Welcome to our latest episode. Today, we bring together three experts in real estate and alternative assets: Paul Moore, Dave Zook, and Michael Flight.
Paul Moore, an author, BiggerPockets expert, and Founder/Managing Partner of Wellings Capital, shares his insights. With an engineering degree and an MBA from Ohio State, Paul co-founded and strategically sold a staffing firm. In 1999, he shifted to real estate, accumulating over 85 investments and exits. His journey includes appearances on HGTV’s House Hunters and roles in property management, contributing notably to the development of a Hyatt hotel and a thriving multifamily project.
Dave Zook, Founder & CEO at The Real Asset Investors and Owner at Horizon Structures, is a successful business owner and investment strategist. He has placed over $800 million across various asset classes, including ATMs, car washes, energy, and self-storage. As a top 5 ATM fund operator and early investor in Bitcoin and digital assets, Dave is an expert in tax strategy and investments. He founded The Real Asset Investor in 2015, becoming a sought-after speaker sharing his knowledge on various media platforms.
Michael Flight, a founding principal of Concordia Realty Corporation and CEO of Liberty Real Estate Fund, is a real estate entrepreneur and Blockchain Real Estate evangelist. With a career starting in 1985, Michael is an expert in retail real estate, redevelopment, real estate tokenization, and blockchain applications. He has partnered with major banks, insurance companies, hedge funds, and institutional investors in successful projects. Michael has been featured on CNBC Arabia, CEO Magazine, and quoted in financial publications.
In this episode, our guests discuss alternative asset classes for real estate investing, navigating a tightening real estate market, preservation of capital, changing markets, retail investment in the digital age, and investing in preferred equity, retail, art royalties, and ATM machines. The conversation also covers tax planning strategies, the tax benefits of owning land and real estate, and a deep dive into the risks and opportunities of real estate investment. Tune in now for an insightful exploration of net lease investing and tokenization in the ever-evolving landscape of real estate and alternative assets!
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See Full Transcript:
Bronson Hill: Really excited to have everybody here coming in from all over the country and for those that are watching this on a replay, this is our alternative asset.
Technically, real estate is, to some, denoted as an alternative asset, but just a conversation around which assets is an important to consider. We know if you’re sitting in cash, you are losing to inflation, whether that’s 3% officially or more like 8% from shadow stats, and so basically, there are many different things to invest in. There’s many different things to do.
I’m going to introduce our guests and I believe we will get, if somebody sees Michael Flight in the room here, let me know, and I will pull him up on the stage, but we will start without him, and then we will get hopping here.
So, quick intro, my name is Bronson Hill. If we have not met, great to meet you.
We raised around $40 million for retail investments, mostly multifamily, ATMs, carwashes, oil and gas, and also some VC stuff as well.
So, that’s really what we do. We also provide educational events like this. I also just wrote this book behind me called, Fire Yourself, and I really encourage you to pick it up.
Excited you’re here, and I want to introduce Paul Moore. He is with Wellings Capital. He has done, we’re going to have you talk about who you are in a little bit, but done quite a bit with mobile home parks and self-storage.
Dave Zook is also a good friend with the real asset investor, done a lot of different types of alternative assets, and we’re going to have him get into some of those assets here as well.
And then, Michael, we’ll be here in a little bit. I’ll give him an introduction when he shows up. He is with Concordia Realty, doing mostly retail, as well as Liberty Real Estate Fund. And so, that’s a blockchain real estate type of event.
So, we’re going to have a great time tonight. I’m really excited for this conversation. We’re going to jump right into it.
First of all, let’s talk about the elephant in the room, right?
Real estate is having some challenges, right? When you go from three, four percent on a loan to seven, eight percent, or sometimes nine to 12 percent with bridge debt, it gets to be, there’s some challenges there.
Let’s start with Paul. What are some things you’re seeing in real estate that are presenting challenges for investors these days?
Paul Moore: I was getting nervous about multifamily for a number of years, and I was worried about the floating rate debt and worried about assuming that because Tucson, I just made that city up, but Tucson went up 18 percent a year. It’ll continue to go up, and some things like that. But something I completely missed.
I didn’t know about the reserve requirements that lenders could put on somebody to replace their rate cap or to renew their rate cap. And that was a surprise to me. And finding out that some of our friends, people that all three of us know had rate cap renewals, and their lenders were saying, okay, you were putting $1,000 or $2,000 on reserve for your next rate cap renewal.
We’re going to bump that up to $70,000 or $80,000 or even $90,000. I don’t know how with the interest rates already going up with rents flattening, with operating expenses through the roof, insurance through the roof, property taxes up, how these folks are surviving with a 50 or even 100-fold increase in their rate cap reserve on top of all that. So that’s been one that certainly surprised me.
We don’t have any floating rate debt, so it didn’t hit us. But it’s really caused a lot of pain out there. And, of course, everything else I mentioned has caused a lot of pain as well.
We’ve got people who are doing pausing distributions, others who are doing capital calls, others who are just already in foreclosure. So that’s obviously what we’re seeing. What are you guys seeing?
Bronson Hill: Yeah, let’s hear from Dave. Talk to us about real estate and what you’re seeing in the real estate market. I know you guys are doing a lot of other things, but just kind of what you’re seeing as far as lending and some of the where we’ve kind of gotten to now.
Dave Zook: Yeah, so I would say for us, it’s been sort of a mixed bag. We are obviously having some challenges when cost of capital doubles. It throws a twist into some things. And, you know, on the flip side of that, we’re seeing some real opportunities in that. I’ll give you an example in the car wash space, some of the lots that we had lost due to, you know, other buyers’ interest in being outbid.
And, it seemed like we felt like we were making smart choices and we were getting outbid. Some of those lots are coming back to us, and we’re capitalizing on that. So while there’s challenges in the market when it comes to cost of capital, and not only that situations like this when banks get caught upside down or banks get caught in the mix with multifamily and loans defaulting by, like Paul said, by some people that we know.
You know, when that happens, banks sort of take a step backward, and it doesn’t matter if you’ve got a project that’s working really well or if you need capital for a project that, it was working before, it’s working now, and we want to keep, continue down the path, build more car wash or whatever. They take a step back and everything tightens up a little bit. So we’re getting caught in that crossfire.
It’s not causing us to stop, not even causing us to slow down. It’s causing us to have to get more creative though, and navigating through that.
So I would say it’s a mixed bag, opportunities, challenges, and I will say this though, I believe that those of us who continue to make progress in this kind of a market, when it all, when it corrects and when it all shakes out, and when things kind of stabilize or become more normal. Or maybe we have a new normal most likely, if we can continue pushing things forward in today’s market. I think we’re going to be in much better shape than when we just freeze and stop because we’re facing challenges that we haven’t faced in the last five, ten years.
Bronson Hill: Yeah, you’re right. I mean, I think it’s a mixed bag, right? We’re seeing some headwinds.
We’ve had a couple of deals that have really struggled and, you know, we’re having some trouble with a couple because of the bridge debt and that kind of thing, and it just, it does. It’s, you know, it says more in Buffett says that it’s when the tide goes out, you can see he’s been swimming naked, right? So there’s been a lot of that, like hopeful investing or hopeful thinking versus, hey, we’re really investing in solid principles, but I think it’s really the learning that happens as a passive investor as well as an operator is important.
We do have Michael Flight in the house. Michael Flight, welcome. I know you made your way in, so glad to have you here.
As I mentioned, Michael Flight is with Concordia Realty. Been in real estate for over 30 years, and he’s also doing the Blockchain Real Estate Summit and the Liberty Real Estate Fund. How are you doing, Michael?
Michael Flight: I am doing great, Bronson. Thank you very much for inviting me. Dave, it’s great to see you again, and Paul, it’s a pleasure to meet you.
Bronson Hill: Awesome. Yeah, so we’re just, Michael, we’re just talking about real estate, and obviously we’re not where we were two years ago, so we’re talking about some things that have happened as rates have risen.
What’s your kind of evaluation when, I guess, as an investor, as an operator, what are some things that you’ve seen, both kind of challenges and opportunities that have come up?
Michael Flight: Well, Dave hit on some really good points with the banks, and this is something that we saw in 1990 with the SNL crisis, and back then the mantra was stay alive till 95.
Now the mantra is stay alive till 2025, and really there’s a lot of repeats, although not as bad, but especially with the banking, if they’re getting into trouble or they’re actually getting some pressure from their regulators because banks have like five different regulators, and so they can’t start going out and throwing out credit. And the other thing is that if they’re capital-constrained, as we saw in 2008, we had banks just take back good loans, and when I asked them, it’s like, well, we’ve always paid, why can’t we extend a loan?
And they said, well, you can pay, the other loans we have, they can’t pay, so we need the capital. So that’s going to be a lot of issues. The great thing about this market this time around is there’s a lot of capital on the sidelines, so it’s not going to be cheap capital, but if the projects are good.
And unfortunately, as I’ve been especially telling you, Bronson, over the past three years, there’s been a whole slew of people that have come in and until recently, and I’m not disparaging any of these professions. It’s just that they weren’t in real estate. They happened to be nurses assistants.
They happened to be things completely not even related to finance. And suddenly, they’re real estate syndicators. And then when you ask them, it’s like, well, what’s your specialty?
It’s like, well, asset management. And I would always ask and offend some people and say, well, does that mean picking a property manager, or what does asset management mean? And we’ve been in property management since 1990.
So that’s the type of thing that, unfortunately, there’s going to be some distress, but I believe there’s going to be a whole lot of opportunities and some really hot markets that weren’t there for the past four years.
Bronson Hill: Yeah, I know you’re right. I think one joke that Michael liked to say is that he thought I was a street musician when we first met for a while, and then he sees me syndicating a number of years later. He’s like, oh, this guy’s done really well.
It was pretty funny. So if I could do it, anybody could do it, right, Michael? I was just kidding.
So let’s keep walking down that path a bit. I think the first thing really is preservation of capital. They talk about Warren Buffett says, remember, one of investing is don’t lose money.
And what would you say to someone who maybe has had a capital call or has had a loss or is staring at that? A lot of people kind of see it, and then they kind of say, well, okay, well, this asset or whatever, it’s just not, maybe it’s not for me. Dave, can you maybe just kind of go around to each person and just kind of what sort of advice would you give to investors. That there’s maybe been a little bit of pain and maybe there are opportunities, but because of the pain that’s happened, it’s hard to move forward.
Dave, you have any thoughts on that?
Dave Zook: Yeah, I mean, I fortunately had never been in a position where I had to go out with a capital call. I would say, if you go to market and you go and do the best you can, and look, I understand that it was normal in the last three years to use bridge debt. You know, and I understand there’s, you know, obviously now there’s problems with that.
I was just talking to a guy today who is working a deal with some group that’s bringing fresh capital into his deal and the terms for that money. I was like, oh, my goodness, I want to be them. And I’m like, so, you’re looking at situations like that where there’s opportunity to market, but look, if you’re a syndicator and you’re dealing with that kind of stuff. You just got to make the right decisions, go out and fight for your investors.
And if that deal is salvageable, you might have to take a term sheet or bring in fresh capital, recapitalized, whatever. If you go out there and do the best you can and fight to the finish and you give it all you got and you take resources like that and you’re out there fighting for your investor, I think that’s all that your investors can ask for.
I’ve been in situations where I’ve had to recapitalize or use my own capital to cover some shortfall. I was in multifamily, sold all of my multifamily back in, I was totally out by 22, had a couple thousand units. But there were times where heavy value add where I had to bring my own capital in and get things stabilized where things didn’t work out the way that you had hoped, situations like that.
If you communicate with your investor and maybe even bring them alongside and say, hey, have a call, say, hey, this is a situation we’re in. What do you think? They may come up with some ideas because look, it’s your money, it’s their money.
We’re all in this together, right? And so I believe if they know you’re out there doing the best you can, fighting as hard as you can. At the end of the day, when things happen like they’ve happened over the last two years. Or a year and a half when cost of capital doubles, there’s going to be some serious upheavals and turbulence within the market. And it’s not your fault.
If you told the, if you put the terms together of the deal, you told them everything about the deal, you told them you’re using bridge debt and you go in and do the deal and then now the cost of capital more than doubles. Hey, you’re in this together. Let’s figure it out together.
That’s been my approach when things don’t work out like they should. And, I would just encourage you, you know, any syndicator out there that’s out there doing good business that got caught upside down because the deal change, times change, whatever. And so I would just encourage you to just hang in there, get advice, over communicate, get with your investors, talk to them, whatever you can do.
Bronson Hill: Yeah, that’s great. I think, too, the most valuable thing is the learning, right? And so I think that’s a great word for syndicators and obviously, we all can gather from that.
But as a passive investor, you know, if you’ve been in the middle of that, I guess, I guess, Paul, I wanted to hear from you as well. You know, some people would say, hey, I’m going to back off this now or I’m going to, you know, kind of just, okay, wait, do something different. Is it a time to double down?
Is it a time to go afternoon deals now, since maybe some deals are more attractive? Like, what are you seeing right now, particularly in mobile home parks and self-storage?
Paul Moore: Yeah, so as far as capital calls, if I could just speak to that super quickly, I was talking to an investor the other day who called me and she said, I’ve got six potential capital calls in these multifamily deals. We haven’t had any either. We’re very blessed, to not have that situation.
We were talking through it and I had a light bulb moment. I just realized that maybe this is obvious to everybody else. You really need to evaluate the sunk cost issue.
Here’s what I mean. If you have to, you know, not all capital calls or those terms are created equal, but let’s just say it’s kind of your standard thing. Okay, everybody’s here has got to put in, let’s say 10% more capital just to keep your X percentage.
Let’s say that percentage you have is 1%. Well, if you don’t put it in now because everybody else put it in and you didn’t, you only have a 0.9% ownership. The way to evaluate that, I think, and I’d love to hear from all you guys, is can I do better with that money?
I mean, if you’re not getting some huge 50% penalty slapped on you that you agree, like Dave said earlier, you agree to it upfront. But if you don’t have that situation, let’s just say that’s $50,000. I know it’s a high number for most of these situations, but if you could put that $50,000 into something else that’s targeting, say, 14% return, but you think this is only going to get you 9%, it’d be better not to throw good money after bad in that situation.
And I don’t think people should be afraid that they’re going down from, let’s say, 1% to 0.9% of a deal that might end up going south anyway. So that’s my thought on that. As far as mobile home parts specifically, I want to address that.
You know, self-storage and mobile home parts, and I learned a lot about self-storage from Dave years and years ago. They have a lot of mom-and-pop owners, and a lot of these folks have owned these assets for a generation. And so when you’re going, you know, right now, the value is way off what it was in the peak, and they don’t need to sell to the degree, I think, that multifamily folks, you know, who have these short-term debts and these, you know, floating rate debts and things, you know, these debts that are coming due in this year, next year, a mobile home park owner might say, I’ve owned this free and clear for 40 years. I don’t need to sell.
And so mobile home park volume, trading volume this year is off something like 80% or 85%. And so we’re really honestly disappointed with the number of mobile home parks we have in our current fund. Self-storage is down, I would say, not nearly as bad.
Bronson Hill: Yeah. Yeah, it’s interesting how at different times different things, you know, come available and then what your first thing you’re saying about, you know, to participate in a capital call or not, that’s a great analogy there. Michael, talk to us a little bit about, you know, obviously I think now if I’m not mistaken, your core business has been retail, which I know was not hit at all during COVID, right?
And, doing strip malls and other things. So you’ve had over the years some pivots and stuff, but what have you seen or I guess what are you seeing now kind of in your business? And are you seeing, obviously, investor sentiment generally has kind of softened it somewhat. But, you know, do you see investors or how would you counsel an investor that has had some challenges and some deals that they’re in and they’re looking at now getting involved with all the more stuff or just kind of sitting on what they have?
Michael Flight: Sure. Well, first of all, we’ve been in retail real estate and we were some of the first people in the United States to do what’s called de-mauling and taking, you know, broken mall and bad malls and, you know, scraping them and redeveloping them and doing other things. So we’ve been in value add real estate since 1990.
A large majority of our partners from 1990 through about 2015 were institutional investors, hedge funds, insurance companies, real estate investment trust. And so, but we did take some lumps in retail, but kind of saw that coming with Amazon and we started trying to figure out how to make a pivot somewhere back in like 2017. And it’s like, does the pharmacy have a drive-through?
Are they necessity businesses? Are they businesses that could easily be replicated online? But the good news is, is that right now, retail is just trying to say this politely.
Retail is hauling ass. You know, throughout the country, if you’ve got good property, I’m 100% least on a lot of our deals. Now, we had some severe pain in 2020 in certain states that decided to close everything down.
But we came through, we worked out deals with our tenants. We gave them forbearance on a lot of their rent. Almost every one of those tenants to over 150 in the portfolio have paid back all the rent that they didn’t pay or we just forgave it for the mom and pops because it’s like, you don’t want to kill them.
So I’m just saying that cap rates have always been pretty good. They’re really good right now. I think that we’re getting a little bit pricey in certain things because, you know, when I see a six or seven camp on, you know, with a retail shopping center and the anchor tenant is a trampoline park, I’m a little bit wary about doing something like that.
But if it’s a grocery anchored center, we’d love TJ Maxx, you know, those type of things. There’s a lot of stuff that can’t be replicated online. And then online retailers are also realizing that customer acquisition costs are insanely expensive, you know, and so if they are online and they open up a physical store, their online sales go up and their physical store sales go up.
So retail and, you know, especially strip centers, I would not do malls. I’ve been approached by a few guys that are trying to transition on a multifamily, say, oh, there’s this, you know, C mall out in the middle of South Dakota or something and we can get it for a 13 cap. And I say, don’t do that because the expenses alone will just eat you alive.
That thing, no matter how cheap you do, if a retailer can’t do business, you can’t give them the space because it costs more money to operate the store than it does their paying rent. Then one more thing I want to circle back because I love what Dave and Paul said about capital calls. And I’m going to be the guy that, you know, reigns on everybody’s parade.
You have to really take a look at what the business plan is because, you know, that asset might go back to the bank regardless of, you know, whether you put the money in or not. So you have to take a hard look at it and say, is this plan workable? And then you also need to ask the sponsor, where’s the bank at on the deal or what type of, you know, financing.
And if you can get, you know, this rescue financing that is somewhere around 18 to 25%, you know, where’s that in the capital stack and is that going to cram down you again? So, but the big thing is, is that most syndicators that are in distressed, they should start working with the bank first because the key thing with the bank is the bank doesn’t want to foreclose because if they foreclose, they have to take a capital hit and everything else. So they would rather work out, you know, some sort of deal and say, oh yeah, we’re going to do this.
And in cases, because we did not only workouts for banks, but we also on a few of our deals that had, you know, some rough spots, you know, back in 2008 through 2010, we also worked out a deal with the bank to say, you know, if the value goes up, you know, you’re going to take a hit on your, you know, what you’re getting for your interest rate. You’re not going to do this. We’re going to extend and pretend that the loan is good.
And then we’ll give you a hope note at the end so that if the value goes up, you know, we’ll pay you a little bit extra. So there’s a lot of ways, but the syndicator, you need to make sure as an LP that the syndicator has worked out all the deals with, you know, the lenders and everybody else before you decide to put, you know, as Paul said, you know, good money after bad, because you could lose all your money anyway.
Bronson Hill: That’s a great point. I want to have each of you. We’re going to get to questions here in a little bit.
So if you have questions in the audience, just sit tight for a minute. We’re going to get to them. There’s a Q&A section we’re going to put it in.
I want each of you to go through and talk a little bit about, you know, I know Dave, we could spend a long time with you because you have a lot of assets you’re doing, but maybe just talk about a couple of the things that you’re doing that you’re excited about and some of the benefits. So, again, we’re not pitching any specific deal. We’re just saying, hey, I like this asset or we’re doing this because of this, and these are the reasons we like this and this asset.
So maybe take just about two minutes, Dave, and then we’ll go to Paul, and then we’ll go to Michael. So why don’t you go ahead, Dave?
Dave Zook: Yeah, so some of our core asset classes, many of you know, many folks know that we’ve been doing ATMs now for more than a decade, and it’s been working out very well, and some people think cash has gone away. It’s not. It’s actually, in many cases, becoming stronger with the demographic that we’re serving.
So that’s been a very good asset class. And look, here’s what I tell investors sometimes, like if I’m not sure, I mean, look, the last decade and more have been very kind to people who own brick-and-mortar buildings and real estate and most of these real assets. When you’re not sure that that’s the case going forward and, you know, we’re not sure where this is all going to shake out, we could see asset prices declining a little bit more.
Who knows? When you invest in an asset class like ATMs, that’s already baked into the cake. You know you’re not going to, your asset isn’t going to appreciate over the seven-year contract period.
So, you know, maybe it’s time to take another look and maybe do something a little bit more creative with your money for a short period of time until, you know, kind of the system shakes us out. The other thing is, too, is, you know, I think in times like this, like value-add, multifamily, value-add, self-storage, you know, a lot of value-add strategies have really worked well, and they probably will continue to, in most cases. You know, but sometimes you’ve got to go out and create value from scratch, and that’s what we’ve been doing with car washes, is finding really good pieces of real estate, and then in some cases, taking it to its highest and best use, and I’m talking, you know, prized assets, like really good pieces of real estate in a prime area in the city, and we’re building car washes.
And so going out and creating value and creating it from scratch can work in this environment, depending on the asset class, but take another look at that, take a closer look at that, and maybe get a little bit more creative than we have over the last decade. And then lastly, I’ll just touch briefly on our oil and gas play. I’ve been a natural gas investor for the last five years, specifically with one family in Pittsburgh, and we’ve launched a fund.
So natural gas, we’re big fans of natural gas, oil and gas. I think the timing is right for commodity investment like that, and so excited about it, tax benefits. I know that many investors are looking to that this time of the year, especially being in the fourth quarter.
You know, that’s a very tax-centric asset class right now, so just, you know, it’s really just a reflection moment portfolio.
Bronson Hill: Right. Great. Thanks, Dave.
Those are all asset classes I enjoy, and I’ve always appreciated your story on saving a million dollars in taxes or saving a lot of money in taxes over the years personally, which is great. Paul, talk to us about a couple of assets you’re excited about.
Paul Moore: Yeah. Like Michael, I’m excited about retail. I never thought I would be.
I believed in the Amazon apocalypse and, you know, retail was going down the tubes, and lo and behold, we got an article in the Wall Street Journal last fall, you know, just in August saying that retail is the, you know, they’re the top player in commercial real estate right now, so we are glad to have retail strip centers as part of our fund. Another thing we’re excited about is preferred equity. Now, preferred equity, it might sound like rescue capital.
There are at least three types of preferred equity, prep equity, that I can think of. One would be development prep equity. Another would be rescue, and the other would be just simply, you know, value add acquisitions.
I guess a fourth type would be recapitalization along the way that’s not a rescue. But Wellings Capital, we’re really excited about this because with interest rates where they are and with banks lending at a lower LTC, with equity being harder to come by, we’re seeing gaps in the capital stack, and that gap can sometimes be filled by mezzanine debt and sometimes by prep equity. So we’re actually, we have spent the last 11 months getting involved in the prep equity space.
It’s something that’s extremely hard for an individual investor to, I can’t imagine one pulling this off themselves, we’ve seen legal fees like $30,000 or more just to pull together the paperwork, you know, to put it behind Fannie or Freddie, for example. But we’re seeing prep equity, you know, that’s having cash flow, and I’m not talking about our deals, I’m talking about in general, and the one to $5 million space, which is really a rare place to be, you know, cash flow in the eight, nine, 10% range and then upside of compounded six, seven or 8% more, giving a total, you know, a coupon of 15 to 17%. And I’m not talking about rescue deals, somebody mentioned 18 to 25% on that earlier, I’d say that’s absolutely right.
But it’s a rare time when you can get a safer place in the capital stack and have a high return, even if it is limited, it’s a high return, we think it’s a great time to do that, and we’re doing all we can of prep equity right now.
Bronson Hill: That’s great. Yeah, you sit up higher on the stack, that’s great. I think a lot of investors that have been equity investors are looking at debt now, saying how can I be the bank rate basically, which is great.
Michael, what about you? What are you excited about right now?
Michael Flight: Well, we’re continuing to do the retail, national tenant anchored strip centers. It has not been a large part of our business. We really shifted into single tenant triple net leases because on a risk adjusted return, those are just basically like buy-in bonds, and I love the counterparty risk of, if you get a jiffy lube, some of those are shell guaranteed, and I almost trust shell to pay back their debts more than the US government, so you can’t beat that type of stuff.
So we really love single tenant triple net leases, medical retail, and necessity businesses. We’re very specific on our criteria on that, and we underwrite not only the locations, but also the tenants. One thing I’m really, really excited about is a buddy of mine, and we’ve been partners since about 1998.
We’ve done over the years. It’s not my regular business, but we were raising capital for fix and flips, from about 1998. And then we did portfolios of loans, but we’ve got a really great program now. It’s a single family home sale leaseback program, and it’s actually a good story because there’s a ton of people with equity in their house. But the banks aren’t there to do distressed lending. And so we can come in and do a two year sale leaseback with them.
Buy their property, we’re buying the property 40 to 60% below market value, and what we do is we help the tenant. If they want to stay in the house, we get them into a credit counseling situation, we get them all lined up so that they can refinance out of it and actually buy the house back, and we’ve just helped so many people.
One lady was going to lose her house like two days before the taxes were going to do. And she was going to lose, we’ve helped people with medical bills. We actually, one person that had medical bills. She got an offer from a fix and flip guy, and we came in.
We bought her house immediately, and then they get the upside on the hous. So if the house has upside, so she ended up getting $100,000 more than she would have gotten had she taken the offer from the flipper. That’s a really, it’s a great story, and it’s also super safe.
It’s the bank’s model, except we own the property and we’re in it for a lot less than what the bank is. And then the other thing that we really like is I’m involved with an art company. We’re tokenizing art royalties and also making it. So that the artist gets a piece of their stuff rights management. And there’s a whole group of things so that collectors, even if they’re not displaying their stuff, they’ve got their art in storage.
They can actually get money in royalties from our print-on-demand worldwide global stuff, so that’s going to be a big thing, and most people don’t think of art as an investment class, but art since 2012 has risen about 137%, it’s outperformed gold, and it’s something you can enjoy, but you can not only enjoy it personally, but you can also license the rights to that art so that designers, there’s a huge market in hotels and assisted living facilities, and so you can actually make money on your art
Bronson Hill: while enjoying it on the wall. That really reminds me, Dave was sharing a story a while ago too about finding ways to generate cash flow, and I know Dave, you bought a large piece of property that was out of several thousand acres or something, and you found five different ways, you’re selling NFTs and carbon credits and leasing land for heavy equipment, you’re doing weddings in one area, it’s just great to have different avenues to generate cash flow, which is really awesome. Did I miss any of them, Dave, or is that all the cash flow from that one, dude?
Dave Zook: No, I mean, the point is, when you’ve got the right people on your team that can bring different, bring value from several different places and extract value from a piece of property that was maybe a singular focus for the seller, you can really extract some margin, so you got some of those right, and there’s several more, but no, we’ve been having fun with that.
Bronson Hill: Yeah, that’s how we can think of some creative things that you can host there, I’m sure. We’re going to go to questions in a minute here, so if you do have questions, please stick them in the chat or in the Q&A section. I’m going to take one minute and share a deal that I am excited about just very briefly, and then we’re going to come back to it.
So this here is our ATM machine fund. We have a special offering right now, and I’m just going to go through this a little bit like what we like about it, 11-plus-year operations, the fourth largest operative ATMs in the country. This is a cash flow investment, monthly payouts, and there’s a pretty high return.
It’s a mix of principle and interest, and there’s a reason why the payouts are this high, but there’s no financial leverage, no interest rate risk. It’s an uncorrelated asset, and then you get 100% depreciation. This is the last year, you get 80% depreciation in year one, so it’s better depreciation than real estate because there’s no recapture event when you sell.
And then just a couple things about this specific offering. It’s a one-time bonus. They’re offering three additional monthly payments.
One is at 84 payments, so seven years of payments. It’s 87 payments. The preferred returns start sooner, so two months after closing, and this deal closes on December 20th.
So that’s just a little bit of information. If you’re on a list, which usually if you join these events, you will hear more about it. If you want to hear more about it, you can go to admin or send an email to admin at Broadson Equity.
We can share some info about that with you. So I just want to share that with you. That’s something I’m excited about.
And I wanted to always like when people can share things that they are working on and excited about. So I know we haven’t really had any questions come up here yet. I have more questions than I can fire all day because I’m a good question asker.
But if you do have a question, please drop it in the box. We’ve got some amazing pros here. We probably have about, I don’t know, maybe about 100 years of experience in real estate between all of us, some of us more than others.
We won’t point that out. But let’s kind of go through this. Let’s talk a little bit about year-end tax savings.
If someone has, let’s say someone is, again, there’s kind of two types of income, right? You have your investment income or your passive income. And then you have your income that you make in your job.
Somebody’s a high earner. Maybe they’re a high W2 earner like a doctor or they’re a lawyer or professional. I know it’s a very challenging type of income to try to reduce.
Dave, can you talk a little bit about maybe just quickly a couple options for people to consider? I know you’re not a CPA. We’re not giving any specific advice, but just some approaches that people can use to kind of address those different things.
Dave Zook: So as you know, Bronson, taxes, although I’m not a CPA, I hang out with the best and brightest in that world and I can hold my own pretty well. But taxes near and dear to my heart because that was part of my story and what kind of drove me into real estate and multifamily and cost segs and bonus depreciation, all that fun stuff. So yeah, I take it very seriously and we help a lot of investors.
I wish I knew how many millions of dollars we saved investors through our programs. But that’s one of the things that we do very well is we get with an investor and we hear their story. And then if we have something that can help them, we try to match them up or give them the opportunity to get into an asset class that will knock down the tax liability on their income.
Whether that’s passive income or ordinary income, capital gains, whatever. So you look at several of these asset classes, we’ve got four core asset classes and each one of them does different things. And I have them in my own portfolio for that reason.
They work for me in different ways. So I’ll give you an example, our net gas, our oil and gas fund is, that gives you between 70 and 80% tax impact in year one. And 15% depletion allowance going forward.
We’re only doing this with a family that’s been in this space for 50 to 60 years. And the parent company is fully audited. So by sort of the gold standard in that space.
And then if you’ve got, so that one will knock down the tax liability on your ordinary income, any income. And then if you’ve got passive income or capital gains or depreciation recapture or any of that, some of the other asset classes can work very well with that is ATMs, car washes. One of the things that’s cool about car washes is the building can get depreciated at the same speed or pace as the equipment inside the building.
So it’s something that’s unique to car washes and the gas stations is how fast that building can get depreciated. And you don’t have to worry about cost sake studies and any of that stuff that gets depreciated at the same pace as your equipment. So we love to get it creative with our investors and help them solve problems.
And if you can knock down 40% of the tax review to otherwise pay the government, that can be your first year’s biggest return in many cases. So it’s fun stuff and we have a lot of fun working with our investors through it.
Bronson Hill: That’s great, that’s great. Paul, I’ll talk to us a little bit about your approach to taxes and kind of some things that you’ve been able to see help investors.
Paul Moore: Yeah, well, first of all, Dave, I’ve always admired the way you do the tax benefits and people should definitely be coming to you for a lot of that stuff. So hats off to you. I’ve been listening to you for years, talk about this stuff.
So you’ve really paved the way for that, for a lot of people in that arena. I was shocked to find out that mobile home parks and RV parks have incredible tax benefits. You would think, wait a minute, mobile home park is not mostly land.
Land’s not depreciable. Well, we were surprised to find out that the land value in a mobile home park and an RV park might only be 20%, 25% of the total value. That means that perhaps 70, 75% of the value is in infrastructure.
And a lot of that can be depreciated and accelerated quite heavily. When you take a mobile home park, let’s say 50 of the 70% value of it can be all depreciated. It would have been all in one year now, 80%.
Next year, 60% in the first year. If you take 60% of 50%, that’s 30% of the value of a mobile home park that could be potentially written off in one year. Well, if you have debt in the range of 70%, that basically, if I did the math right in my head real quick, basically you can write off about 100% of your equity investment in that first year.
In other words, if you invest 100,000, you might be able to get a $100,000 loss. It used to be about 150 or $180,000 loss. Same with RV parks.
So they’re quite impressive in their ability to really accelerate depreciation and create losses, year one losses for investors.
Dave Zook: Hey, I’ll just touch on one more thing here, Bronson. And this goes back to what Paul mentioned about land because I used to look at land the same way and think there’s nothing there. You can’t appreciate land.
And so we have a farm that we spent a good bit of time down in Eastern Shore, Maryland, and we had a cost seg guide come down with us. And my thought was that we would just get the cost seg benefit, the tax impact on the buildings. We’d do a cost seg study on the buildings, on the property.
It turns out we could take cost seg against the roads, the driveways, the lake. We got a 12-acre lake. There were some old fish ponds that had been dug like way back in the day, like 20, 30 years ago. Whenever that had all the piping and the infrastructure run to them.
There was electric running from the road, driveways half a mile long. All kinds of stuff. We ended up getting, I think it was around a $2 million tax impact from that cost seg study.
So we actually opened that up, and we’ve got several large pieces of property, and some of them have roads running through them. It costs like $25, $30, $35 a foot to build a road, right? You can actually, even though that road might have been put in 20, 30, 50, 100 years ago, if it was manmade, if it wasn’t put there by God, you may be able to write that off.
So somebody is sitting on a big piece of land with water retention basins, roads, driveways, the piping that goes under the road, like the culverts, the bridges, whatever, there could be an opportunity to get some real tax impact from that. So just keep that in mind for your listeners.
Bronson Hill: It’s amazing though, too, yeah, that when you get a good tax person, tax strategists, cost segregation, people, they can come in and they can just, they can be absolutely life-changing. So I talked to somebody today that’s having a big event where they’re selling some property where it’s millions of dollars. And I said, get somebody involved early, get a tax strategist involved early.
Those guys are typically not, they’re not biased. They’re not going to lead. They just want to try to help you reduce your basis, which is great.
So we’re getting some questions coming in. Michael, why don’t you give some thoughts on taxes and we’re going to jump into some of these questions that are coming in.
Michael Flight: Sure. And I know Dave is a specialist in chicken coops, but it’s always amazing how he can milk a cow. So it’s just…
Bronson Hill: And Dave is the author of Chicken Coops for Dummies. I actually saw him milk the other day, which is quite impressive.
Michael Flight: But as David mentioned, we really love gas stations. You know, one of the things is, is that there’s not only the immediate write-offs in depreciation on what you can do, but in certain situations, if it meets a certain criteria, you could actually be eligible.
And this is, again, I’m not an accountant, but you could actually be eligible for tax credits because it gets certified as a certified fueling center. The U.S. government, you know, one time wanted to make sure that there was, you know, gas stations in certain areas. So that’s one thing.
Then the other thing that I really like, and it really comes up a lot with triple net properties, is a lot of people, they’ve fully depreciated and fully owned, you know, they’re multifamily and they’re getting ready to retire. Or for me, you know, I’m getting a little bit tired of doing like a lot of extreme value add stuff. 1031ing into a triple net property is, you know, one of the best things that you could possibly do because number one, it gets rid of all your management headaches and you just…
I used to say you get the checks automatically, but it’s even better now. Most of the larger tenants like McDonald’s, Starbucks and everybody else, just ACH the money like five days before into your bank account. So, you know, 1031, you know, people should look into that as a tax saving strategy when they’re looking to sell them.
Bronson Hill: Awesome. Thanks, Michael. We’ve got a bunch of questions coming in.
We’re going to try to rapid fire through these because now it’s funny we ask them and nobody has questions. Everybody’s got a million questions. So is anybody doing on the panel, do anything to mitigate the likely possibility of the estate or death tax exemption dropping dramatically in 2026?
Dave Zook: I am. I’m on the very front end of it. I’m working with Andrew Howell.
He wrote the book, Entrusted. It’s a very good read, but I’m on a real… You know, I’m on the very front end of this and I’m very aware of that and it will be in place.
I will have that figured out well ahead of 2026.
Bronson Hill: So this is about basically creating trust so that your heirs can pick up your stuff without being taxed terribly because I know that’s changing. Okay. We’re going to kind of fire through some of this.
Paul, can you talk a little bit about just a little more about preferred equity and the rescue asset is… There’s a question is, you know, somebody’s asking, is it buying businesses? So this is basically rescue funds that are coming in to help, particularly multifamily or other real estate groups that are struggling with paying the mortgage, right?
Is that right? And coming in and taking a higher position?
Paul Moore: Someone mentioned that, the impact of uncommon equity of inserting a new 18 to 25% pre-equity or mez debt pre-equity in this case position in the middle and cramming them backward, you know, even further. And I got to wonder, I don’t know. I would love to hear from you guys.
I got to wonder if these rescue pre-equity folks, I mean, I wonder if they have a team that is just as happy to own the asset because I cannot imagine doing that myself and I’m guessing they do.
Michael Flight: Yeah. We’ve seen a lot of it, especially in the past, but even, you know, when we were trying to, like, make certain acquisitions in redevelopment work and some of the guys we avoided because they also were owners and so they were kind of hoping to loan to own, you know, so they were hoping that, the project didn’t go right so that they could get in it, you know, below basis. So that’s the one thing.
Hopefully, if you’re investing in one of those funds, then you’ve got those guys on your side. You need to be careful with a lot of the pre-equity, Mez equity and, you know, some of the stuff. Like I said, I get concerned that, you know, the multifamily syndications aren’t happening right now so it’s like, oh, let’s go out and start this other fund and they’re going to be in the same situation.
And did you want me to answer your question now about TJ Maxx and, you know…
Bronson Hill: Let’s have you jump into that. Actually, if Dave and Paul, if you go to the Q&A section, there’s a couple of questions that you could type in there. A couple of people have questions just to make sure we get those questions answered in the last couple of minutes here.
And then, yeah, if you want to just touch base on the question about why are off-market, you know, Ross and TJ Maxx, why are they doing well right now?
Michael Flight: The amazing thing is they call it the treasure hunt. You know, so women especially like to go and it’s always something new in there. So there’s like always some new bargain and it’s like, if you don’t get it now, then it’s going to be gone.
So that’s, kind of what they call it. They call it the treasure hunt phenomenon. Plus the fact that if you don’t need exactly like I’ll go and buy a shirt because I need exactly, you know, that type of shirt.
But if you’re okay with just getting a collared shirt and a button down and you can pick it up for like 25% less. So, TJ Maxx, those guys are just making money hand over fist. They’re very strong.
Bronson Hill: Okay, that’s great. Okay, we got a bunch of questions here. I’m just going to go through a couple of these, or maybe one of them if we have time.
How would you compare the returns of investing as a limited partner in some of these funds with being a private or hard money lender? So I guess that’s really the question of being an equity investor these days versus being a debt investor. I’m going to jump in on that one.
Paul Moore: So I’m sorry, I was typing an answer to a question.
Bronson Hill: I’ll go ahead and answer it. I mean, I’ll just kind of share. They’re asking about difference between debt and equity investing.
So I would say equity typically has a higher upside, but it carries more risk. A debt investor, it’s a safer position. So if there’s a loss, it’s typically to the equity partners first before the…
And so the returns typically are more modest, but there’s less risk typically. That’s kind of how I’d answer that.
Paul Moore: Prep equity has some of both. In fact, sometimes on prep equity, while we can’t get a lien obviously on the property, we can actually get a personal guarantee from an operator or syndicator might have a $50 or $100 million network. And so that’s been pretty…
That’s as good as almost as good as getting a lien on the property.
Bronson Hill: So I think what we’re going to do at this point, if you do have additional questions, you can type them in. We’ll try to get to those we can just to type in. I wanted to just really acknowledge our panelists.
Each of these guys just have tons of experience, have a tremendous amount of respect for each of them, but at conferences, spoken to things, spoken to their events, and it’s just been awesome. So can we just go around and maybe starting with Dave, we’ll just kind of say, how can people reach out and get in touch with you if they want to follow up or want to learn more?
Dave Zook: Yeah, so I get out and speak at conferences. Many of them, I see you out and about quite a lot, Bronson. But no, our website is therealassetinvestor.com.
And the best way to reach me is [email protected]. Feel free to reach out to us, ask us any questions about tax investing, whatever you’re going through, and we’d be happy to help.
Bronson Hill: Quick note, real quick, this has been recorded. It will be available. It’ll be sent out to you.
It will also be on the YouTube channel as well. We actually have many more of these events. We do them monthly for the last three or four years, so we’ve got many of these awesome events on YouTube as well.
Paul, how can people get in touch with you and follow what you’re doing?
Paul Moore: I’ve actually been involved on Twitter lately, and so people can follow me @PaulMooreInvest, and they can go to our website, wellingscapital.com. We got free special reports on RV park investing, self-storage, mobile home parks, et cetera. You can get that, wellingscapital.com/resources.
Bronson Hill: Awesome. Thanks, Paul. Michael?
Michael Flight: They could reach me on LinkedIn. I’m on LinkedIn. They can also find us at libertyfund.io. We have a special net lease property report that we just put together. So it explains all about net lease investing, and we have a ton of information on retail properties, and if they’re interested, they can also go to the Blockchain Real Estate Summit to learn more about tokenization and how tokenization is going to change real estate syndications.
Bronson Hill: Awesome. Thanks, Michael. Awesome, guys.
Well, I appreciate everybody for being here. Again, you know, we do this every month. We will be doing it next month with some great guests as well.
We typically go back and forth between real assets and inflation, and kind of a market, kind of what’s happening. Please reach out to each of these guys. They’re awesome.
Just really, you know, people of integrity, really doing things the right way. We’re also doing deals as well. So look forward to connecting with each of you.
Thanks, everybody, for being here, and we look forward to seeing everybody next month. Thanks again to our panelists for making time to do this. This was really great.
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