How to Create Life On Our Own Terms with Real Estate Investor Taylor Loht

Hey, it's Mark Podolski, the land geek with favorite niche real estate website thelandgeek.com and on this week's Art of Passive Income podcast, my guest today is Taylor Lote. If you're not familiar with Taylor, he created the Passive wealth strategy show. And his company NT Capital helps people like you create life on their own terms. Which of course is why we are talking about passive income. Because I don't know of any other way to create life on your own terms. Because when I solve not just our time problems, I mean, not just our money problems, but also our time problems. And that's what passive incomes does. Taylor is an investor who grew frustrated with Wall Street's lack of clarity, predictability and nearly non existent cash flow. He knew there had to be a better way. And to date he has acquired, partnered on, or had a hand in over 350 million in multifamily real estate investments. And he wants to help you get to the next level too, which is why he's on this podcast. Taylor, welcome.

Thanks so much for having me today.

So Taylor, let's just rewind the tape. And how did you get into real estate and multifamily investments?

Brute force and persistence is really what it has boiled down to. You know, like you said, I grew frustrated with what I was getting back out of my Wall street investments and what the trajectory looked like moving forward around about 2015, 16 is, is kind of when I get frustrated in that area. So I started looking for other options to build wealth, to grow passive cash flow. And you know, if you go online and you Google, you're going to find a, a lot of options for passive income. And the overwhelming majority are going to be Ponzi schemes and scams and terrible ideas. But one that made a lot of sense and kept popping up was real estate investing. And that just made a lot of sense to me because they're not making any more real estate. As you know, as a, as a land guy, there's only so much and that's an opportunity for real estate investors. So I started going down the path of real estate investing, looking for the right niche for me to create wealth, to not have to deal with tenants, to be able to work with other investors and to scale, leverage the expertise of others in the business and so much more, looking for the right fit for me. Ultimately I landed on multifamily and real estate syndication where we buy real estate with passive investors and split the return and really set my mind and set my eyes on that goal. And it Took a few years to do the first deal, few years of consistent networking, of building a brand, of investing passively myself to learn the ropes and how to identify deals and everything like that, how everything works. And did that first deal back a couple years before COVID and just continued to learn and scale from there. Network build my podcast, you know, everything that it takes to. To build a business. And here we are today.

Wow. So in this current interest rate environment, are you finding more opportunities, less opportunities? What's. What do you see right now in the multifamily market?

Yeah, it's a mixed bag for sure. I would say certainly not more opportunities, if you will. There certainly are opportunities out there. But the statistics show us that transaction volume in commercial multifamily is down by last number I saw I think was about 75% year over year is down, which is a huge pullback and to be expected when interest rates go up so significantly, it's harder to make deals work. But on the flip side of that, it's common knowledge, if you will, in the industry that a lot of folks who own deals right now are struggling with the implications of higher interest rates. In particular, that is mostly people who bought shorter interest rate caps on variable interest rate loans. Those caps ran out and now their debt service costs, the cost of their mortgage and is significantly higher than it used to be. They're distressed and frankly, they're having to get out of those deals. So that's where a lot of the opportunity is today. The trouble with that is that those folks are hard to find. They're not really out there willing to admit publicly that they're struggling in a deal, brokers know, but it's difficult to put those pieces together. So really, skating to where the puck is going and being in front of the right people right now is the way to get good deals, essentially. But like I said, the transaction volume is down. It is harder to make deals pencil today. And sellers are at least some of them having to compromise, if you will, on the values of their properties just based on the debt market and interest rates and everything like that. Cost of capital.

Absolutely. So what's your buy box like? I've got a buddy, he only wants to buy in the southeast multifamily for a variety of reasons. What do you typically look at when you're looking at a multifamily deal? What makes you smile like, oh yeah, this is a good deal?

That's a great question. So there's a few things there. I like B to B plus class multifamily built in the 1980s or 1990s in the sun Belt in the Southeast, preferably, though we want to narrow that down even further into particular markets in Texas. I like Dallas and Houston. I like certain parts of Georgia, say outside of Atlanta, and I like the Carolinas. Right now I see Florida as a very difficult state in which to do deals. Not to say that it's impossible, but the reality is that property taxes are very high in Florida. Plus property insurance. That's really the big killer in Florida today. Insurance rates are up everywhere, but Florida in particular has been really hammered. So, you know, I'm very hesitant to do a deal in Florida right now unless we were able to mitigate the risks of property taxes and insurance in particular. So the more we can narrow it down, the markets that we're looking at, but also the particular product that we're looking for and the reason I say those few things, as far as the, the, the age of the property, the class of the property and, and things along those lines is because I originally started out investing in older C class properties. Now this is a few years before COVID and before all the COVID price appreciation and all these entrants to the market and everything. And we were buying C class properties that were built in the 60s and 70s and they were relatively cheap at that time. And we saw upside, the ability to add value, raise the rents and sell them for more later. But Covid threw a wrench into that works. The prices appreciated significantly, the costs of doing capital expenditures went up significantly. And you know, my personal experience with buying older properties built in the 60s and 70s is that there's just so much that you're going to run into that is endemic to older properties. Right there, there, there are more skeletons in the closet, if you will, and a lot of those skeletons in the closet turn into huge repair bills that once you make the repairs, don't actually add to the value of your property. And specifically, things we ran into were a lot of plumbing issues, lines that just failed and needed to be replaced a little bit into our ownership. H Vac is another big one, especially if you're buying in Texas. And roofs, roofs are easier to see though, if there's an issue. Really, in my experience, the big one has been the plumbing. We would always scope the lines, of course, and see, you know, how is it today. But again, when you're buying those older properties, they can look, you know, fine when you're going to buy the property, but once you're a year or two in, things can really Pop up. And that's what we saw in, in the 60s and 70s build properties. That's why I like 80s and more preferably 90s, you know, built era. When you look in the 2000s, they're just a little pricey. Right. I don't see the value play there so much. But when we buy B to B plus class, it's good, safe, affordable, workforce housing in good parts of town. Checks all those boxes, places people that want, places that people want to live. But also we can go in and buy a property that has what we call classic interiors, old outdated interiors, fix those up, granite countertops, stainless appliances, new floors, all those things, and command higher rents from the market. So that's what we look for. B&class. B to B&class. Built in the 80s and 90s in good areas where people want to live with value add upside over the course of, you know, three to five plus year hold.

Okay, so three to five plus year hold. So we're going to get cash flow in the deal and then in three to five years we're going to get our money out in typically a bigger return. Is that right?

Absolutely, that's the goal.

And then what kind of tax benefits can we get?

Yeah, so big one is depreciation. So big trend in the industry is cost segregation. If folks look out there, Yona Weiss is a great guy that's out there talking about how cost segregation works. But basically do an engineering based study and you're able to generate a, a tax loss in the first year, essentially a paper write off from the building that depending on the deal can be pretty significant, maybe between 40 and 60% of your original investment. You can get a paper loss in the first year that you can write off against other gains. Now the individual investor's treatment of a paper loss depends on their situation. Real estate professionals, for example, have a lot of options use passive losses against active incomes. Most folks who invest in these deals are not real estate professionals, however, so they can only write the passive loss off against other passive gains. But still, having a loss that you can write off against other gains means that potentially you can pay nothing on the taxes that you're earning, or excuse me, pay nothing in taxes on the passive income that you earn throughout the hold and then on the back end when you sell. There's of course depreciation recapture to be considered and everything. And that's where folks should really sit down with their tax advisor and talk about a holistic strategy of how to treat their investments and what to do with the sale Proceeds when they exit a deal to have a longer term plan in the deals. Now something that we've been doing more of more recently is working with 1031 Exchange investors who have been successful landlords and you know, have done well in their own investments for years, sometimes decades. But they're getting to a point in their lives where they're really tired of being landlords. They want to get out, they want to retire and earn true passive income rather than having to manage their investments. So they want to 1031 exchange, which is a way to sell your property and defer your taxes down the road potentially indefinitely depending on your overall strategy. And the way we work with them is they sell their property through a 1031 exchange, they utilize a qualified intermediary and then we bring them into our deals as tenant in common investors so that they get a portion of the deal, they bring in a check, they're able to defer their taxes potentially indefinitely. They would need to then 1031 exchange out of the deal when it sells and move on from there. But I think that's a great way for tired landlords, if you will, to retire, to defer their taxes, continue investing in real estate and continue to benefit from that, but reduce their time investment in their investments.

I love it. I love it. So your, your ideal client is really someone who's just tired of the headaches of traditional real estate, wants to sell out, take that money and don't pay tax. 1031, it put it into a passive, cash flowing, multifamily type investment and then keep doing that and keep deferring and have a truly passive income, passive wealth there. Well, did I say that right?

Yeah, yeah, that's right. There are a lot of considerations when it comes to 10:30 wanting into a TIC agreement. It's what we call TIC, folks. If you're interested in that, look up IRS 2002-22. They put out basically a list of requirements in order to be able to qualify to do a deal like this, how the deal has to be structured and everything. And of course, you know, talk with your attorney or tax advisor for your specific situation. But it's all doable. These things are very repeatable. The only, other than the IRS's requirements, of course, the only thing that is not a knock against it, but an important consideration is that these deals are complicated, they're difficult, and there's a lot of back and forth in terms of the documents. So this isn't a type of deal that we do with somebody that owns One single family property that they want to 1031 out of. They won't have enough proceeds to justify the extra work and paperwork and back and forth with the attorneys and everything that's required. So typically in these cases we work with investors who are expecting proceeds from their 1031 in excess of $500,000. So it's a bigger ticket item. We're working with higher net worth, higher income investors, but that's kind of the way the space works.

I love it, I love it. What's your argument to people that say, hey, well, you know, Taylor, why, why this cash flow? Why don't you just flip for cash? You see all these people, they're, you know, they flip houses and maybe they flip land. They just want cash. Cash, cash. What? Why? Why cash flow?

Sure. So I'll give you two things about flipping that I think make it not ideal for a lot of people. Now I'm going to caveat this though, or disclaim it, if you will, that I know a lot of people who flip land, who flip, flip single family properties or what have you, flip real estate on their own that make a great income. They can do very well at that. But it's an active business. Right. A lot of them want to replace their W2, but come to find that, you know, it's work. They're, they're building a business that ideally they're working on the business rather than in the business, but nevertheless there's an investment of time there and it doesn't necessarily produce active income, particularly in, in flipping single family properties. From learning from you, you've been on my show a number of times and I've of course met a lot of land investors. Folks are able to turn that into a more passive, passive business, but there's still work involved. I think the biggest knock though against the flipping model generally is really the taxes. It's a, it's a short term gain treated as ordinary income. The tax rates are very high when you flip a single family, family property. And that's, I think one of the biggest wake up calls, if you will, that a lot of newer flippers come to when they go to file their taxes after their first flip is they find, oh man, I'm giving so much of this back to the government now. They made a gain, which is great, you know, and assuming they made a gain, but a significant percentage of that is out of their hands and you can't turn, you can't 1031 a flip that your options to mitigate that tax bill are Pretty limited. But you know, there's nothing I think that says you have to do one or the other. I think a more holistic strategy says that you can do both. As long as you can, you know, keep all the balls in the air and juggle them effectively. Then you can have an active business that brings you active income and also a passive investment model that, that brings you passive income that doesn't require your time investment and you know, generally has better tax advantages.

Absolutely, absolutely. Well, I, I like to marry the two, but unfortunately we don't get the tax advantages in, in land because it doesn't appreciate, it lasts forever. So you have to figure out a way to either do it like through a self directed vehicle like a Roth or a sep, those types of things, or even, you know, an IBC policy could be a cool way to do it, although doesn't really help you with your taxes. But Taylor, this has been really great. Your mentorship, invaluable. But now we're at that point in the podcast where I'm going to put you on the spot and ask you for your tip of the week, a website resource, a book, something else actionable for the art of passive income listeners to go improve their businesses, improve their lives. What do you got?

So I think folks should go check out the book the Gap and the Gain. That book has helped me a lot recently because at the risk of bragging, looking at my 2023, I will have earned six to seven times this year what I earned my first year of my working life just in this year. But it's easy to forget the gain. It's easy to forget that difference now. It's been 12 years in the, in the interim and a lot of work to get to the point where I've had such a great year in real estate and it's easy to forget that difference and look to the future. What am I going to do in 2024? How do I prepare to be more effective? How do I work to get myself to the place that I want to get the gap between where I stand today and where I want to get to? That's less empowering to focus on than focusing on the gain where I've gotten to from a decade, 12 years ago to where I am today. So the gap in the gain. Go check that out. Listen to that audiobook recently and I think I'm going to have to go circle back up on it here really soon.

Yeah, that's one of those books. It's just such a great reminder. We've recommended that to the audience as well. But it's one of those phenomenal Dan Sullivan books. He's got the gap in the gain. Who not how. And 10x is easier than 2x. All three, I think are worth a read. And certainly it's so funny because you, there's a big difference between being successful and being happy.

Yes.

And I think that so many people are. If you're in, if you're always looking at the horizon, you're never going to be happy. But you can just reverse it very easily and just say, oh my gosh, look how far I've come. And then you're, you're in the gain. I know. I'm in the gap like three times a day.

Yes.

Even though it's just, it's like our default. It's like, I think it's like a software bug. We're just not built for that. We didn't evolve for happiness at all. Evolution doesn't care about that at all. But my tip of the week, as great as the gap in the gain is, is not really going to move the needle in your life like this tip of the weekend. It's passiverealestatecourse.com passerealestatecourse.com check it out. It's a free course from Taylor and Taylor, what are we going to learn?

You're going to learn seven red flags in passive Real estate investing. These are now of course not every single red flag or issue with a deal that you could possibly come up against. But these are the seven top red flags that I found in my time both as a passive real estate investor and as an active participant in this space. It's not only based on my personal experience in my deals, but also from investing a lot of time and energy. And this is, this is a linguistic, not trick, but a linguistic move. I'm trying to make note that I said investing my time rather than spending my time investing my time and energy in building relationships with folks like you, with a lot of other folks in this space and learning from their experiences and really trying to be as objective as I can learn from what went right in their deals, but more importantly, what went wrong. And my goal with this course was to boil that down into the seven top red flags in relatively bite sized videos that folks can watch and listen to and hopefully take away helpful lessons.

Awesome. Awesome. Well, Taylor, this has been great and I want to thank the listeners. Remind you that the only way I'm going to get Taylor to come back is if you do three little favors. You got to rate or follow rate. Review the podcast. Send a screenshot of that review. Support thelangic.com I'm going to send you a signed copy of Dirt Rich. Today's podcast is sponsored by Flight School. Learn how to start building that passive income without renters, rehabs, renovations or rodents. And I know what you're thinking, well, what about the the investment? It ain't going to cost you nothing. Guaranteed you're going to make it back 180 days or less. Just show us your work schedule. Call go to the landgeek.com forward/training the landgeek.com forward slash training all right, Taylor, Let Freedom Ring. Thanks everybody. Thanks for listening to the Art of Passive Income podcast. Are you ready to learn how you can start building a passive income without renters, rehabs, renovations or rodents? Schedule a free consultation at thelandgeek.com forward/training let freedom ring.