How to Pay Zero Taxes on Massive Gains with Brett Swarts

Brett Swarts: [0:00] Gentleman sold a $20,000,000 asset in Minnesota. He put all the funds into the trust. He's like, I'm not doing a ten thirty one exchange because it's crazy out there. I think something's gonna happen. And he was really smart. And this guy hates the stock market, loves commercial real estate. He's worth almost $1,000,000,000 today. And he puts the 20,000,000 to the trust. Five years later, the bank calls up and says, hey, you know that property is sold to that ten thirty one buyer? He says, yeah, I remember. He goes, well, we just foreclosed on it. And we're just curious, do you want to buy it back from us? He goes, well, yeah, I think I maybe do. What's the price? And go about 60¢ on the dollar. This sounds like a pretty good deal. And so he goes, give me a couple days. And he he formed a new LLC, and he had the trust funds that owes him the money, joint venture partner with him into this LLC, and then he bought it back at 60¢ on the dollar. All tax deferred.

Speaker 2: [0:46] Welcome to the collecting keys real estate investing podcast with your host, Mike DeHaan and Dan Austin. From wins, losses, horror stories, and tactics for optimizing your business, Mike and Dan take a real uncensored deep dive into the ins and outs of running a full time real estate investment and wholesaling business.

Mike DeHaan: [1:09] What's going on, guys? On today's episode of the collecting keys podcast, we have Brett Swarts with the taxdeferredtaxsolutions.com, and he has a really interesting product that is a good alternative to the $10.31 exchange for anyone that's looking to sell any properties and make some big gains. It doesn't like to pay taxes. Listen to the end of the podcast where he has a story about a guy who actually was able to sell a property, roll it into his tax deferred trust, and then use that trust to buy the same property back and make a really outrageous gain on his money without having to pay any taxes at all. There's a lot that can be said there. So go ahead and give it a listen. And if you enjoy this episode, please subscribe and leave us a five star review and share it with anybody who might find this helpful. Thanks, guys, and enjoy the show. What's going on, guys? On this episode of the collecting keys real estate investing podcast, we are welcomed by Brett Swarts. That's right.

Dan Austin: [2:09] Yeah. Swartz. Nice. I did. There you go.

Mike DeHaan: [2:12] I can read a little bit. Brett Swarts with capital gains tax solutions. And that's just one of the things you do. You also have a real estate investment company. I met with your business partner the other day, and he you guys are just starting a wholesale operation. You do a whole bunch of stuff. But your tax solutions company, think, is super fascinating because you ultimately have, like, an alternative, I guess, to ten thirty one exchanges or at least like an alternative way, people can roll over ten thirty one exchanges into different asset types. Right? And when it comes to ten thirty ones, biggest issue always have people always have they're always very interested in people, but you have to find a new property. You have to identify a property to be able to close on it, or you have to go and settle with a DSD, a Delaware Statutory Trust, which is basically just a REIT with a bunch of expenses built into it. So I'd love to hear kind of about your background, the stuff you're working on, and then obviously about that ten thirty one program you're working on. So I think that that is extremely unique. And you know, it's not very often in this space where I hear something that I've never actually heard of before. Usually, someone's like a copy of someone else. Mhmm.

Brett Swarts: [3:13] Yeah, guys. It started out at a young age in real estate with my parents, building houses and rentals and cash flow in the Bay Area. MC Hammer Days, my brother and I would drive the bobcats, hammer the nails, move the move the wood Wow. And put up drywall. And then fast forward, went to college, had a chance to take an internship at a place called Marcus and Millichap, started to learn the investment real estate brokerage game, and I was focused on multifamily here in Sacramento. Things are going good for a while. This is 2006, know, and then the market can took a complete crash since 2008. And I saw friends, family, and clients lose half or everything within a few year period of time, and or just have to struggle with the banks for time. And we quickly found out that the number one enemy for a lot of people was too much debt, not enough diversification, and something called a ten thirty one exchange that also created this time pressure where they're buying these assets that they knew that didn't make a lot of sense on the cash flow per se, but their tax pressure, you know, require them in their minds to purchase it. And so fast forward, I learned about something called a deferred sales trust.

Brett Swarts: [4:17] Again, not to be confused with the Delaware statutory trust, which literally has changed the game and it's changing the game. It's the Netflix of exit planning. It works for all things, primary homes, businesses, investment real estate, and save a fail to everyone in cryptocurrency. And once you understand the nuances of how this thing works, it's Netflix to the blockbuster ten thirty one. And at the same time, my family and I were going through a struggle. My wife and I were barely married at the time, baby on the way, and we were barely making any money. And so she was full time mom. I had we had move in with my brother to a small condo. We had to work at Cheesecake I had work at Cheesecake Factory for sixty, seventy hour weeks of Marcus Millichap by day, you know, the, you know, the side hustle by night, seeing clients in the other room that had a $3,000,000 listing I'm trying to get. I'm like, oh my gosh, if they see me doing cheesecake, I'm never going to get the listing. So it was brutal. It was blood, sweat, and tears. And I always share that part of the story because I'm on this side now of success, but it wasn't without all of the seems too good to be true, never going to make it. What are you doing? Go get a real job.

Brett Swarts: [5:15] You got to be able to support your family and all this stuff. And now fast forward, we have five kids living here in Roseville. My wife's been able to stay home full time. Now I just coach and train and teach people how to do this. And we just close deals every week. And it's a of fun across the country. And then we equip people like yourself who are looking to level up their investor base or their partner base or do more deals or raise more capital, whether that be a business broker versus an acquisitions person, commercial real estate syndicator. So they can unlock the ability to help their clients, friends, and family do the same. And that's it.

Mike DeHaan: [5:49] Nice. I like it. Perfect. Yeah. It's very full background there. So when you were going through that rough patch back, you know, everything sort of crashed. So your family, you have pretty significant loss to, like, were you guys one of those groups that was, like, losing properties and things like that that was getting underwater with everything that happened, or were you basically able to see that from the sidelines and just learn from the experiences that everyone else was seeing since you were on the

Brett Swarts: [6:16] The latter. We're actually very fortunate. I graduated actually, played basketball in college and scholarship. And I actually took an internship in o six, started at Marcus and Mill Chap even before I graduated. And then I graduated o seven and then, you know, I was making next to zero. The whole thing was like, you know, timing was actually good that I wasn't making a bunch of money in o four, o five to go to buy the house, to lose the house like my cousin was a couple years prior to me. He was a little bit older. So it was actually from the sidelines and then it was learning what not to do and then learning what to do from my clients. And that's one of the best things about serving high net worth individuals, especially commercial real estate owners and operators. Top 3% of wealth in America own commercial real estate. And the ability to learn from them and understand what to do, what not to do. So it was definitely from the sidelines.

Dan Austin: [7:00] That's awesome. Like, a lot of people learned during that period of time. You just didn't have enough to lose yet is what you're saying.

Brett Swarts: [7:07] Exactly. It was a blessing.

Mike DeHaan: [7:08] Yeah. Right. So you got

Dan Austin: [7:09] the same education as everybody. You just didn't have to lose. You didn't have to pay for

Mike DeHaan: [7:13] it, so to speak, in that in that way. That's awesome. So then, I guess, jumping into that, you obviously got to the phase now where you have your your education. You're doing your coaching. You have the

Brett Swarts: [7:24] A deferred sales trust. Mhmm.

Mike DeHaan: [7:25] Diversified sales trust. So the kind of in between there, I'm assuming you invested a little bit. What what did your personal investing look like? What sort of stuff were you buying? Were you going right into commercial? Because that's what you were supposed to. Like, how do you sort of bridge that gap? Because I feel like that's something that's extremely challenging for people, especially when they're sort of new maybe with their capital, especially if you're working at a restaurant. You gotta come up with some good money to buy commercial assets. So how did you go about that?

Brett Swarts: [7:50] Yeah. So we actually started to see success and get some margin, you know, we did the Dave Ramsey plan for the twenty six months. We paid off 65,000 of debt. We got our finances in order. And then all of a sudden, income starts to, you know, increase by 50%, 100%, 200%. And we start to really get some momentum. And always, and I still am focused on the business aspect of serving my clients and then passively investing with some of the best operators in the country, right? And so we are buying passively, need to find a deal typically and because I'm a commercial real estate broker as well, still am. But I'd find a deal and I'd roll my fee into the deal. So one of them, for example, was a deal in Arizona. It was a 50% built, you know, retail center and it was foreclosed and 50% leased, 50% built. It was a mess. Bought it with a business partner and he was the main GP and I was just a small sliver, but found the deal, rolled it in, raised a little capital. And 6,000,000 was the number and within thirteen months and that was all in, that was buying plus finishing out the construction, dollars 13,000,000. So that was like, wow, you know what I mean? The ability to take advantage of really distressed opportunities and then turn them all the way around. And then it became putting it into small amounts. And then we would buy a house and do the renovations on that, live there for two years and get the 121 exclusion of $500,000 tax free. But most of it's been just passive. And that's part of intentionally because I have five kids and then two businesses and then the podcast.

Brett Swarts: [9:20] I found that if I was gonna be active, something was gonna have to give. And so my strategy has been mostly to go passive and or raise the capital, right, And then be a part of a small sliver of a GP. So it's a little bit different than being an active operator if that makes sense.

Mike DeHaan: [9:38] Totally. Yeah, makes major sense. We're in a group called GoBundance. It's like a mastermind that know, has tons of real estate guys, and that's a similar model to so many guys that are in there. Yeah. That's that's that's interesting. So I guess getting into that initially, when you're, like, finding the deal and things like that, that's obviously not passive. I guess what years is this happening in? Is this, like, fresh after 2009, 2010. So, like because I mean because now, so many people try to do this, and that's where it gets so challenging because there just isn't those opportunities anymore. You're not gonna find something that you can

Dan Austin: [10:10] There's not as much meat on the bone.

Mike DeHaan: [10:11] Yeah. It's hard to find something you can buy for 6. It's gonna be worth 13 when you're all set and done. People are buying these with such small caps. Yeah.

Brett Swarts: [10:18] I mean, I think the key is this. You're continually practicing finding deals and investing certain amounts. Right?

Mike DeHaan: [10:22] Mhmm.

Brett Swarts: [10:23] And so it's not like it's we never stop investing. It's just rather what's a deal that makes sense during this time, whether you need tax flows for depreciation or some cost seg, whether you need a big appreciation play, like we put in money into a senior housing assisted living facility four years ago, we found the land and sourced it in Elk Grove, paid about 7,200,000 and the projects like a $70,000,000 project and it's memory care, it's independent. And then they're going to typically double and triple the money within that period of time. So whether it be pass them into a hard money lending fund where they just pay simple interest on the money, but it's still liquid. So I like to diversify. I like to say at least 80% mostly in commercial real estate products, multifamily, mobile home parks, senior housing assisted living. And then I like to take some passive stuff on LP, some GP. So it's literally a mix and it comes up as the deals come up. So it's not a one size fits all, but you're right. It is difficult to find especially in California. That's where I'm at, know? We're very, you know, we're in the very highly appreciated place of California, and it's not easy to find deals that make a lot of sense these days. That's why we're mostly going out of California Gotcha. To find deals in Texas and Florida and Tennessee and Alabama.

Mike DeHaan: [11:35] Cool. So it's basically building, like, almost like a portfolio similar to what someone would do with stocks, but different kinds of assets, different involvements from the GP to LP, preferred returns, all that sort

Dan Austin: [11:44] of stuff. So the the one question that, like, everybody has is when when you say you're going outside of outside of your home market to these other markets, like, what are you doing to find these deals? Are you just reaching out to brokers in those areas? Are you using your own type of marketing system? Or what happens to to get those deals on your doorstep?

Brett Swarts: [12:01] Anything out of state, I'm a one with a local proven operator and syndicator, right, that I'm not in the place, and I'm doing that. Like, we did one in Fairfield here, California, and that was about six years ago now. And that one was a multifamily property, 72 units, and it's it's a local friend from church. And he's like, he's a great guy. He he heads up one of the 15,000 units for a group. He's the head of acquisitions, and then he'll find deals that are below, like, their 200 unit minimum, and he'll buy them himself. So he'll get, like you know, he's got 72 units. Right? And so, again, it's not a one size fits all. Yep. I'm hiring the who, not being the how. Right? So I am not flying to Texas to buy a duplex in Lubbock. Right? Yep. Like, I wanna buy, you know, 300 units in Houston as a passive investor with an operator who has boots on the ground, has the management, is vertically integrated. Does that make sense, And

Dan Austin: [12:54] what I guess, what is that? You you just sort of touching on it. Like, what does that proven investor, that proven broker look like? Like, what is that what is that avatar for you that you're like, yep. That's that's the person I'm going to work with in Texas?

Brett Swarts: [13:06] Great question. So we have about 11 strategic alliances now. Right? And we've gathered those over the years. So but the deferred sales trust only important to defer the tax, but it's just as important where you can invest the funds. And a lot of our clients are coming from commercial real estate and they don't want to necessarily go into the stock market, right? And so with the deferred sales trust, the beauty is you can go in the stock market if you want to, but you can also go into passive real estate deals. And so part of the vision is to give clients what they want, which is what I typically like too, right? Which is value add multifamily properties is typically where we start, right? Number two, mobile home parks, right? Number three, pro business states. And then number four, the track record of that person. So do they have the same core values when it comes to leadership, in terms of business development, comes to the love of commercial real estate investing? Right? Do they have the team in place? Do they have the education in place? What is it about them? And and I, you know, you subscribe to the emails, you have the conference calls, you call them, you look at their underwriting, you know, and you you understand thoroughly what the business model is and the plan is. And it you quickly see who are the most organized, have the systems in place, and then who have the track record. Like one of them we just partnered up with joint strategic alliance with, they have 3,000,000,000 under management.

Brett Swarts: [14:23] They've never lost a single dollar. Wow. Right? They also have a hard money lending line, and that lending line is a liquid fund that has never paid below 10% and averaging 13%. And then their multifamily did 45% last year and that was kind of a high year. But they've averaged 29% And in that it's an evergreen fund and they typically never sell. So there's certain little pieces of the puzzle that you pick up on as you're in the industry long enough. And then you have clients that give references. So, yeah, that's what it is. And then you develop relationships with these people. And then I always say, if I'm not going to invest in it or my clients haven't already and they're sending them to me, then I'm not going to even put them in front of people. It's getting to know them, like them and trust them over a period of time. And then it's looking at their track record and then it's asking them tough questions. And then you say, Okay, I have faith that you're gonna perform on what you said you're gonna do. And then you're typically starting with smaller amounts, right? You're not putting everything with them. And then you typically as well, I'm trying to lead myself and invest first with them. And then as they prove that, then you know, but my clients, you know, as the deferred sales stress clients, they're leaning on me to make introductions, but they're really making the approval of the investments. So it's it's a team approach that makes sense.

Mike DeHaan: [15:35] Yeah. Absolutely. Yeah. I mean, it's I mean, it's all about, you know, you know, that's real estate. It's such a networking heavy business.

Dan Austin: [15:41] Well, and just collaborating. You use the words 11 strategic alliances. Like, it is a team sport, but having having strategic alliances, having being collaborative is how we all make money here, how we all succeed.

Mike DeHaan: [15:54] Yeah. Yeah. Exactly. So I guess on on that vein, really quick. So I guess there's right now, we're in a situation where there's more people that have more access to capital than they've ever had before. We're also in a time where there are more amateur operators out there who they have the sales pitch. They've done the training. They've been to, you know, the seminars, but they don't know what the hell they're doing. What's the, like, five second sort of way that someone with a lot of capital can underwrite an opportunity? Do you have do you have something that's, like, super quick as, an immediate red flag that people should, you know, be cautious of if they see it, if they're looking to be an investor?

Brett Swarts: [16:31] Oh, man. I mean, if you don't know how to if you haven't underwrote a thousand deals, right, then and then you're not working with someone who has, then you don't even you're not speaking the language. It's like walking in and trying to speak Spanish to negotiate a deal when you only speak English and go into Mexico. Right? So it's an art and a science, right? And underwriting is you've either been through the fire of underwriting all the deals and walking deals and talking deals and negotiating deals. And you know the language and the dialect of even multifamily versus mobile home park versus self storage versus senior housing assisted living. Mean, it's a whole each of these things are so niche. They really are, right? So yeah, I would just say, you want to hire the who, don't be the how. And then until you have the ten thousand hours in that particular thing. So mine's been multifamily and then it's deferred sales trust. And then mobile home park, senior housing, assisted living. But I'm leaning on those that already have all of that experience. That makes So I think the more you can niche and the more you can know your limitations, and then to bring in the who, not be the how is is the best way to approach making sure that you're underwriting properly.

Mike DeHaan: [17:38] Yeah. So we want even like simpler, right? So like, you know, my dad, they sell a house, they all said they have a $100,000. And they're like, I wanna you know, I've been hearing about this commercial real estate thing. I wanna put money into a syndication. How do they find someone to do it? You know, like, how do they quickly prescreen?

Brett Swarts: [17:57] I see what you're saying. Here are the questions that I would ask. I think it's a better way to put So the first thing I asked, obviously, is cap rate IRR, right cash on cash, what's the debt that they're leveraging at? I see some basic foundational questions. What's the basically the gap between where current rents are, and where they're going to be? And what's the cost to get there? Right? How many percentage of these have been turned over? What's the motivation of the seller? Right? You know, why are they selling? What are we buying? Right? I mean, these are these are probably the top 10 questions you're asking. And if the deal has been fully or mostly renovated, and there's not a lot of room there to grow the rents, then I'm probably not interested, right? If the interest rate is much higher than the cap rate, I'm probably not interested either, right? That's another thing we're facing right now is higher interest rates and still pretty low cap rates. And so it's a cautious time to be in. Those would be a few of my things. And then if it's, you know, I like workforce housing, B class assets, eighties or nineties construction, pitch truth, you know, central ACs, right? Beer or better locations. I mean, are all things that, again, you see as you just keep seeing the deals. I hope that answers the question, Mike.

Mike DeHaan: [19:03] Totally. Yeah. Yeah. It does. Yeah. For sure. Just just basic stuff because I always think of I mean, we see this all the time in the I mean, we're mostly in the residential space, but people who are, like, raising money to you know, from their their grandma or, like, their even worse, their friend's grandma. They're like, hey. You should take out this HELOC, and you should give me that money so I can go flip houses. But they don't know how to flip houses. They just are, like, telling people that they do.

Dan Austin: [19:26] And their friend's grandma doesn't know how to underwrite a person or a deal.

Mike DeHaan: [19:28] Right. And so You know? Exactly. Careful. Yeah. And then it gets even worse when you have people that are more sophisticated and wanna buy these commercial assets, which, you know, not only especially if they're tied to the debt anyway, if they're limited, they're fine. But we know people who have been talked into being key partners or, like, general partners on stuff and having to be responsible for massive debt that they don't understand that they are signing. Right? And we know several people who have gone bankrupt because of their own ignorance, and they get swindled by a key operator who's just like, oh, yeah. This is this is gonna be so great. You know, they have no idea what the hell they're doing. When I do when I mean, even the other way, one of Dan's good friends was he's gonna be losing, like, almost a million bucks. It's like a young guy. He's like in his late twenties. I have a deal that he didn't know how to operate because he sort of got swindled into the fact that it was a good deal from whoever he bought it from. So yeah. But, you know, either way, people respond for themselves, but I always like to have the the quick way to underwrite it. Awesome. So let's dive into your, delayed sales I keep forgetting the DST, So

Brett Swarts: [20:27] you call it delayed tax trust. It's kind what it is. The nature of it is it delayed, delaying the tax, you're deferring the tax, right? It's called a deferred sales trust. But yeah, what would you like to cover?

Mike DeHaan: [20:37] Yeah. So I mean, the the fact well, first off, I guess, how you actually does it work? And you say it's like the Netflix of, you know, to the blockbuster that is ten thirty ones. You can grow into any sort of asset. What are kind of, like, the best uses for it? Is there, like, a certain size that it makes sense to roll over versus not? You said you can literally buy anything. So does that mean I could, like, I could sell an apartment complex and make a million bucks and literally just roll it all into a bunch of Ethereum? Like, you know, like, like, what what are the the process and the Yeah.

Brett Swarts: [21:09] You know? Cool. Structure. Yeah. So the the premise is that most high net worth individuals like us, right, we struggle with capital gains tax. Mhmm. It's somewhere between 2550% of our gain when we go to sell certain assets, depending what state we're in, depending what depreciation or capture we're in. So that's the thing we're trying to solve for. We use a deferred sales trust to eliminate the need for the ten thirty one exchange and defer the capital gains tax, and then put it into cash flow and producing assets at any time. So you know, we can create and preserve more wealth or help our clients, friends and family do the same. So that's kind of the premise. So step one is who qualifies? Who qualifies? You need to have at least a million dollar net proceeds, a million dollar gain. So it's got to be big enough. The pain's got to be big enough, right? And your gain is a gain, but your tax would be, let's say 25% to 30% of that based upon your basis. So let's say you had a property that was worth a million dollars twenty seven and a half years ago, multifamily, you fully depreciated to zero, okay? And now you're selling it for five, right? That's a $5,000,000 gain. And this is in California, we're using about a 40% tax and that state federal Obamacare and some depreciation recapture just as an estimate. And on 5,000,040, that's $2,000,000 So we always want to make sure what are we actually solving for? It's that tax, right? That tax and that's huge amount of money that can either be rolled into a ten thirty one exchange or it can be used into the deferred sales trust. Now, if you have two assets like two LP positions or two GP positions at $500,000 each that have that gain and that net proceeds, then we can also roll that in to a trust and grow it.

Brett Swarts: [22:36] We wanna scale it to make it make sense. That's kind of who qualifies for it. But again, it could be primary home business, LP, GP, carried interest, captive insurance. It could be artwork collectibles, NFTs, crypto, Ethereum. We've done, we said in Ethereum case, and next is kind of a good case in point. Bring up Ethereum, a client. He and his wife lived in East Bay Of California. He worked for Ripple, you know, XRP. He's amazing at tech. Mean, like twenty five years in the tech industry. He's You working hard. His wife's working hard, and they're working sixty, seventy hour weeks. He's an attorney, two kids, and they're like, man, and he started buying this Ethereum, started dollar cost averaging into it. I believe in this thing. I believe in this thing. And he's not really telling her because he's putting a couple thousand a month. This couple thousand a month turns into, you know, $6,000,000. Right? He sits down with her and they're like at an anniversary dinner or something. He's like, baby, something to tell you. She's like, what? He's like, well, we got this Ethereum and it went to $6,000,000. Off the cash flow for the most part. And so they go through this process of trying to get an exit plan for the capital gains tax because that's basically where they settled in between. We'll sell some of it, but we've got to get capital gains tax taken care of because we're gonna get clobbered.

Brett Swarts: [23:55] So she says, fine. Well, by the time that they were looking and couldn't find anything before they found us, guess what? It crashed. Right? It goes down to like 1,000,000. So they're crushed. Right? And then what happens again? Boom. It starts to rise again, rise again. Well, they met us about a year and a half ago. And I sat down with them for the first time. And the week before, they said, Yeah, it's up to 9,000,000. We're ready to exit if your guys' plan works for us. And she's like, Let's go. I sit down with them and I'm going, what Well, can we achieve off of this? I go, what 9,000,000, 8% is typically our return. It's about $720,000 a year. I'm like, what are you guys making now? They're like, it's about 600,000 a year. I'm like, well, there it is. We could conservatively probably make about $7.20 on average per year over any ten year period of time. And I go, so it's 9,000,000. Right? He goes, well, Let me check. And he checks his phone out and he clicks on the thing. Goes, it's actually at 13,500,000 now. Like a two week period, it went to $13,500,000. And so this began the journey of like getting out. Right? And guess what? By the time he said yes to us, and by the time we got with Kraken, Kraken is the place that we we exit to because they've been most most cooperative, let's put it that way, most responsive, which is Coinbase. They we had to go through all this stuff, and it was like a 100 emails. It felt like between their legal team and our legal team, like, are you guys? KYC's and everything in between.

Brett Swarts: [25:17] And guess what? The values dropped again. Right? And they dropped to like six. And so now the wife's like she's like so upset. And like, he's upset. And we're like, we can't control it because we've never done the deferred sales trust with Ethereum or it's only ever been real estate or businesses and such. So fast forward, I get a call. This is like a month and a half later from this other drop. And it's like a Saturday morning. I'm driving to Walnut Creek for this continuing educational training. And he calls me he's like, hey, Brett, are you by a Starbucks? I'm like, what's going on? He's like, last night, hit our number. Ethereum crossed over $3,000 coin. I want to exit 5,000,000 right now. I'm like, okay, hold on. So I'm like, know, it's like a movie. I got my phone and I got the launch codes. I'm like, I don't want to go to a Starbucks because it's the Wi Fi. You know, it's going to be compromised. I'm like, okay, I'll give you the launch codes. And like, we got to write a book. The point of all this is he ended up exiting 5,000,000 within about an hour. Okay?

Mike DeHaan: [26:07] Yeah.

Brett Swarts: [26:08] And then he went on to exit another 2,500,000 of Ethereum out of about a $13,000,000 valuation. And now looking back, he is so happy because he's able to diversify that wealth. Okay? And guess what happened just a couple weeks ago? Celsius. Right? Celsius went completely it's it's over. It's b k. It's complete bloodbath.

Mike DeHaan: [26:27] Mhmm.

Brett Swarts: [26:28] Probably billions of dollars lost for some people. He had over 30% of his current Ethereum was in there. And he would have had, you know, millions in there. And so we were able to not only diversify his wealth, defer his tax, but he was facing, you know, multiple million dollars or losses if he had it had it at Celsius. So I told him, I said, would you have been here? He said, yeah. And so what I'm why I'm telling this entire story is because there's a number of things that are happening with him. Right? There's retirement, there's diversification, there's peace of mind, there's being able to be passive, being able to sell high and buy low. Right? We can put the money into a liquid investment grade securities and put it back into real estate. In other words, we can work from a blue ocean mentality versus a red ocean of like, especially crypto high, low, high, low, or even real estate. Right? That takes a little bit more time to move. So the deferred sales trust is that Netflix for all of those reasons, but especially for those who are in crypto because he probably, again, would have lost 30% of 13,500,000. Now he's safe. Now he's diversified with the majority of it, if that makes sense.

Dan Austin: [27:31] That was a rollercoaster of a story. I'm glad it has a happy ending. That's that's 13,000,000 down to 6,000,000 down to 1,000,000. Was like, god. So now

Brett Swarts: [27:40] is that is crazy.

Mike DeHaan: [27:42] That's crazy. So with that situation, mean, something said out to me there that was really interesting, and I don't think I realized. So you said that you pay an 8% pref off of, like, to to them, right, on that money that was transferred to you. So I guess from your point standpoint as the fund, so they send you the Ethereum to your Kraken account. And then do you hold that Ethereum yourself? So basically, take the asset and now you just pay them an 8% for the exchange of that asset directly? Or do they actually liquidate that and then the money came to you through Kraken? I'm just trying to sort of figure out. Yeah. So talk about the

Brett Swarts: [28:16] how and it's the latter. Right? So we only hold it for a half second, then we sell it right away for cash. So to get diversified. So let me also clarify for people what this is. So what you're doing is you're loaning the funds to this trust in exchange for a promise. So my client, what he did was he transferred a 5,000,000 of Ethereum into the brand new deferred sales trust account. It's a made up trust name that only does business with he and his wife, single entity trust. They are the sole lenders to it, okay? The funds never move out their signature or their approval. They must approve of all investments and movement of funds. It's all safe and protected there. But what we're doing is we're actually transferring the Ethereum in this scenario or a real estate property to the trust. It's a sale. Okay? But the cool thing is the trust gets it for 5,000,000 and the seller sold it for 5,000,000. So the trust has no gain. Right? So it has no no tax there. The trust immediately, you know, gives them a promissory note for 5,000,000. So they're owed back all that money. They did a 100% seller carryback. And then the Ethereum is just sold to cash and then the cash is sent to the bank. So we get out of it right away. So we get out of it within, I think within twenty four hours, right?

Brett Swarts: [29:21] So that's how it works. And in a real estate transaction, we could assign the interest of an LLC. We put that into an addendum prior to the buyer moving all contingencies. If we're going to save a failed $10.31 exchange, we can do it basically day 46 or day 181. So the answer is it all kind of depends. It works for s corp, c corp, LLCs, but realize that you're changing your characteristics. So if it was Mike's deal, Mike's going to assign his interest or transfer his coin, transfer his property to the trust, sell it, right? But not receiving cash at closing, right? Receive a promissory note. And that's what keeps it in a deferral state. It's known as IRC four fifty three. And it goes back to the 1920s. There's been thousands of closes with the deferred sales trust, billions under management, over twenty six year track record, over a dozen no change IRS audits plus additional former audits, lifetime audit defense. It works in all 50 states. It's literally batting thousand. But what you quickly realize, it's not just the strategy, it's the team to execute. And this is what we do. We help people to execute this. Our role is the trustee. We work with the tax team to do the legal work. I work with the third party financial advisor to keep accountability and and and kind of that perspective as well. So hopefully, that answers the question, Mike.

Mike DeHaan: [30:30] Yeah. It does. Now, it's it's it's interesting. Like, I'm I'm honestly amazed I've never actually heard of this because everyone always just fixates on the ten thirty one. So I guess one last question on this before we'll we'll dive into our our final questions here is, so they have this deed of trust oh, sorry. This promissory note with your with the trust and 8% or whatever the agreed upon terms are, do they have the ability at some point to exit that entirely? I'm assuming so. And, like, what does that process look like? And at that point, is that when they would pay the full capital gains? And I guess, what what is the exit for an individual, Craig? That's an

Brett Swarts: [31:06] Yeah. You got it. That's a great question. So just like a 10:31 exchange, when do pay the tax? Well, the moment you stop 10:31 exchanging. Well, when do you pay the tax on the deferred sales trust? Well, the moment you stop having the funds in the trust, you take back constructive receipt. So most of our notes are structured as ten year terms. And every ten years, can renew for ten years, renew for ten years, can pass it to kids. You can also do a five year term or a three year term. Typically, only payments. Most people are taking 5% to 6%, keeping a little cushion between the 8% and the five and they're living off the interest. The interest payment will be ordinary income tax. You get a $10.99. If you dip into principal, which you can, it'll be cap gains tax on that amount. But again, most will just keep the golden goose. Let's say this is 5,000,000 in this scenario, Intact and live off the golden eggs, the 8% interest, right? Have an extra 2,000,000 working for them. The government started me 0% on that incredible, right? And use it as a way, it's a cash flowing producing opportunity for not only the investments that it's in, but also the best as it can be in. And this is the best part. In fact, the ability to partner with the trust to buy real estate is the best thing about this. Let me give you an example. So in 2006, we called this money morning quarterback. A gentleman sold a $20,000,000 asset in Minnesota.

Brett Swarts: [32:15] He put all the funds into the trust. He's like, I'm not doing a $10.31 exchange because it's crazy out there. I think something's going to happen. And he was really smart. And this guy hates the stock market, loves commercial real estate. He's worth almost $1,000,000,000 today. And he puts the 20,000,000 to the trust. Five years later, the bank calls up and says, Hey, you know that property is sold to that $10.31 buyer? He says, Yeah, I remember. He goes, Well, we just foreclosed on it. And we're just curious, do you want to buy it back from us? He goes, Well, yeah, I think I maybe do. What's the price? He goes, Well, 60¢ on the dollar. This sounds like a pretty good deal. And so he goes, Give me a couple of days. And he formed a new LLC and he had the trust funds that owes him the money, joint venture partner with him into this LLC. And then he bought it back at 60¢ on the dollar. All tax deferred still hasn't paid a dollar of tax, not using a ten thirty one exchange, obviously, right? Because it takes one hundred and eighty days to complete a deal, and you can't ten thirty one back into your own deal. But you can't defer sales trust back into it. So he sold high and he bought low. This is when my brain exploded. I'm at Marcus and Millichap going, what in the world? Like, this is actually possible?

Brett Swarts: [33:15] Like, wow. We thought we were the Navy Seals. We thought we had, you know, ten thirty ones. We were the we were the best of the best. But I actually learned about it at Marcus and Millichap. The key was believing, right, and seeing it, understanding the nuances and spending the ten thousand hours with the tax attorney to have this ability to execute. Because at a certain point, you guys didn't know how to wholesale, you didn't know how to ten thirty one, you didn't know how to negotiate a deal. But there's all these other people that are helping you get this knowledge and then you start to do the thing. And so now we're doing the thing and just showing what people is possible. Guess what? Most ten thirty one exchange accommodators don't want you to know about this. And most brokers don't want you to know about this because they want to keep you in the ten thirty one dance. In fact, I just did a whole video on YouTube about this. And they want to get paid the big commissions. And you can't blame them. That's the business that they're in. And I love ten thirty ones too. When the deal makes sense. And this is also why we work on a conditional basis. We literally say, hey, guys, you do ten thirty one, you don't owe us anything.

Brett Swarts: [34:05] Right? If your deal doesn't close, don't owe us anything. But we want to give you this door, an option as you're going down this hallway of your exit, that at any point you can exit and go to the deferred sales trust, and rather than just going down and paying the tax. So hopefully that answers the question, Mike.

Dan Austin: [34:20] Yeah, that's awesome. Great explanation on that.

Mike DeHaan: [34:22] Yeah, it does. Yeah. No, That's awesome. You're welcome. No. This is super fascinating. I hope that, you know, what we're talking isn't above all of our oh, you know, not all of us, but a lot of our listeners because it's like next level stuff that you're doing. It's super, super cool.

Dan Austin: [34:36] Yeah. I'm I'm getting excited just listening to you. It's so cool. I'm learning something completely new today.

Mike DeHaan: [34:41] Yeah. Which which doesn't happen super often these days. So right on. Well, we appreciate it, Brett. We're gonna go into our final questions here. Question is kinda about you. You know, fun question in there. So first off, what do you think is your secret sauce that allows you to be successful and and competitive in your business?

Brett Swarts: [35:00] Oh, my secret sauce. So I believe we've all been given certain gifts in this life, and these gifts have been given to be blessing and help to others and the ability that we can maximize the potential of those gifts. Right, and and then and then maximize the number of people we can help and and really know what those that that strength or that gift is, is the ability to do huge impact. So I've been given some amazing gifts. So I've been blessed with the ability to encourage people and challenge people at the same time. Right? And then the ability to work well on teams. Right?

Mike DeHaan: [35:29] Mhmm.

Brett Swarts: [35:29] And so I grew up, you know, playing sports and basketball and football and baseball, and I a chance to play basketball in college and on scholarship. And then I had some amazing youth pastors, coaches, parents, even when my parents were divorced at a young age, God always provided people to mentor and coach me. And I was always willing just to learn and like, be humble about it. And also, as humble as I can be about it, right? Humble to know that I don't know enough and just be like a honey badger and be like, whatever he's gonna take. Like, if I didn't work at Cheesecake Factory, I need to work sixty, seventy hours and ruin my brother in a small condo. Like, if there is something that I really wanted, I was willing to burn the ships and just go all in to go get it, right? So that drive and that desire from my parents, you know, and then my older brother and cousins, was that all kinda works into like the I think the secret sauce of where I'm at now.

Mike DeHaan: [36:18] Very cool. Yeah. Perfect. And then this this kind of a mixed question. So the question we typically ask is what is your craziest real estate story with you since you have been in business, you have your funds, all that sort of stuff. And I mean, might have already told it with this guy up

Dan Austin: [36:33] in Minnesota. The Ethereum one was pretty crazy.

Mike DeHaan: [36:38] Yeah, it's pretty crazy story. But what is your craziest like real estate or business related story?

Brett Swarts: [36:43] Yeah, there's a couple crazy ones. Right? So, I mean, we can talk about a deal because every deal with yield maintenance for you. Some of that is Yield maintenance is basically like a prepayment penalty that's based upon where interest rates are at. And I had a deal which I like to take on the deal sometimes that people don't think they're gonna close, right, or that are too too hairy or too challenging. That's been in my nature as well. Even with the deferred sales trust, like I had literally had brokers in my office who were in that same presentation in 2009 when we were learning about it, laughing being like, Are you really trying to try to talk people about this? Like, that's never going to work or it seems too good to be true. And yeah, call me when you close a deal. They're friends and mentors and they did a lot more money than I had done and closed. And so I respected their opinion, but they would laugh. And so there's one of these deals where we're trying to sell 15 units in Marysville, in Sacramento off of Marysville Boulevard and had a yield maintenance attached to it, which basically meant that the seller would have to pay about $270,000 in this prepayment penalty, yield maintenance is known as, unless the buyer assumed the loan. And one of these loans, it was like a government thirty year loan. Okay? And when you're dealing with the government and you're trying to, like, assume something, it's just a complete, you know, you can imagine the DMV, you're trying to get a loan.

Brett Swarts: [38:04] Right? And and and my client, was representing both sides, and it was down to the wire. He was in his he was in his, you know, ten thirty one exchange. Right? And we had the deferred sales process as a backup plan just in case, but he wanted this is a good deal, and I told him we should buy this deal. So we're going down and it's like day 160 and I'm calling the loan people. I'm like, We got to go right now. It's day 170. You're just pushing and pushing. It's just nuts. It literally goes down to day 180 and we close it. And we got the assumption like the approval the day before. It was insanity. And so that would probably be the craziest down the wire where you're just feeling like you don't have any control, but we got it done.

Mike DeHaan: [38:42] Yeah. Nice. And and no no one that government, they probably didn't look at it until day one seventy eight. So it was taken under eighty days regardless of what happened.

Brett Swarts: [38:51] I don't even know who that person was. It was through like another loan guy. And like, I was just pleading with them. I was just like, please, my client's gonna lose a million dollars in tax if we don't do this, please. And we got it done. So it was good.

Mike DeHaan: [39:03] Yeah. Nice. That's awesome. Cool. And then just to finish off, where can people find you, follow you, you know, learn more about what you do, all good stuff?

Brett Swarts: [39:14] Yeah. Capitalgainstaxsolutions.com. You can check out the new book that's coming out with Kevin Harrington from Shark Tank will be in the book, which is pretty awesome and other commercial estate operators and financial advisors in the book. I tell you, I tell my whole story of the deferred sales trust is called building a tax deferred exit strategy. And it's the proven playbook for unlocking your ideal wealth plan when selling assets of any kind for yourself or your clients. And so we just we dig in deep into the deferred sales trust and how it you know, what it can actually do for you. Right? And and and a lot of some strategic alliances that are in here as well. And then you can go to my YouTube channel. You can subscribe. It's Capital Gains Tax Solutions. You can check me on iTunes on the podcast, Capital Gains Tax Solutions. And then Instagram, you can search my name, Brett Swarts, LinkedIn, Facebook.

Dan Austin: [39:56] I like it.

Mike DeHaan: [39:57] Perfect. Awesome. Well, thanks so much for your time, Brett. We really appreciate it. And if you guys enjoyed this podcast, I really hope that you did because that was truly, truly fascinating stuff that you got into there. Even if you didn't, go subscribe anyway and, just download all of our episodes. It helps out our metrics. And share this with any of your friends who might need tax solutions down the line. And if you are following us along and you are buying real estate, I guarantee that you will. So go ahead and subscribe and give us a five star review. That would be great. If you wanna learn how to find off market properties and that so that you can have tax problems that you need to talk to Brett and do massive exchanges into his trust, Go ahead and check us out at the instantinvestorprogram.com, and Dan and I will teach you exactly how we have done it, and we'll be working with Brett here hopefully soon. And so you can go ahead and send off our call there. Besides that, follow us on Instagram. I'm at Mike underscore invest. Dan is at investor man Dan. And besides that, anything else, Dan? That's it. See you all next week. See you all next week. Alright. Thanks so much, everybody. Talk to next week.

Speaker 2: [41:01] Thanks for listening. Please leave us a review on iTunes or wherever you get your podcasts, and check us out at collectingkeyspodcast.com for tips and guides on starting your own real estate investment and wholesaling business.