Hello friends, and welcome to another episode of Ask Marco on the Passive Real Estate Investing show. I’m glad you’re joining me today. I have another handful of great questions for this Ask Marco episode. But first two quick things. One, just remember to subscribe if you’re a new listener here or if you haven’t subscribed already, it only takes you three seconds and it keeps you posted every week when we release a new episode. So other than that, I just came back from REWBCON, the Real Estate Wealth Builders Conference in Phoenix, Arizona, and it was the second rub con event. There was one last year that my friend Dustin had put together and put on and did an incredible job with. There was about 200 people last year. This year it was closer to 400, so he almost doubled the size of the attendance, which was great.
There were a lot of people there. It was a lot of fun. We had some great conversations. It was nice to meet a lot of the people who I’ve met in the past or just know from one place or another, or a lot of people came up to me and said, Hey, you know, I listened to your podcast, or I just started listening to your podcast. I wanted to come and meet you. Or I heard about REWBCON through you and felt that this is a good thing to do, a good place to go, a great place to learn and to meet and network with other real estate investors and like-minded people. And that’s exactly what it was. So, you know, my hat’s off to Dustin for doing such a great job at that event, I was there with some of my team, two of my investment counselors, and we got to meet a lot of new people as well as existing and old real estate clients that worked with us in the past, recent and long past in investing in real estate buying rental properties.
And each and every one that came up to our booth there, I asked them, I said, how are things going? How was your experience? How was your property doing? And it was great. There was nothing negative. Everybody had something good to say. So I really enjoyed my time there and after three days plus travel, I am beat. So anyway, here I am. I’m doing another podcast episode which will be released here shortly. So let me jump into some questions here. This is the first time I actually got someone to send me a question that’s not investing or real estate based. It’s actually more of a personal question. And I know I’ve been asking for some personal questions from time to time, asking you guys to send them in, you know, if and when you can. And finally, somebody did. So <laugh>, this is great, and because of that, I’m actually gonna lead with this question instead of leaving it towards the end, which is what I was thinking of doing.
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So the question comes in from Will and Will says, hi Marco, it was great meeting you at the Rub Con closing Fiesta, which was the party on the last day with your insanely busy schedule. I was wondering how you carve out personal time and what you do to take care of yourself and recharge. On a related note, do you have a favorite vacation spot or place to visit? Always appreciate your insights. Will, well will thank you for the question. And yes, it was great meeting you there at the event last week. So this is an interesting question. I will answer it in a couple different ways. First and foremost, with everything I have going on at least these days, but it seems like this has been going on for a number of years, I have very little personal time, which is a good and a bad thing.
It’s a bad thing because it leaves me little time to actually rest and recharge. But at the same time, I really enjoy everything I’m working on and what I’m doing and the mini empire, if you will, that I’m building that impacts so many other people. And I can expand on all that and I, I might touch upon some of that, but I don’t have a lot of personal time to rest, relax, and recharge. I’m always on the go. Now, having said that, I do try to carve out time with my daughter when I can. She’s turning 16. She spends her time either in high school or at the dance studio, and that takes up a good part of the week. In fact, just that alone, those two things take up the entire week, not including weekends. Weekends can also be taken up because of dance competitions and whatever else.
So whenever I can find some time to spend with her, that’s where I schedule my personal time. So that is my first and highest priority. But outside of work and my daughter, I do like going for walks late at night, usually at nine or 10 o’clock at night, not every night. The reason I go at night when it’s dark is because traffic is low. There’s not a lot of people out. It’s the dark. I find the nighttime to be calming. So I like to walk around and walk the streets of my neighborhood and it allows me to think and thinking is something I really enjoy doing. I treasure and a lot of people don’t do. Not enough people think enough, if that makes sense. It’s one of the most productive things you can do, especially if you’re running a business or you’re a leader or an executive in charge of a business, or people thinking is something that is very important, maybe underrated, but should be more highly rated.
But I, one of the places I like doing that is late at night in the evening. And the other thing I try and do when I can is fit in a little bit of gym time. So that is my break, if you will, and my way to disconnect from work. Now, having said that, if I go on walks or if I go to the gym 95% of the time, guess what? I’m listening to an audiobook or a podcast or a YouTube video or something like that. So I’m disconnected but not disconnected because I constantly want to feed my brain and educate myself and learn something new. So the walks in the gym are good for me physically and mentally, but I also, you know, consume more content just to educate myself. And it doesn’t have to be that, I mean for someone else, they could do whatever they wanted.
They could listen to fiction. I try and eat, well, not always, but I, I do try and eat well and enjoy the people I hang out with. So that is another way for me to recharge and disconnect. And not to be too long-winded with the answer to your question here, I am a foodie. I do enjoy great restaurants. And so I do like experimenting with new food options, a nice glass of wine, a quality wine. So I don’t do that every day or every night. But when I do go out often on the weekend, I’d like to experience something that I normally don’t experience on the road or at home. And last part of that answer to your question is, one thing that I do love to do is play poker. I’m not a pro, I’m not a novice. I do play well and I’m very good at the game.
I’ve been playing for many, many years. I don’t play a lot, or at least not as often as I like. But what I love about poker is it’s a multi-dimensional game. It’s almost like three-dimensional chess. And so there are many elements to the game that I enjoy. It’s not just about the cards, it’s about your position, the number of chips you have, you know, how deep into a tournament you are, the other players that you’re playing against. And you know, the psychology involved there. There’s just many elements to the game of poker. And so I, I like that to keep me on my toes and sharp and I like the game as well. And to your last question, you know, do I have a favorite vacation spotter place to visit? Yes, in a nutshell, if I’m talking about in the US it would be places like Las Vegas, New York and Florida for various reasons.
Often it’s the entertainment and the restaurants. And if I am answering this question internationally, Italy is definitely by far my favorite country to visit. There’s so many places to visit things to see and do a lot of culture history, great food, great people, amazing landscape and horizons. It’s just a beautiful country. So long answer to your short question will. Anyway, thanks for submitting that. That was actually a fun question to answer. All right, well let’s move on to a more serious question here. I almost didn’t want to read this and it’s one of those questions where you really can’t give that specific of an answer to. But the question comes in from Steve and he says, I am fairly new to your podcast since January and have listened to over half of them. Episode 2 99 was helpful. That’s good, that’s a great episode for everybody to listen to.
He goes on to say, I know that you and others say that now is the time. It’s not a question of when, but rather where. And that is true. I recently went through a divorce and my mother of my children got all of my 401k from the military, 22 years of service. And by the way, Steve thank you for your service. And he goes on, say, and all of my 401k with the union he belonged to and all of our savings plus some of the equity from my rental. I currently have a rental property in Portland, Oregon and a primary residence outside of Portland. The rental property has about 148,000 in equity AF after pulling $125,000 out to pay her off the rental cash flows $450 per month and will go to 630 per month next year in January. The current market is down but should probably recover and gain equity again.
I purchased the rental in 2004 and have not lived in it for over nine years. He goes on to say my primary residence has about $325,000 in equity and I’m trying to decide if I should pull equity out and purchase a duplex or quadplex in Ohio, Pennsylvania, or another market that has less expensive multi-family homes, lower appreciation, but a decent cash flow or if I should do a 10 31 exchange and sell the rental to purchase more properties in other states. I have had long-term tenants in the rental since 2014. So he wraps that up by saying I want to recover after losing my retirement and paying out large amounts of cash in a lump sum and still paying several thousand dollars in monthly support payments. Thoughts and ideas are greatly appreciated. Very respectfully, Steve. Well Steve, thank you for the email and the detail. Again, thank you for your service.
Sorry to hear about your divorce situation. I know those can be painful and expensive. So with all that said, like I said, this is a hard question to answer. I can give you a high level answer because there are some, I guess, unknowns here, which would involve me asking maybe a series of questions to get more information about, you know, where you stand, what you’re trying to do and whatnot. My general answer to this is this, if you are looking to continue investing in real estate because you want to increase the size of your portfolio, gain more equity, meaning increasing your net worth and possibly potentially increasing your cash flow, then you have to look at the ways you can leverage up, which means that you use your cash and savings and or the equity in your properties as down payments to build or buy more property and build your portfolio size.
So I like the idea of acquiring more property when you can, everything else being equal, it might make sense for you to tap into that equity and use that as down payment for more properties in other markets. Now the idea of buying more property in less expensive markets compared to where you’re living in in Portland, Oregon probably makes sense cuz a lot of these coastal markets have appreciated so much that a lot of people are sitting on strong equity gains that they can tap into and use. That may be your situation. I mean you’ve given me the equity that you have in these properties, but what I don’t know, it’s one of these things that you didn’t share with me is what that equates to in terms of loan to value. Because if you have very low or low loan to value, you can refinance and pull the equity out, keep the property, and still use the equity to purchase more property in other locations.
So you can do that tax free because if you’re refinancing and pulling money or equity out of your property, it’s not a taxable event. The other option, the other strategy here is if you have higher L T V or it doesn’t make sense to refinance, or if you think that you are near the top of a market and you don’t see or foresee equity gains for the foreseeable future, but you see greater upside potential and opportunity in other markets, then it may make sense to pull that equity out by doing a 10 31 exchange, which is a tax deferred exchange. So essentially you’re just selling your property or properties if you have more than one and moving that equity tax deferred into other properties, often plural, meaning more than one in other markets. So that may be the strategy. Just reading the tea leaves here, again, I don’t have enough information from you, but just based on how you’ve structured your email, it might make sense for you to leverage up and use that equity to buy two or more properties in some of these other markets like Ohio or Pennsylvania or some of other less expensive multi-family home markets.
Now having said that, two things, one, duplexes and especially fourplexes are not that easy to find. They they’ve become much harder because there’s such a strong demand for housing most everywhere in the us. However, that doesn’t mean that they don’t exist. It might not be widely available or easy to find. It probably won’t be on the m l mls and if it is on the mls, there’s gonna be a lot of competition and demand for it. So there’s probably gonna be a lot of people chasing after those. If they’re good deals, they’ll be taken quickly. If they’re not so good, it’ll involve some negotiation. My second comment to that is contact an investment counselor on my end here at Nora Real Estate. It doesn’t mean you’re gonna be obligated to do anything, pay anything or purchase anything, but we can tell you if we know of anything in the pipeline in terms of properties like duplexes and fourplexes in Ohio, Pennsylvania, or some other markets that we’re in, such as the Mississippi market or the Alabama market.
And there’s three cities in Alabama being Birmingham, Huntsville and Montgomery also in Ohio. We have been in and out of three different markets, but we’re pretty active in two major markets in Ohio. And I guess my last comment about all this is, you know, should you do this? If you’re asking yourself if it makes sense, then the answer is a general yes for one of two reasons. One, increase your cash flows. Cuz if you’re increasing your portfolio, even if you’re leveraging up, odds are if you do the math, this is always about math. If you run the numbers, you often will find as you leverage up, even though you have more loans and larger amount of debt service overall, you’ll find that what you net from the properties is larger in total in the aggregate than it was before. And again, this is a very simple math problem to solve.
Just look at what you have today, you know what your bottom line cash flow is, and then do a scenario or multiple scenarios where you take that equity, use that as down payments towards additional properties, and you just look at the net cash flow on those other properties that you are looking at. Those are prospective properties and look at what the aggregate total is of those cash flows and compare it to what you have today. And often you will find it’ll be a, a bump, a significant bump. It could be 20, 30, even 50% more just depending on what you’re investing in. The final comment about that is if you’re going from a market that has appreciated strongly like the Portland, Oregon or even the Oregon markets and you’re moving into other markets, you might find that you are moving into markets that have better appreciation gains because they haven’t appreciated as much as fast as the market you’re coming out of like coastal California or you know Oregon markets.
So you might find that you’ll have better appreciation potential going forward in doing that 10 31 exchange or moving that equity into other markets. Then you will have as if you waited over the next 2, 3, 4, 5 years in the current market you are in without doing anything more. Now this is not something that you could just easily look up, but you can do a little bit of homework or research and just see what the current market has been doing and what other markets have been doing. And again, my investment counselors can help you with that. But if you are coming out of a, what I call a wealth phase in your current market and you see that another market you’re looking at is in the middle of a wealth phase where you have stronger, not high, but stronger and sustained DEP appreciation, then it might make sense to do that because real estate is a slow moving asset class and things don’t turn on a dime.
They don’t change right away, you know, within a week or a month. I mentioned this in a previous episode and I’ll mention it again, it’s slow and coming, but I am working on a tool, a website, which is a subscription or membership based website that gives you the ability to see if you’re in a wealth phase or not and what the strength and momentum is of any market submarket, even a community neighborhood down to the zip code level. It is a tool that I have internally that I use, but it is not something I’ve commercialized. So if all goes well, I should be able to release this as a product in hopefully the near future, like within the next month or so. But anyway, that is the subject for another day. All right, moving on to the next question by, I believe it’s Patrice. Patrice writes in an email and says, I am selling a single family residential rental property that is almost 100% paid off and I’ve held many years.
What do you think of using a DST to 1031 exchange into, we are trying to retire at close to 70 years old? Well, Patrice, first let’s define what a DST is. Now there’s are actually two definitions for a DST. I’m pretty sure I know what you are referring to in this particular case. And so D S T would be a Delaware statutory trust. Hopefully, I am not wrong in that, but a DST is basically a unique real estate investment vehicle that allows groups of individual investors to purchase fractional interests in real estate. Now the other definition of that is the Delaware statutory trust is a legal entity created under the statutes of Delaware. The trust laws in Delaware, and the investors in a DST, they’re known as the beneficiaries, can own fractional or entire shares of real estate.
Now, if you and your husband or just you are the only beneficiary, then you know, it’s just a trust. It’s a trust that you’re holding property. And like most other trusts, if not all other trusts, the IRS, the Internal Revenue Service, will treat each of the investors’ beneficial interests in that trust as direct property ownership. And so DSTs are eligible for 1031 exchanges both upfront and upon exit. Now I’m also trying to understand your question here because you’re saying, what do you think of using a DST to do a 1031 exchange into, you’re not really, I guess, telling me what you’re trying to do. Are you trying to sell this property using a 1031 exchange, which means that you defer your capital gains and purchase other property? You’ve given me actually very little information here, so I’m not sure how to answer this question.
If you own the property and you’re not trying to buy more property, meaning you’re trying to leverage up by using the 1031 exchange, then there’s really nothing you need to do. Just keep the property, pay it off if you like, and just keep it as as passive income as just a rental that has no loan, meaning it’s free and clear. But if what you’re saying or trying to ask in your question is that you’re using a 1031 exchange, and that’s either with or without a D S T, you don’t need a trust like a Delaware statutory trust in order to do a 1031 exchange. The property could literally be in your name titled in your name and you could do a 1031 exchange. It doesn’t matter how you hold title to the property. So this is the confusing part about your question, but I guess the bottom line is this, you can keep it as a property that’s essentially paid off, keep it for the cash flow.
It’s an asset. You have equity in it, you know it’s part of your net worth and you can just keep the cash flows from that property. But if it, you’re at close to the age of 70, I don’t know if you’re thinking about, you know, doubling down or leveraging it up and taking that one property and turning it into two or even three or four properties, increasing your aggregate cash flow as I was talking about in the previous episode, not episode, the previous question. That is an option. So I think maybe what you should do, and what I’m gonna recommend is contact your investment counselor here, or if you don’t have one, we’ll sign one to you and just share with us your scenario and what you’re trying to do. And we can give you some guidance. Again, you know, no cost or obligations, just really to point you in the right direction, but it would also be good to know a little bit more about your personal situation, what else you have going on in terms of income and resources available to you.
All right, one more question. I think this will be a good one to wrap things up with and it comes from Doug. Doug says, Marco, I am in the beginning stages of purchasing investment real estate with Nora Real Estate. Thank you for the education and guidance. I am trying to learn as much as I can and start applying what I’ve learned. I’ve heard many different asset protection plans and I have some questions about what I have heard. I recently listened to a, a podcast episode with Garrett Sutton and was wondering if you could clarify a few things. Number one, is it a viable option to hold a property in a Wyoming LLC directly and register them in each state that the property is in as a foreign LLC? And so that would’ve been a viable option to hold properties in a Wyoming LLC, for instance, hold five properties in five separate Wyoming LLCs and register each of those properties in the state that the property is in as a foreign LLC.
Okay, I’m gonna take your questions one at a time. You have three of them here. So the answer to this is, well, first of all, let me back up. Let me first of all say that I am not your attorney c cpa, tax advisor, legal advisor or anything like that. This is just general information stuff that I’ve learned and stuff that I implement myself, so my own personal knowledge, experience, et cetera. Having said that, this is generally not the way you’re gonna do it, and you don’t want to have a bunch of Wyoming LLCs that hold title to properties in other states and then register those Wyoming LLCs in the States where the property live. Could you do that? Yes. Have I seen other people do it this way? No, not to my knowledge. As a general rule, you’ll want to hold title to the property in an entity like an LLC in the same state that the property resides.
So you have all the protections and statutes applicable to that property and the real estate in that state. In other words, if the property’s in that state, you want to have the statutes and protections and laws available to you and applicable to that property from the state that it’s in. It’s pretty black and white and cut and dry in my opinion. So the answer is don’t do it that way. You know, again, check with your asset protection attorneys. Garrett is certainly one good one. You know, we have about five or six that we refer and recommend, and he is just one of, you know, a handful or two. Your second question here says, Garrett recommended creating an LLC in each state the property is in, which could be expensive depending on the state as well as the registered agent, and then holding them in Wyoming, holding LLCs or a Wyoming LLC.
What is the benefit of this method? It seems expensive. Wyoming seems like a cheap alternative considering that L L C creation costs are low and you could use one agent for all your properties. Well, again, most good asset protection attorneys like Garrett and others that we use will recommend three states as your holding company or holding L l C state, Wyoming being one of them. Of course, we often hear about Nevada and Nevada being another one. So Wyoming makes a great state to have a holding ll C, but that holding LLC holds title to your other LLCs or other entities that hold title to your assets such as real estate, such as businesses, such as, you know, you name it, fill in the blank asset. So again, you know, this ties to question one, Wyoming is a great state to have one or more holding companies and those holding companies hold the equity or the title if you will, to your other title holding entities.
So it’s really just like a flat pyramid. You have a top level holding company, and that holding company is what holds your equity, if you will, or Title two or ownership in your other assets through other title holding entities. I know that’s a mouthful. Sounds confusing. It really isn’t. Your third question here and then you <laugh> close your email by saying sorry for the lengthy message. I appreciate all of your help, Doug. Your third question is, do S-Corp S corporations offer any benefits over an LLC? I have done a lot of online research and can’t find a straight answer I ask because one CPA I interviewed was very adamant about an S Corp over an LLC, but his reasoning wasn’t clear. They seem similar, but I could be missing something. Short answer is this, you generally don’t use an S Corp for holding assets or asset protection for anything.
An S-corp is great to run a business, especially if you’re a small business or sole proprietor because it has some tax benefits related to to self-employment taxes, but you don’t use an S-Corp as an asset protection vehicle. That’s where either corporations, not S corporations, but corporations or LLCs come in handy. So the go-to entity of choice often is the limited liability company, also known as the LLC, but the S Corp is not the vehicle you want to use for asset protection and title holding. Your CPA is a CPA and so they’re probably thinking about this in terms of how do you save in your self-employment taxes. Well, unless you’re running a business or you’re gonna be paying yourself as a W2 employee and it’s a significant amount, like a significant number, meaning that you’re making a minimum of 40 to $70,000 in gross income per year from that S Corp or from that business, it doesn’t make sense to have an S corp.
But regardless, it also doesn’t make sense to have an S Corp as an asset protection vehicle because that’s not what it was designed for. So hopefully that clears it up for you and hopefully you’re not gonna spend too much more time doing your research on this because this is generally pretty much clear. And if you talk to an asset protection attorney, they’ll 9 times outta 10, maybe 10 times outta 10, they’ll tell you exactly what I just told you. Well, Doug, I, I appreciate the question. Thank you for that. I’m gonna wrap it up here. I’ll do some more q and a or frequently asked questions on my next episode, but if you do have a question about investing finance, real estate, or a personal question like the first one I covered today, just let me know. Go to passiverealestateinvesting.com, click on the Ask Marco link or button and let me know. Remember to subscribe if you haven’t done so already. Thank you for listening. We will see you all on our next episode.
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