but a lot of our clients will set up interest only payments starting in about year one or two. It can be monthly payments, but they'll take about half of the interest. So if it's a 10 million deal at, let's just say an 8 percent interest, 800, 000, they'll take about 400, 000 starting in year one or year two, and then let's live off the interest and pay tax on that. But they can pass it to their kids. So every 10 years, the accrued interest that hasn't been paid yet and the principal that hasn't been paid yet can get refinanced for another 10 years. So let's say it's a 10 million and you live off 400, 000 for 10 years, there's been an extra 400, 000 accruing, So now it's 14 million that you can refinance that 14 million for another 10 years and then you do that again and you do that again and then your kids can pass that on and so that's the idea here is you can just keep kicking the can and just living off the interest and it goes back to that truly passive income. Your freedom and impact as compounding interest is to your money. So you see we're using the power of compounding interest. By deferring the income and the capital gains tax. And we're building this wealth machine that's diversified. It can go into any asset at any time. And it's very nimble. If you put a new illiquid asset, it takes some time to get out of there. Yeah. We have one client to a 13 million exit out of San Diego car wash, and then you put a large chunk of it into Bitcoin at 40, 000 a coin. And this is when real estate values are still hot before interest rates shot up basically. And then the values of real estate have dropped. And then we turned around and now we're selling that bitcoin and we're buying real estate so we're selling high and buying low and that's the whole concept like we give you this ability to do this Dollar cost average stay liquid not being dead But guess what now that values are down what's going on that even when the interest rates are higher I think it's a good time to go into debt now because values have dropped right? But the other time was not a good time to go into debt because values are so high so you've got to use Smart debt, there's smart debt and dumb debt based upon the context of the deal and the context of the marketplace. We're the only flexible legal proven strategy that gives you the leverage of all of these tax flow, cash flow, and debt flow. And real quick on the legal part, 48 year track record, thousands of transactions, and there's been about 30 audits, all no change, never had a change, never had a finding. Most of our deals have been done in California, never had a change, never had a finding. But here's the reality Hutch, most real estate agents, they don't want you to know about this. They want to keep you in the 1031 bubble. And that includes the Delaware Statutory Trust, right? which I call it Hollywood video to the blockbuster. It's just another 1031 structured deal, which has its place and we've done those before. But what we really want you to know about is the Netflix, right? So you don't have to feel like you have to be forced into the 1031. No, I got you. so you talk about, a 10 million deal. All right. Having that promissory notes and the, trust, how does the trust generate that income? Sounds like the 10 million is growing at about 4%. Oh, so we're typically earning like, 9%, 10% net of our fees. but it just depends on how, where we invest the funds. So like we have a lending fund that's paying 10% right now. Our fees are about one and a half to 2%. So that'd be about an 8% total return. We have another one that we're lending at 16%, right? And so depending on where we write the note at, we blend it to different investments. we have clients that went to NVIDIA stock and it shot through the roof. So we diversify, and where do they want to put the money? Like we have a lot of, David and Jordan, their business partners, they have 3000 multifamily units, they're clients of mine. They've done at least five deals with us. over 120 million of exits, and they put their GP interest, right? And so for them, they're going back into their own deals. They're keeping some liquid cash. They're going into some debt. They're going into some stock. They're diversifying, right? Every time they exit. And they're glad they did because, had they just put it all back into their own deals all at once during that 2020 2022, a lot of that could be gone. And so some of the mindset here is even though you're probably doing your own deals, you're making your money. It's good to build a team to diversify and get some different perspective. And that's what the DST kind of naturally allows you to do. So you can do your own deals. Or you can do others deals, or you can do a little bit of both. It just really depends. We would actually ask you, Hush, where would you like to put it? You go, I want to do it to a multifamily syndication. Great! How much? let's start with 3 million. Awesome! You start the LLC. Great! The trust puts up the 3 million as a silent partner. Go do the deal. You're running that, right? What do you want to do with the other seven? let's say 3 million into a debt fund that's doing, 10% to 16%. Great. Let's do that. But about the other amount. I want to keep a little bit of my powder drive, maybe a money market count at 4%. Okay. it's not like you have to do it all in one year. It's think about a 10 year time frame, Our goal is to try to achieve, I get 8%, 9%, 10% net of fees overall. But if we have an extra, especially Hawaii, Hawaii is huge capital gains taxes, right? If you have an extra 20% 30% 40% 50% more proceeds working for you, you have more margin to work within investing. And if you have time on your side, you have the best thing for investing, which is time. Time is the one thing you can never get back. Yeah. And of course the trust allows it to transfer seamlessly to future generations. you just pass it to the promissory note inside of your living trust. So your kids can step into your shoes. We have a 2. 0 version where the children can be the beneficiary of it and remove it outside of their taxable estate without any life insurance, gifting or charity required. So if you knew someone on the island where you live on that has a 50 million mansion, right? And it's all inside of their taxable estate. it's the whole concept of Yellowstone if you've seen it with Kevin Costner. They own let's say 100 or 200 million dollars worth of land and they're like, Beth the daughter's hey dad They're gonna take the land when you die because the estate tax is gonna kick in and we're not gonna be able to afford it or we could do something different now, you know That's just that's the whole concept of the entire show And so this debt tax we need to be aware of this that the 1031 stepped up basis has not solved for The DST Divert Sales Trust, we don't have a stepped up basis in the sense of traditional. The kids can step into your shoes, but our 2. 0, we can remove it outside of the taxable state. And then typically also the capital is capital gains tax free. and the kids can be the heirs. And so a little more complex here, but for someone, has a net worth of over 20 million. you want to be talking to us because we can also structure it to eliminate your estate tax. No, that's game changing stuff, man, because most people who are in real estate, that's one of the things we aspire to do, is create the ease of transfer, to ensure that our kids are not burdened with extra taxes whenever we built this estate or this empire, great information today, man. And you touched on a couple of questions that I had coming, you have helped people save millions in capital gains, but I'm sure that in some DST, it doesn't always work out as planned, right? You talk about, you've been audits, but never everything remained the same. And what are some of the most common mistakes that people make when setting up a DST and how can they avoid them? Yeah. The most common mistakes would be working with someone who's actually not proficient and doesn't have the thousands of hours. in the trenches for over a decade, at least right anytime you're if you're looking at any kind of new strategy or new something, just realize that you want to work with pros that have a proven business model to execute. And so our background is we've been working with it since 2009. so it's thousands of hours. So I think that's number one, like not working with the professional or just relying on the person who dabbles on the side with it. They might be a financial advisor and they know about it. They've never done it, but they just want to manage the capital as a financial advisor. Nothing wrong with that. We work with financial advisors all the time. But if you're, you have a real estate person who's made all their money in real estate and now you're asking them to trust into this new strategy that they've never heard of, or maybe a lot of people don't hear about it until either watching a podcast, doing a podcast 30 days before they close. So then I have millions of dollars on the biggest sale. And now this financial advisor's invested way that they get paid is when they manage the capital. And so you have these two dichotomies, right? Now I'm a trustee and we definitely can work with financial advisors and we do all the time, but our clients, a lot of them are business real estate people. They want to go into business as a real estate investment advisor that also works with financial advisors to get a balanced team. And that's the difference there. And so I would just say. When, if the person is, feeling pressure to go into some other product type, like an asset class, allocation that they aren't as comfortable with and, yeah, that, that's not always a great outcome because, they don't understand it. It's like a fish trying to climb a tree, right? They made all their money over here and now it's over here. the way we really succeed is when we give, we go back to the client and say, Hey, Mr. Client. What do you know and trust, right? Where have you made your money? What is your risk tolerance? What is your cash flow needs? what if we diversify within real estate and our alternatives is the stock market, right? So it's the 80 20, but on the real estate side of things, 80% real estate with debt mixed in, including real estate. 20% the other side. Okay. So those are some of the things to really keep in mind. The next thing would be just, letting your advisors talk you into something different that doesn't really serve your needs because their fear or their concern because they've never done it. So sometimes the person will show up to the advisor who didn't solve their problem in the first place. They'll show up to us. I'm like, this is amazing, Brett. Now I need to convince my advisor. I'm like, sure, bring'em on. But sometimes they don't bring'em onto the call. they just tell'em, and then the person feels obligated to the guy that they've been playing golf with. That was their college, roommate for 20 years, a financial advisor. And I'm happy to work with that guy, but sometimes that guy works for this big, company. That doesn't necessarily, work with things that are outside of their box. Correct. Yes. So we had one client. She sold a 8 million dollar mobile home park near Napa, California and literally was going to pay. 40% In tax. And she was so excited. The real estate broker was all about it. He told her about it. He's this is the best thing. Go for it. She vets it. Her financial advisor that she hangs out with and is a friend of hers Talks her out of it. And the advisor never showed up to a call. Never came on and had a robust debate. And she just paid her tax. And all the client could say was, my advisor just says that, she's not sure if it would hold up with IRS. It's but we've been perfect track record for 28 years. And She can work with that, right? We can work with her. So those are some of the mistakes that people make. and we would just say, we're happy to have these conversations with your CPA, your FAA, anyone else, and let us walk them through it. 9 out of 10 people, Hutch, that show up and have an hour long conversation with us for 30 minutes, they end up joining us and sending us referrals. But when they're not brought to the table to sit down and discuss it, sometimes it just falls apart. It definitely is a complex strategy, right? Especially, for long term investments. And one of the things you talk about earlier is being clear, becoming unstuck, and then moving forward, right? If we cannot get clarity, then we can't get unstuck. And then the way we move forward might not serve the things that we actually want. So Brett, I want to ask you one more question before we get into focus round is, for high network individual who have access, to elite tax strategy, right? Where does DST fits with a bigger picture of tax deferred and how does it compare to opportunity zone and charitable remainder trust? Yeah. So we'll start with, the CRT. So we like to say that deferred sales trust is like the CRT, but no charity is required. Okay. It's key, right? So the charitable remainder trust forces you to give to charity. Nothing wrong giving charity. Most of our clients are very charitable. They're just not 100% charitable. You know, mom and dad might have a heart for a charity today, and they might irrevocably give up the right to their asset upon their death to this charity. They might live for 10 or 15 or 20 more years off the cash flow. Problem is, there's a lot of leadership that could change within those 10 to 15 years. And what mom and dad thought was A charity that they really believed in can switch. And so we encourage, the control to stay with the family. And if you set up the family mission, vision values, and you set up the trust in a way, your living trust, that certain amounts are going to go to certain charities that your children, whoever you assign as the trustee of that living trust, the DNC works seamlessly with that to be able to be a flexible. So we call this being great Stuart with the capital. So you're not forced into just one charity. There's also donor advised funds that are also a good alternative to look at. They're not going to prefer capital gains taxes, but donor advisements are also an excellent way to give and have flexibility with giving. as far as the opportunity zones, so I've yet to really find Hutch except for maybe the first two years when this thing came out Amazing opportunities. I just haven't seen many of the people that I we run do these deals 10 years is you know where you get the real benefit typically ground up development, or just a major teardown remodel. So I just don't see him now. Here's the cool thing with the Diverged Sales Trust. If you find a great deal, you can still go into that right with a part of the capital. But I think sometimes people think the Opportunity Zones like a 1031 mindset. I'm going to trade my$5 million and put it all into this one opportunity zone. That's going to be the one that's going to be the thing. But it's you really want to wait 10 years to get the benefit of that. And once the cashflow starts, okay, so yeah, you get tax free money at the end of the, the 10 year thing. just think through that for a second, right? Now, why not do a 5 million deferred sales trust, and then if you want to put a million into that opportunity zone, then, yeah, then let's put 4 million in the trust, 1 million there. But sometimes we're doing a partial 1031 exchange, like a client we had in Texas. He did a partial 6 million exit, and did a 1. 5 million purchase in South Carolina. He did a 2 million purchase in Oklahoma, and then the rest of it went to the Deferred Sales Trust. So we have what's called the Best 1031 Exit Plan, which gives you all three options. So you're not just tied to just a traditional 1031 or just the Delaware Statutory Trust. You can also have the Deferred Sales Trust, where most QI companies, they just give you those first two options, which again, those are typically the less attractive options. And then ours is a one that gives you both, all three options. That's awesome, man. Now, be mindful of your time as we wrap up here. We can do a fire round called a focus round. What do you do for fun, Brett? So I play basketball and jiu jitsu, so jiu jitsu, two or three times a week basketball just once a week. But I want to move that up. That's what I personally do for fun and hanging out with my kids, playing fortnight, riding the one wheels, coaching my son in basketball, all those things together. That's great, man. what is one opportunity that was a game changer for you? One opportunity that was a game changer for me is when I was 25 years old. I joined a men's Bible study and discipleship group that had encouraging confidential accountability and discipleship. That was an absolute game changer for me. absolutely recommend that to everyone at all ages, but especially when I was 25, what would you say is the most important communication tip? so I think be quick to listen, slow to speak and slow to become angry, right? It's in the Bible and then two, use mirroring and labeling with Chris Voss, never split the difference, the art of negotiation where you label the emotion behind what someone is saying and you mirror the last few words that they say, and you learn that skillset to become not just an active listener, but an emotionally connected listener. What is one thing you wish you understood earlier? I would just say, probably, I think a couple things. really studying personality types. And strengths for myself, my spouse, my kids. There's a book called Personality Plus that breaks down, the four major personality types and how we, how each of us are uniquely designed it with these personalities. Like one, one strong one, typically a second, pretty close to it. or second one and the other two, opposites. So just under understand just the personality types and how to communicate, so that, that piece of it. All right. Last one to focus around to what do you attribute your success? I would say two things, right? having a mindset of stewardship over ownership, meaning that everything that's been given to me as a gift from God, my time, my treasure, talents, the gifts he's given me and there'll be to be used to be a blessing and help to others and to fulfill the mission he has for my life. So having that mindset moved me to gratitude. Versus ownership, which, was really focused on the external, getting the degree, getting the first job, closing the first deal, making that first, big commission and all those things that are really focused. it tends to be more towards entitlement. It can lead to when you have an ownership mentality. and a negative ownership in a good way for Hey, I'm responsible for my future. But even more like I'm a steward of what I've been given to be able to pass on a legacy for my future. So it's almost another level of the owner extreme ownership type of thing. It's like stewardship, right? and although I do love extreme ownership and everything, chocolate talks, it's a good one. so that makes sense. I think that'd be number one. I'd say number two, I have an amazing wife, Melanie, married close to 16 years, five children. They're my world, right? my goal is to serve them, bless them and, do. my wife's been so good to me. So I think those are two things that really helped me to succeed. That is awesome. And Brett, this has been an incredible conversation you've given our listeners, pretty much a masterclass on capital gains deferred, right? So are they deferred status trust? It's I know listeners, if you listen to this episode, it's going to be a complex topic and you really need to sit down and dissect. However, you really need to get clear on what you want as the best point so you can become unstuck and then you can move forward. Brett, if our listeners want to get in touch with you, how do they go about doing that? Yeah, two places. BrettSwarts.Com. That's S. W. A. R. T. S. so Brett 2 T's Swarts.Com or capitalgainstaxsolutions.Com. We have our YouTube, our podcast. Build a Civilians podcast and Capital Gains Tax Solutions podcast if you want to check out those shows. All of that can be found on BrettSwarts.Com and then don't forget the book Building a Capital Gains Tax Exit Plan and the best 1031 exit plan service. If you're in a 1031 or know someone who's going to be in there, make sure you send them my way so we give them all of the options and they don't get stuck in the old Blockbuster 1031 only option. Perfect. Listeners, thank you again for listening to another episode of the Multifamily Real Estate Experiment podcast. if you like this episode and find value, Please give us a fair review and of course a five star rating if you so desire and Catch you on the next episode. I'm Hutch the Marine Investor out.