How you can earn Tax Free Wealth legally! | Ep. 7

All right. Hey, everybody. Welcome to our podcast, Real Talk, which is Real talk for real estate investors. I'm Dannielyn, the co founder of the Freedom Real Estate Group family of companies, and we are changing it up this time, and we brought on a guest. Steven Libman is with us. We're super excited to have him here. I actually met him in the fall of 2019 in a mastermind event in San Diego, and I was super impressed with him there, the short lunch that we were able to have. And I'm going to let him introduce himself more. But the reason I brought him on is because I recently started working with him again on syndications, or for the first time on syndications. I'm brand new to this space. I don't know this space at all, but he's got so much knowledge that I'm getting excited about it. We were just at dinner in Columbus the other night, and him and his partner Travis talked for like a couple hours about all these things. I was like, I need you on the podcast. So I want all of you guys to learn everything that I'm getting to learn. And so, Stephen, can you tell us about you and your company?

Yeah, thanks for having me on. I appreciate it. This is always fun having, like, real conversations with real estate investors, especially with people that don't know that they maybe want to invest in real estate or that they can yet. So, anyway, I'm excited to have the conversation today. So, yeah, my name is Steven Libman. I'm one of the managing partners of Integrity Holdings Group. We've been in real estate for 11 years, first in the residential space and then and now in the commercial space. The difference, by the way, is five doors and more is commercial. Four doors and less is residential, meaning a single family, a duplex, a quad, triplex. Those are residential deals. So we've done probably a thousand residential flips and wholesales in the past, and we realized that that was a great job that we built for ourselves, and we really loved it, and it gave us the opportunity to get to where we're at now. But it also was very transactional in nature, meaning you have to go spend money to find a deal, negotiate that deal, close on that deal, sell that deal, and then you start over again right after you get paid once from it. So, you know, we always knew that over time, we would like to take some of that active income and create passive income with it. But we didn't know exactly what strategy we were going to utilize to do that. We thought, hey, we're Buying a lot of properties pretty cheap in New Jersey. Maybe we just buy 100 single family homes, rent, rent them all out, build a management company and then that'll be that, that'll be our passive income to create that financial freedom that we always wanted.

Right.

I think everybody gets into real estate for at least the first reason is financial freedom. Hopefully it expands upon that after that. But that's what I wanted. Right, that's what you wanted.

Me too.

And most of our investors want that too. So it made sense. But then as we started talking to some other people that were in the space a little bit further down the road than we were, that they said, don't do the single family strategy. And this is everybody, this is all one person's opinion, right? So take it for what it is. I'll just give you our story. So we decided not to do it. We were starting to look at like 20 and 30 plexes, like, okay, so maybe we'll just buy something a little bigger. And then we were told again, you know, those are difficult to manage. You know, they don't really absorb the economies of scale. Don't really absorb a full time third party property manager all the time. And so somebody said, you know, you should really be doing like 100 units and above, you know, 75 units maybe, but 100 units and above. And we just thought they were nuts. I mean, we're house flippers.

Right?

Right.

Who's. I'm not going to go buy 100 unit building. But we did, we took, we took a little bit of time, but we changed our mindset on, you know, the ability to do a deal that big. And I think what was scary for us was we didn't have the experience of managing that big of a project. And you know, I think as entrepreneurs, we think we have to jump and grow wings on the way down and figure it all out. Well, in the commercial space, what I love is similar to the single family space, where there's masterminds in the commercial space, there's partners, there are people that have done it before. There's nothing new under the sun. You don't have to go reinvent the wheel, whatever tagline you'd like to use for this. It's just you don't have to be the smartest person in the room to do these deals. So, you know, fast forward to, you know, nine years into the business. We did our first commercial project. We partnered with an experienced operator that had about $150 million of assets under management. And we built 180,000 square foot storage facility ground up in Orlando, Florida. And it was a $12 million project, a $4 million capital raise.

Wow.

And that was our first deal.

Wow. You jumped right in.

We jumped right in. And, you know, we had the confidence partner who had the experience, and we knew that we could bring capital to the table. We had a lot of private investors that had given us a lot of money over the years for fix and flips. And, you know, we said, all right, so this is more passive. So we want to get into this. And then, you know, the, the straw that really breaks the camel's back. And I know this, this is going to be a different, you know, subsection of this podcast that we're going to take a deep dive on is the tax benefits. You know, when I started understanding that I can pay little to no tax because of my investment strategy, it really piqued my interest. I mean, we were, we couldn't believe that there was a way to break to create wealth in a tax free manner. And it was simple ignorance. It's not because of anything else other than we did not know.

Yes. And that's where I land right now. And that's what I got me so excited as you've begun to teach me about syndications and about this type of investing is you started teaching me about that and you said, hey, go buy this book and learn a little bit more and then I'll ask you questions, you'll box me back and forth. And I'm like, no way. I can't believe I've been realistic in real estate investing this long and I haven't learned it yet. And so I think that, you know, that I posted on Facebook and I said, who paid taxes last year? And who wants to learn how to pay taxes like last year? Do it legally, per the code, because we're incentivized not to have to give taxes away. And I think even Tom Wheelwright said it's a single largest expense that we'll ever have is taxes. Right. Yeah.

You have a partner in your business. And what I like about so Tax Free wealth by Tom Wheelwright, if you haven't read the book, definitely go pick it up. Tom is Robert Kiyosaki's CPA. He teaches CPAs across the country on how to strategize with the tax code in mind. And that was kind of the aha moment for me. I used to think that the tax code was a book of rules waiting to jump out at me and get me right, Right, Gotcha. Now you're going to jail because you didn't pay this. And that really is how I grew up thinking about the tax code. What I like about the book is it shares with you that the tax code is really a big book of incentives. The government wants to drive certain industry, to drive certain behavior. And the way that they do that is with incentives.

Right.

And the tax code for real estate is unique in the sense that you get to write off and take losses against your investments in these deals. Now, the caveat to that is you do need to invest with operators. You can't go to Wall street and say, hey, I want to get into a real estate investment trust. They don't get the tax benefits, right? So the real estate investment trust who runs it gets tax benefits and the operator gets tax benefits. But you as the retail investor that's getting involved in the Wall street reit, does not get these tax benefits. You have to know an operator. You have to be able to get involved in a particular deal. And this is why we're on these podcasts shouting this stuff from the rooftops. Because I was never taught it, my parents were never taught it. Every time I have a conversation that I'm out, people just don't know that they can participate passively in these deals, get massive tax benefits, and partner with very experienced operators in a passive position. And when they find out, they're like, wait, why isn't everybody doing this? I don't know. Frankly, I don't know why everybody isn't doing. It's probably just because of the same reason I didn't, which was ignorance. I just didn't know.

Yes, exactly. Me too. Lack of education. And as soon as I heard it, I was like, okay, spread the word. And like you said, you know, shout it from the rooftops. And that's what I'm starting to do. So I'm excited that you're here to be able to. So we touched on this just a little bit. What I wanted to get on is the tax free wealth. So tell us, this is what impressed me the most because I haven't been able to experience it yet. Right. You're teaching me. I'm participating as much as that I can and will continue to do so. But for from your experience personally, what are your tax returns look like since you've been implementing this strategy?

Well, this is a fantastic question. I just got my draft copy this morning from my accountant. So in 2016, I got crushed in taxes. We did maybe $3.1 million in flips in gross profit, and we had to pay huge checks to the IRS and to state for taxes in 2016. 17 when we started getting involved in. Sorry, 17, 18 again got killed in taxes. 19 when we first started getting involved in more commercial type deals, we. We started to see some depreciation. So it didn't offset our taxes completely in 19, but in 20 and 21 it did. Meaning we were paying upwards of six figures, multiple six figures in taxes from the business in 2016, 17, 18, and the last two years, our tax returns have been significantly negative. So this year I'm just pulling it up. I hope I'm all right to share this, but. So our net loss was 1.143 million and that the reason for that is depreciation, right? So you take your gross income, you take your expenses, then you have your net income, and then you have depreciation as well of the expenses, right? So how do you get to make negative $1.1 million in a year?

Right?

Well, that net loss didn't mean that we didn't make any money, right? In fact, we all bought new houses this year and it's been a real blessing of a year in terms of coming out into more financial freedom. But my tax return doesn't show that, right? My tax return shows that I netted negative a million dollars, and that's because of depreciation. And unlike residential real estate, commercial real estate has the ability for you to take depreciation on the building, but then you can accelerate that. So very quick numbers, right? We're not going to spend a ton of time on this, but the IRS allows you to depreciate a building over 39 years, okay? So a commercial building, they say it's going to last 39 years. If you buy a $10 million building, you can write off $390,000 a year, right? Just kind of. So that straight line depreciation is fantastic because that means you can earn $390,000 a year and not pay any taxes on it, right? Now, if you want to take it a step further, you can go and get what they call a cost segregation study. Now, we all know that my AC condenser is not going to last 39 years, right? We all know that my carpet isn't going to last 39 years. So it's a detailed engineering report that lays out all of the contents of the building, and then it allows you to accelerate a portion of that acquisition for depreciation in year one. So simple math. The last couple of deals that we've done, it's between 30 and 40% of the value of the property that we're taking a loss on in year one.

That's unbelievable.

$10 million building, right. You're talking about 3 to 4 million bucks. We're in the process of buying a $42 million building.

Right.

Which means it'll be between 12 and 16 million bucks. And we split that 50, 50 with our passive investors.

Right.

So our active investors get half of that depreciation. So if it's 14 million, we'll get 7 split between us and the partnership. And then the limited partners that are the passive investors also take the other half of that.

Wow.

Which means the gains that we pay them are tax free.

Right.

And then it also means that they have additional losses that they can apply to and consult your accountant. Passive gains, other capital gains, or if you're even a designated real estate professional, your ordinary income. And this is how we started really seeing the gasoline get poured on the fire because we were still doing a couple flips, but then not paying taxes on those flips, it becomes much more profitable because the gains from the depreciation from the commercial stuff was offsetting the residential stuff, Right?

Yeah. That's powerful. You know, one of the most active campaigns that we had when I started teaching me this, and you said, start talking to your turnkey real estate investors and how they don't have to pay taxes or they can start, you know, wiping out some of those taxes on the turnkey properties that they've purchased by participating in something like this. So talk to us about that and the difference between real estate professional versus not. Can you educate us a little bit more?

Yeah. So the real estate professional is not a. Everybody asked me, well, does that mean I have to have a license? Does that mean I have to be a realtor? So no, the real estate Designation is an IRS designation. And what it means is that you spend 700 hours or more a year on real estate.

Right.

And then you also have. It's your primary source of income more than anything else. Right. So if you're getting more income from real estate than you are from any other source of income and you're spending more than 700 hours a year on it, then you are a real estate professional. Now here's the caveat to that. If you have a non working spouse, is it possible that they stay home and they're the ones that are watching over your real estate investments?

Right.

So you're a high income W2 earner and you have a non working spouse. That is now their primary focus is to Focus on the real estate in your portfolio, Then the argument, I think can be made that they are a real estate professional. And as you file jointly, then your accountant can let you know if that'll offset your W2 to ordinary income.

Right.

So there's some caveats to how you can use that real estate professional status as long as you and your accountant agree on that and what that looks like. But you know, for me, I'm an active real estate investor. For you, you're an active real estate investor. So the real estate designation is clear for us. Right. If there's other people in real estate, I have some friends that are, they're kind of on the cusp. They're like, well, you know, I'm a full time mortgage broker, but I have 35 rentals and you know, I'm easily spending more than 700 hours a year on this business. I said, well, you know, this is something that you and your accountant have to go through and figure out if you're a real estate professional or not. And the reason that you want to get to real estate professional status is because you get to use the tax benefits 100% that year, not a portion of it. So let's say I'm not a real estate professional. Right. Let's say I'm a high income earning surgeon and I have some passive investments, I have some stock market gains, maybe I do a little hard money lending on the side, whatever. Well, your depreciation from these deals will go to offset not just the income that you're making from these deals.

Right.

But then other passive gains. Those other passive gains can be the capital gain from a stock gain. It could be a hard money lending, it could be a turnkey passive investment.

Right, Right.

And what's cool about that is, you know, if you're writing off $50,000 because of another investment over here, and you've made $30,000 in passive income over here, well, you now offset all of your capital gain and you bank another 20,000 and it rolls forward in perpetuity. So what's cool is you kind of continue to buy, right. And stack that depreciation, do multiple deals a year, diversify your portfolio, and then continue to stack as much depreciation as you can and use it when you can to offset your taxes.

That's right. That's awesome, man. I love hearing you talk. And I've heard you do this like three or four times now. And I'm just like, just keep on. Repetition is the mother of skill.

Thank you. I mean, and the more you think about it, right? The more. The more pragmatic it becomes on how to use it in your life. We have. I have a friend of mine right now who's. So this is a great conversation. We were talking about this too. Is 1031 exchanges.

Oh, yeah.

Should I 1031 out of the house that I'm going to sell, I'm going to sell this investment property. I'm going to go and I want to invest it with you, but I also want to do a 1031 exchange. Well, here's an unpopular viewpoint, right? I don't think the 1031 exchange is that great. You can hear my son in the background. He always wants to break in and join in on these tax conversations. He loves it. So the 1031 exchange. Yes. There's an argument that it's a good thing, meaning you can sell a property, buy a new property, and defer that gain into the next property. Right. Let's say you buy a property for 200, you sell it for 300, and instead of paying capital gains on that 100, you put the whole 300 into your next property. Property. And you don't have to pay taxes yet. A 1031 exchange is simply a tax deferment model. Well, here's an interesting time in history, right? We have the lowest capital gain rate that we've had in many, many decades right now, okay? We have a president that has just put forth a new tax code that is going to make it one of the highest capital gain rates in decades. So the question is, is do I want to 1031 and defer into something. I don't know what it looks like yet.

Right.

Or do I want to take the capital gain hit now?

Right.

Pay what I know I have to pay, and then maybe move the remainder into that. Now, here's my argument. If you sell a house for 300,000, you have this $100,000 capital gain and you give it to one of our deals, what is the depreciation going to be? I would argue it's going to offset your entire capital gain that you had to pay anyway without having to do a 1031, which is deferring it into an unknown. This is the same reason I don't agree with 401ks too, by the way. I'm deferring my taxes into an unknown timeframe and an unknown tax code.

Oh, wow.

And historically, you think about not paying taxes as a good thing right now, but deferring it into an unknown tax code I think is even worse because historically the government doesn't do better over time at spending money.

Right.

They tend to do worse, which means taxes eventually go up. Well, If I'm paying 15% to 17% capital gain rate today, but in three years I'm gonna be paying 29%. Is it better to take the hit now or is it better to defer it into an unknown? So it's, you know, it's part of the strategizing of how to pay less taxes, but also when you have to pay the piper at some point.

Right, right.

It's how do I minimize that and then how do I maximize my compound leverage? When can I compound that money more and more and more and faster and faster and faster. So, you know, I think there's an argument to be made to actually just take the tax hit this year and put it into a syndication, offset that capital gain. And now you are not partnered with the government anymore.

Yeah. Wow, that's a conversation we haven't even had yet. So thank you for sharing that. That kind of opened up my mind to things I haven't thought about before. Which you continue to do. Thank you. So you had mentioned about investment timing and when we were out the other night in Columbus, you said something about how syndications help with hedging against inflation. Can you revisit that conversation? And I may have worded it wrong, so just correct me where I kind of screw up because I'm still learning.

Yeah. So I mean, why is it a hedge against inflation? So mortgages are a natural hedge against inflation.

Right.

Mortgage rates, as they rise and fall, you often see a inverse reaction to inflation. So we're seeing inflation right now.

Right.

But if you have so mortgage rates being pretty stable or going into a 10 or 12 year cycle of a mortgage of what the mortgage rate is going to be.

Right.

It stays the same. The cost of money is going to stay the same for that.

Right.

Inflation means that the cost of money is getting higher. So a natural hedge against inflation is to make sure that your, your debt structures on these properties stays the same over the next 10 years. So instead of your cost of money going up, it's going to stay the same. So it gives you downside risk protection against inflation over time.

Right.

And I mean, you can just Google, you know, hedge against inflation. If you just Google that, you'll have all these different articles that come up and talk about how mortgages and debt are stable debt, not like floating arms, but how stable debt long term hedges against inflation. And we are in an inflationary season right now. You Know, I think a lot of people think that rates are going to go up. I don't. I think rates are going to come down.

Okay.

It's another unpopular opinion. But, you know, you have half of the world with negative interest rates, and I think the dollar is going to be worth less, which is what inflation is. But because of that, it'll actually drive rates down, not up. You know, you can't have inflation with rates going up for very long before it becomes a crisis.

Right.

So our government will probably allow that to happen, which means you'll probably see very low rates over the next couple of years, in my opinion.

Wow. Wow. Thank you. You touched on this already. Let me know if there's anything that you want to add to it. I had written down how does this compare with investing in the stock market or in REITs?

Yeah. So we're anti volatility. If you listen to our podcast, you hear us talk about this all the time. My dad passed away seven years ago. He lost nearly half of his lifetime accumulated 401k wealth in the stock market crash of 7 and 8 and didn't live long enough to ride it back up. We're seeing some of the largest levels, highest levels of the Dow ever right now. But that's been a bull run over the last decade.

Right.

It's just continued to go up and up and up. So we're anti volatility.

Right.

And when I saw my dad lose half of his wealth in stock market, I said, well, how do I not do that for my kids? How do I make sure that I. So our philosophy is threefold, right? Preservation of wealth is first, so how do we not lose money? Number two is return of investment. And return of investment means how am I going to get my money back? And return on investment is third, which is what is the rate of return that I'm going to get. Because honestly, number three is irrelevant if you can't perform on numbers one and two.

Right?

So how do we make sure that we are hitting those metrics? And then we started going and exploring for where is the least volatile place to put my money.

Right?

And real estate wins over the stock market in terms of the volatility calculator every time. The two asset classes that do significantly better than other ones even in the commercial space are multifamily and self storage. Those are the only two asset classes that we're involved in. And it's because we just don't like the volatility. I would like to know that I'm going to make 10% on my money every single year until I'm dead, than to say, maybe one year I'll make 18, and maybe one year I'll make seven or more, I'll make five.

Right.

And I think that you can plan for retirement. You can plan on estate planning, you can plan on a bunch of different things with the ability to focus on consistency in your portfolio over time. So, you know, so that's how real estate differs from the stock market in terms of volatility. How it differs in the stock market from the REITs is, you know, an average REIT is, is 6 to 8% returns over time. Talk to Danny about what we offer. Because it's different, right?

Yes.

And then you have the tax benefits, which you don't get through a reit, which you do get through us. So, I mean, if you're making 10%, but you're making it tax free, you're really making like 12.3%, right. If you don't have to pay taxes on it. So, you know, there's just some, some different numbers. But then also, I can't touch and feel the stock market. Here's a great example. And not to go into the crypto space because I'm not really in it and I don't really understand it, but Coinbase is a crypto exchange that just went public. Okay? So now they're on. They're listed on the New York Stock Exchange or the NASDAQ or whatever. And in Q4 of last year, they made like $175 million in net profit. Okay, great company. In Q1 of this year, they went public, they made $780 million in net profit, right. Almost 6x their business and doubled the number of users. Guess what the stock did.

I don't know.

It went down four and a half percent that day after they made their earnings announcement. Hasn't come back up. So here's what frustrates me about the stock market is that there is no rhyme or reason to it. When I was growing up, I believe I thought that the stock market's indexes were predicated on earnings, right? Like if GE posted good earnings, GE stock would go up. But that's not what's happening in today's stock market, Right? It's, it's just too, just. I, I can't predict it. It's too unpredictable. We don't know who the CEOs are that are running this company. We don't know who the investors are. We don't know who the. Who the short squeeze hedge funds. Are the REITs, the, the private equity funds, like we. I don't understand enough about the stock market to bet my future on it. And that's really the difference is I invest in real estate for the same reason you invest in real estate, which I like to touch it, feel it, drive by it, know that people always need a place to live. And I'm buying stuff for under construction cost if I could build it new.

Yes, yes. And in this discussion, it reminded me of what you shared with me, and I think it was privately. I don't know that we've ever talked about it before in a public way, even on a Q and A call about in 2008 and what the assets of apartments and storage did during that period of time.

Sure. So, yeah, the market crash in 2008, 4 and a half percent residential mortgage default rate is what kind of created the domino effect that crashed the economy. Four and a half percent. Right. So if you compare that to multifamily 0.4% default rate. And why is that? Well, that's because people are still needing a place to live.

Right.

Renters were still paying and landlords were not losing their properties, but homeowners were.

Right.

So self storage, even lower than that. It was like 0.04 or something crazy. So, you know, in terms of just volatility.

Right.

You see that and you say, well, exactly. I don't, I don't want to be involved in that.

Yeah, exactly. And that's what I wanted you to touch on. So thank you for sharing that. And I didn't even give you a warning about that one. Sorry. Okay, so when it comes to syndications, I've noticed, and I'm still new to the space, that you guys are doing bigger deals than any other syndicator. So can you tell us more about that?

Yeah, I mean, that was really a strategic growth point for us. I mean, we, we started out doing big deals. 10, 12, 13 million. And then after those first three deals, we ended up doing like a 66 unit and 84 unit, 120 unit. And you realize very quickly that you're building yourself another job.

Right?

Asset management, property management, construction management. Which is fine, if that's what you want to do. It really wasn't right. We love our investors. We love talking and educating people about investment opportunities. And we're investors first. So what I want to do is find the biggest, best, brightest operators in the country, come to them, build relationship, make sure that core values align, and then say, hey, we'd like to fund one of Your future deals, let us know when you have them. And you know, this particular deal that we're doing right now, it's a 40 year operator, right. They have vertically integrated company that does absolutely everything from asset to property to construction management. And they're very good at that. I mean, so a lot of our business success has been built on partnerships and a lot of our business kind of toe stubbings have been when we want to be all things to all people and do absolutely everything ourselves. You know, so wisdom, it's just particular path of growth for us is we want to partner with the best in the business. And by doing that, we're having access to deal flow that we would never see on our own.

Right.

I mean, this project that we're doing right now is a $42 million acquisition. Nobody's showing Steven that deal right now. I mean, we have $150 million under management, but that's like a third of your portfolio and one deal. It's difficult to find that kind of deal flow. But when you partner with the right people, they have plenty of that deal flow.

Right.

We have more deals than we can fund right now. So it's a great problem to have.

It really is. And that leads us. Thank you. Right into. Can you talk to us about operators, your experience with operators and the person that that is, you know, the operator that you enjoy working with right now. Because I know we brought this up and you mentioned, you know, I'll lead you into it so you can share it all in one thing about, you know, whether or not they partner with any other people like yourself.

Yeah, so they do not. Well, not like ourselves. I don't think they've been funded by any other syndicators like we do where we bring retail investors in. They have historically been funded by Wall street real estate investment trusts and private equity funds and things like that. They like the idea that we get to pay more to the retail investor and partner with them with our model than Wall street getting richer while the retail investor makes a decent return, but not nearly what they're able to get.

Right.

So in terms of operational functionality, we want to make sure that they're vertically integrated. Meaning that everything's under one roof. Right. They have asset management, property management, construction management. But then what we love about this group is they're g giving us weekly reports, right. That are super detailed in terms of like how many people came in, how many phone calls came in, how many. And you've seen some of these reports, it's like this many people Came in and applied this many people were accepted. Here's the people that were denied, here's why. And that's on a weekly basis, on a monthly basis, you get 160, 170 page report. That's every single line item across the board for income, expenses and budget versus actuals and what that variance looks like. Well, here's, here's why we like that.

Right?

Because I can manage to that very easily.

Right.

We can go down. And if the budget variance is a certain percentage off, then I know that, hey, we want to have a conversation with the operator about what's going on on this particular line item. And it kind of jumps off the page. I've never seen reporting like this. I mean, we've been in the space for a while and we've worked with other operators. This type of reporting is exactly what we want from a transparency and integrity perspective. And they've, they spent 40 years building this type of reporting system. Right. So yeah, and there's a lot of operators out there. And if you're listening, right, you're gonna find different operators, you're gonna find different partners that if you want to, that you can get in this space with. And I would just say, you know, make sure you're getting some samples of their reports. Ask them, you know what, how many exits have they had? I mean, this is a problem even for us in the beginning was, you know, we're selling three of our storage facilities right now, but we've been giving people their money back for 12 years.

Right, right.

So we have the track record on that side, but maybe not the exits of these deals. Because a pro forma is one thing. Here's what I expect to happen over the next five years. What actually happens is maybe the same, maybe different. It's gonna, if it's gonna be different, I wanna know why. Why was it different? Was it a function of underwriting? Was it a function of operations? And then find out from those operators. I think I'm jumping ahead to one of the questions that you have. But while we're on the topic, like ask those operators what has gone wrong and how they fixed it. Anybody that tells you it didn't go wrong hasn't been in the game long enough, frankly.

Right.

Or they haven't exited any deals yet. I mean, things always go wrong. I want to put my money with operators that tell me when they're going wrong, when they're going wrong, how they're going to fix it and be transparent about it. Because I mean, that's everything to us. Right? And this is why you and I, I think, are on the same page a lot about, you know, I saw your post today about just having integrity and this is what got us here. And you know, it's not that people won't. I think new operators think that if I make a mistake, nobody's gonna give me money again. If you make a mistake and recover well. And transparent. And do it transparently, they'll never give their money to anybody else.

Exactly. You nailed it. Yes, yes, yes, yes. And I love that. And that's why actually we're here, because I am very transparent and stuff like this is important and I love sharing with others. You know, people like you. When I learn, everybody else gets to learn too, because that's just how I roll. Yeah, yeah, I love this. I know we're not talking about a particular deal today, but in general, what do returns look like on these deals?

So historically, you know, we've been able to pay and for 11 years we've been able to pay between 10 and 12% consistent tax, tax advantaged returns. The structure of those deals is all a little bit different, but so the main thing for at least our deal flow, right, that I think is different than other people's is they usually have some combination of a preferred return and then a common equity return. And all that means is preferred return, you get paid after the debt, right? The debt needs to get paid, your mortgage needs to get paid. And then your preferred investors make their preferred return. It's usually 6, 7, 8% on their money. And then at the end there's some split, right? And then you hope that that split is to the benefit of your upside and that you can maybe make more. We don't do that. We do straight preferred returns, meaning on both the front and the back end, all of those distributions are preset for our investors. We tell them exactly what it is so they know exactly what they're going to make. And we put it in a preferred position, meaning we take most of the downside risk.

Right.

If, if it doesn't win the way that we thought, it doesn't really affect the investors preferred return, Right. I mean, you know, and then if it goes beyond that and we win a little bit bigger, then that stays with us too. But what I like about it is again, going back to consistency, right? It's we eat last.

Right.

I love that book. Leaders eat last.

Yes.

So that's how we structure these deals is we eat last, the operators eat last, the preferred investors eat first. And you know, the Mortgage gets paid first and then the preferred and then us as common. And I like that. I've been a limited partner in some deals where, you know, I've been shown projections, and I got half of that because it just didn't pan out. Well, I would have liked it if it panned out, but I also got into a deal that I, you know, knew had some downside risk. So what we try to do is hedge the downside risk out of it for the investors that they know what to expect so they can properly plan.

Right. Yeah. Love it. I know you have an appointment coming up, so I'm going to get to. Oh, there's two. Okay. So the last one's going to be an easy question. I really want you to dig into invest with Purpose. I told you the other night that somebody emailed me and said, dan, I just love this invest with purpose mission statement. And I said, oh, my goodness, that's Stephen. I'm actually, you know, I'm wanting to adopt something similar because I love it, too. So talk to us about that.

No, I love it. I mean, the whole idea is so that it can continue to grow into other people's businesses and to kind of morph into what it's going to be for them. But our idea of Invest with Purpose was we wanted to figure out how to give more abundantly. Now, before we got quote, unquote, there, we had a there number in our business, like, oh, once we make it here, we can start giving more abundantly. And through some prayer, it was pretty clear that we could do it now. And it was, hey, let's carve out 1% of equity for this deal for this nonprofit, 2% in the next deal, 5% in the next deal. And all it means is that we carve out a percentage of our cash flow that does not affect the investors returns in every single deal that we do for a nonprofit. And there's no shortage of need in the world. We know that we can make a big impact through these big deals with this big cash flow and with these types of projects that we're doing. And that's the goal. I mean, we want to grow to a place where we're giving away 90% of the cash flow on a deal and just covering administration expenses.

Right.

I mean, there's. Yeah, we only need so much right for ourselves. We want to help other people grow their own portfolios and then be able to give. You know, we want to grow from success to significance. We want to have an impact and a legacy that people can Talk about and really be proud of. And I think a lot of our investors, they love to partner with us because that too, they know that they're making an impact on the world. Yes. They're making great returns. Yes. They're getting tax benefits. But deeper than that, and this is what deepens our connections with our investors, is that we're changing the world together.

Right.

And we're doing it one deal at a time.

Yes. And that impact is real because we've literally just done maybe two or three, you know, Q and A calls, webinars together, and already people are talking about it, you know, so it's. It's huge. The impact is absolutely real. So as we close out, is there anything we didn't talk about today that you think maybe was important for other people to know?

Yeah, I think just getting off of the fence in terms about, like, being afraid to hear about something like this, you know, I think people are hesitant. I think first, they don't think they have enough money to maybe invest in one of these. Maybe they don't have enough experience to invest in one of these. Maybe they have to do more research before they invest in one of these. You know, the bottom line is if you're partnering with the right operator, Right. Then you don't need all of that experience. You don't need all of that knowledge. I mean, get on a phone call with me or you.

Right.

And talk about why do we like the deal, why do we like the area, why do we like the operator? Just ask a couple why questions. Get comfortable with the idea.

Right.

It's not too smart of an idea for you to invest in. I think a lot of people think, like, that's probably not for me. I can't do a $42 million project. Well, you don't need to.

Right.

The whole purpose of syndication is that many hands make light work. And we can do this stuff together where you have 50 or 100 grand into a deal and you own a portion of that deal. And the economies of scale really hedge against your downside risk. So to not do it because of fear, I think, is one thing that you need to make sure is not holding you back because there's so much opportunity. And frankly, this is the greatest wealth building concept in the world. This is how 90% of people become millionaires. And these size deals are not available to everybody because not everybody knows us.

Right.

And now that's kind of what we're trying to tell people, is you can too, and you're not bothering us when you Call us and ask us questions. We want educated investors. We want people that understand what they're getting involved in and who they're partnering with and all of those things. So, you know, I guess to shorten it up into a sentence is just, you know, don't be afraid, have the phone call understand it before you make a decision about it.

100%. This has been a game changing learning experience for me and it will be for the rest of my life. Everything that I'm learning from you and what I can do and the tax benefits and how we can help others through everything that we're doing together. And as I said before, I love that as I learn things, I just go, hey, everybody, come on.

Yeah, me too. I love it too. That's exactly where, that's how we all got to where we got, right? I mean, we're all entrepreneurial, we're all self made. We all learn from somebody that was a little bit smarter and a little bit further down the road than we were. So all we have to do is continue to share that information and then we get to pull more people up with us.

Absolutely. So I love that I am connected with you. I'm so blessed that I met you in 2019, I think it was, and now we're here today. So I will be very transparent that everything that I'm doing with Steven, I completely, 100% modeled everything. If you go to my website at freedomrealestategroup.com, you're going to see an investor club. I'm going to have Stephen tell you how to connect with him. It's going to be the exact same thing because I said, stephen, can I just copy what you're doing? Because you know, you're already in this space and I'd love to work with you and do what you're doing too.

It's an easy way too for people to connect with us, right? So I mean, the investor club is simply that it's a bunch of us that want to invest in these deals and. But to learn more about it, right, The SEC has some rules that we have to follow and some guidelines so we can't just blast it all out over this podcast, right? We need you to sign up, we need you to get on a phone call with us. We need to understand your financial positioning so that we can understand if we're the right fit for you or not. If it's not, that's okay. It's not a waste of time, right? It's just maybe you're not there yet. Maybe you will be soon. So, anyway, you can go to integrity hg.com youm can sign up for our investor club. You can check out some of our podcasts and some of the free services and information that we have there. And, you know, go to Freedom too, and check them out. Sign up for their investor club. You're gonna see some of the newsletters coming out, past deals that we're doing. And, you know, our goal is to help you get to your financial goal. If we do that, we win, right? You win. And we.

Yeah. And if you're listening to this, you love podcasts, and so you host Free from Wall Street. Is that right?

That's right.

Yeah. That's a fantastic. I've been on his website and I've dug into them as well, just to keep on learning. So I don't. He says not to bother him, but I always try not to bother him. So I go to his website and listen to all his videos and then start asking questions. So it's a wealth of information. Thank you so much, Stephen, for being on the show today. I appreciate you. I am so sorry I made you late for your next appointment. You can apologize on my behalf.

No worries. We'll be fine.

All right.

Thank you so much for having me. It was always fun. It's always fun having these conversations.

All right. Thank you, Stephen.