Reaping The Rewards Of The Savings On Taxes

Hey, it's Mark Podolski, the land geek with your favorite niche real estate website, www.thelandgeek.com. and I'm really excited to talk about today's guest because I love talking about cash flow. But before we talk to our guests, I'd be remiss if I didn't properly introduce my co host, Six Sigma. You know him, you love him. Scott Todd from scotttodd.net landmodo.com and most importantly, if you're not automating your Craigslist and your Facebook postings, posting domination.com TheLandgeekScott how are you, Mark? I'm great.

How are you?

I'm jealous of you.

Yeah.

Yeah. One of us has a pilot's license and one of us doesn't.

Yeah, I wonder who that is.

One of us can fly like an eagle and one of us can't.

One of us is a ground, like contained on the ground. Right?

Yeah, that's okay.

Landlocked too, by the way.

Not like landlocked.

Not like me or our guest today who has access to, like, beautiful water.

Well, it's paradise.

I know. I agree. I couldn't imagine living without, like, water, Mark.

I don't have a lot, Mark, do you?

I mean, I don't. Even though he tells me all the time, like, you should move the Scotts down. Like, why?

Yeah, there's sand there.

You know what, you Florida guys are soft. You know, you gotta be tough to live in the desert. But let's talk about our guest, Tyler Scheff from cashflowguys.com Tyler is the CEO at cashflowguys.com based of course, right next to Scott in Tampa. His company aims to educate their clientele, investing in real estate and building long term wealth. The cash flow guys treat each client as a student, giving them the necessary tools to succeed as a real estate investor from the ground up. The cash flow guys have one goal. To simplify the process of buying and selling real estate. Coupling his active involvement real estate investments with his proven negotiation skills makes Tyler Scheff a valuable asset to any client. Tyler, let's get into it. Welcome to the podcast. So let's rewind the tape. What were you doing before you got into real estate and how'd you get into real estate?

You know, I've been doing this a long time, Mark. I've been in it. Coming up on 20 years here soon.

Wow.

I'm that guy that got into real estate back in the early 2000s because I wanted to get rich quick. I was gonna Flip houses, Right. And that was back home and garden television existed and all those things. That's probably back when they had rabbit ears. I don't know. I don't remember if we had cable back then. But anyway, yeah, I was going to get into real estate and get rich and started flipping houses. Did well. Did really well. But what I noticed is that every time I did well, at the end of all that, when I was counting my dollars, there was somebody sitting next to me that was. Kept saying, one for me, one for you, one for me, one for you. And that was Uncle Sam. You see, they liked it. Taxes and they like to tax me. And I found that out the hard way. So that was my. Originally how I got in. Started in real estate investing.

Okay, and then. Then what happened?

Well, I mean, I was one of those people that was able to. We got really good. We built some systems. We had some. We had several rehab teams going in in town. We were. I mean, if it wasn't tied down, we were figuring out a way to flip it. So I thought, because as charming as I am, that must apply down at the IRS office, that I can just do a 1040 EZ form and everything would be fine. Nobody told nowhere in that form that it asked me any questions about did I sell real estate. So I filed my taxes one year and I got a bill from the IRS because apparently there was a lot of houses that I sold that year that didn't. There wasn't a place to list all those on my tax return. So I got a very large tax bill and a letter that basically said, if you don't pay us, we're going to put you in jail, was the short answer. Yeah, I beat the crash. I didn't predict the crash. I'm not that smart. I just basically was greedy. I was younger then and I wanted to capitalize on my money. So I put everybody back then property values in the Tampa Bay market. And I'm sure Scott probably remembers this. He's been here a length of time. They were appreciating 25% per year in 0405. So if I bought a house and I just did nothing and sat on it, I can make 25% more in 12 months. Well, I didn't want to pay the holding costs, so I just let somebody live there for rent after I rehabbed the house. And the deal was they keep it clean. Whatever I gave them, reduced rent, they cover my costs. That all worked out great. But what I didn't allow for was capital gains tax. So I got nuked in taxes in 05 is when I basically sold off everything, hoping and basically looking for a huge payday. And then I was going to go take a year off and do whatever I wanted to do. And part of that worked until I got the tax bill. Then I had to come home and get realistic. So from there, I went to work. You know, you can't beat them. Join them. I actually. I quit rehabbing houses and I went to go work for the government. I got a job working for the National Oceanic Atmospheric Administration under the Department of Commerce. And again, here's what I figured out. This is interesting about working for the government. Apparently, that if you are a touch over average, they think you're amazing as an employee. All you really have to do is show up and stay sober, and you will get promoted repeatedly. So I went from like 35,000 a year to well into the hundreds of thousands a year. I was just. My last year, I made almost 300,000 working.

Working for the government. They made.

Oh, man.

Come on, Mark.

Oh, they got big dollars, man.

Oh, man.

The average payer.

The average pay in, like, Washington is like $80,000, Mark.

That's the average? Yeah, that's the average.

Really?

It's huge, man. It's huge.

My son watched narcos and he's like, I want to be a DEA agent. I'm like, yeah, first of all, you're going to get blown up in Mexico. And number two, you're not going to get paid anything. Am I wrong?

He's wrong. You're wrong, man.

Oh, wow. Okay.

Now the state level, I'm sure maybe they don't make as much money, but on the federal level, it's ridiculous. They had us on. We were making on average, the overtime was unbelievable. I was paying more in income tax than most of my friends made back here at home.

Okay.

All I really had to do is just kind of show up and do what I'm supposed to do. Figure out a couple different ways to save the government money. I worked in the ships, so I was always on overtime, it seemed. And I just made insane money with that. I'm back to the same issue I have when I was flipping houses, right? I'm getting taxed to death. What do I do now? You know, this is great. I'm making great money. But Now I'm on W2 income. So first I was paying all those capital gains. Now I'm paying regular income tax. I'm getting nuked in taxes. So I started Google searching. I was on the ship and because your tax dollars are hard at work. Even though I was in the middle of the ocean, we have Internet everywhere in the world via satellite. All of our ships were equipped with this high end satellite Internet no matter where we went. So I could be in the middle of the Pacific Ocean and have solid Internet, which is amazing in itself. Thank you for your donation, by the way. But basically I learned from Google that the only way I could really legally reduce my tax bill, that made sense to me anyway, that was within my reach, was to buy real estate and hang onto it to change how I earned my income. Okay, so for me that meant buy and hold real estate. You know, I already knew real estate from flipping houses, but I needed to figure out a way to buy and hold. Of course, I'm not a young man anymore. Like coming up almost to my 50s. I'm not there yet. I'm fighting it. I'm at 47, but I got to figure this out quickly. I can't scale it fast enough on single family houses.

Right, right.

What I've learned, guys, is that when you make a lot of money as an employee, you tend to spend a lot of money as an employee. So I had a certain lifestyle like I used to that I really wasn't willing to compromise. Based on that, it made sense to go into multifamily real estate. So my focus became initially laser focused on multifamily. Of course later we shifted into non performing notes. We can talk about that in a minute if you want. But yeah, multifamily real estate for buy and hold. That was my strategy.

Okay. Now multifamily though, you gotta have big dollars to come in. It's not like buying a $150,000 house and rehabbing it. I mean, multifamily, if you're going well, I guess let's define multifamily for you. I mean, I guess a fourplex might be different.

Yeah, Multifamily for me basically is between. It's really anything but. I like to focus from five to 50 door. Five to 50 doors. I'll go higher than that. But I really want to stay under 100 doors. And here's why. Tons of competition on the residential side. Right?

Right.

Units. Realtors are handling them. Smart realtors are buying them and keeping them. Not so smart. Realtors are selling them. Great. That's what they do. Everybody can buy those. They're within the reach of the average person. It's easy. Fha VA can do them, no problem. The bigger stuff I'm dealing with, I'm going up against people like, I don't know, hedge funds and big money insurance companies. And they're willing to pay whatever it takes to get it done because they have to place that money. You know, they've got certain guidelines. They gotta put that money to work. So in my space where I play in the 5 to 50 unit arena, I can pick up these little buildings. They're mom and pops. So generally speaking, they don't look good, quote unquote on paper. You know, you don't see a big fancy pro forma or prospectus or all these big tools to help market it. In these smaller buildings, usually the records are done on napkins, sometimes, you know, chalkboard. So for me, there's a lot of opportunity in the due diligence I know you guys do with the land business. You know, you're looking for certain. Certain things or indicators are going to draw you into that property. And what I do is the very same thing. So for me, I don't really need my own money is what I've learned. What I needed were the systems ability to identify properties. Because what I've learned is there are more people out there with money looking for something to do with it than there are opportunities. And once I mastered that, it all changed for me.

Okay, so you started a fund, essentially what we did.

Yeah, essentially. We do it a couple different ways to pay buildings. We have done some larger assets in cases like that. We've started a fund, had to combine people's money and whatnot. But our sweet spot is we like to work with folks that have IRAs that are underperforming. We like to bring them in as one lender as a note in a mortgage type scenario so we don't have to do a PPMS and go through all the additional expense. We obviously want to remain compliant with SEC regulations, but generally we'll bring one person in as a partner to take down the property, to buy it, acquire it, whatnot, and then we'll do the renovations. Sometimes we self fund those renovations, other times at that point we'll go to the bank, small banks, and leverage the equity to get the rehab money to put these things together and fix them up. Once we fix them up, we hang onto them for a couple years. At that point they start to perform. When they start to perform, the value goes up. We do a refinance. And this is where it gets exciting. When we do the refinance and pull our money out, it's tax free, it's borrowed money, it's a tax free Payday.

Scott, are you loving this?

I do love that.

I love that.

Yeah.

So this is like a little loophole on the refinance.

I'm gonna call it a massive one.

Because it's just a massive loophole.

It is. It is. It's borrowed money. Borrowed money's not income. Can't be taxed. Federal law.

So you're getting your money out on the refinance. So you get basically two bites of the apple. You're only recapitalizing the asset, essentially, and then so your money's out. And then you're gonna get another bite of the apple. With two bites of the apple, really, because you're still getting your income, paying off your debt service. And then when you eventually sell the asset, that's when, you know, Tyler buys another oceanfront home. There you go, essentially.

Nothing wrong with that.

And then you've got. But then on that, you've got capital gains. Now, on the income side of it, as the landlord on the door, you still got to pay ordinary income, correct?

Well, it depends on how you're structured tax wise. You have the ability to take passive income losses. Some people do. A lot of people do.

Okay.

I take a deduction as a. As a real estate professional, I spend more than 750, 60 hours engaged in real estate investing activities. So currently we're able to qualify for that. That's probably going to be changing this year. We'll see. We're going to sit down with the CPA and figure that out. But the bottom line is what I learned from. I think it was Tom Wheelwright wrote a book called Tax Free Money.

Yeah, yeah. He was actually on our podcast.

Okay, love that book. And in there, he talks about, if you want to change your tax, you simply have to change your facts. And by that, I don't think he meant, you know, lie on your tax return, because our first friend, he put that in print. Shame on him. But then when I dug in, I'm like, oh. So really, if I want to change how I'm taxed, I simply need to change how I generate income. Interesting. So for me, that's how I kind of rolled into the note business, because I started realizing, hmm, I'm always now focused on my taxes. I work as a realtor as well on Tampa Bay Market. So let's say I'm going to earn a $20,000 commission. Instead of taking that as a check in tax year 2018, I try to take it as a note. So the buyer pays my fee, and it's several years that Way I can apply my tax plan to that money because I know I've got 12 payments of $124 a month coming in for the next five years or whatever it works out to be. Now I can craft the tax plan to make that all line up. Makes sense.

Yeah. But what if they miss a payment?

Well, if they miss a payment, we got systems in place to take care of that. Actually, your product.

Yeah. Did you like Geek Pay?

Geek Pay, Yeah. I'm sorry. Looking at the Geek Pay. So that's. That's. That's an interesting little setup there.

Yeah. Geek Pay is perfect for you because it's going to automate the ach. If the ACH fails, it'll charge the credit card on file plus a 3% fee. So it's not going to cost you anything. All the automation. I love Geek Pay.

Knock on wood. And I probably shouldn't say this because it'll jinx me, but I've never had to chase after a payment yet. Wow. And I'm still collecting on real estate commissions from 10 years ago, so, I don't know.

I mean, it is amazing, Mark, because, you know, like, what Tyler just said is pretty. Pretty genius in a way. Because literally you can turn anything, anything into a note, right? Like, you know, like, if you sell something, like, I've sold things, and I'm like, hey, what's. You know, like, I want to sell this thing. It's like, I just don't have any money. I'm like. And it's. People I might know, I buy. No problem. I'll tell you what. Today. And a hundred dollars a month for the next seven months. Oh, okay. And next thing you know, like, they do pay it off early, but I've turned so many things into little notes that, you know, it's like, I mean, what. What. Why not? You know, like, why wouldn't you do that? Because essentially Everybody can afford 100 bucks a month of something.

Absolutely right. It's about streams versus piles. And that's what intrigued me about your flight school, the land business. It's beautiful. I mean, people will. They'll finance any. They can finance it, they'll buy it. There's no doubt how many. It's crazy to me. That's what makes you. When I add you on my show, it makes it so exciting. It's like, oh, my goodness, more streams of income. I love this.

I mean, this is. Yeah, yeah. So what's like, the downside of your model? Like, what do you. What's the headache part of it because every business, there's got to be some headache piece.

There is. And for us, it's the deal sourcing. It's a challenge right now. Finding decent opportunity. We pound the payments, we work hard. Do we find a lot? Yes. But a lot of people bought property in the last 10 years that grossly overpaid for it. So there are a lot of commercial properties out there, apartment buildings that are heavily in debt. The banks are not yet at a position to where they want to start doing short sales and forgiving some of that debt. So these owners are kind of in a trap. You have to do the work, but you can't sell your building yet because you can't make enough to pay it off. There's no payday at the end of it. And we've run into a lot of that lately. So we've been focusing a lot on management issues, trying to find properties with management problems, things like that, hoping that they haven't overleveraged. However, we exist in a society where we can finance just about anything, as we all know, and that creates a massive challenge for us. There's so many properties out there that are over leveraged. It's sad.

Hey, Tyler, could you take. And I'm just like. Because I like what you said and I'm just thinking out loud, but could you take like a situation like that where maybe the profit's not there today and like do like a lease option on it, or would that kind of violate the terms of the banknote?

You can. I don't necessarily think if you did like a lease option, it would violate the terms because it is. If you structure like a master lease, I don't see that it would really cause a problem. However, in almost every circumstance, every landlord says the same thing to us. Well, you know, they'll all rent for 900. I know I'm only getting 300 now, but. Oh, yeah, right. No, they'll rent for 275.

That's right.

When these people sober up, they're moving.

Yeah, right. Yeah. They'll rent for one month for 900, then it'll be empty.

Yeah, exactly. I got some friends up in Charlotte that are doing the try it before you buy it plan. Yeah. They've been fortunate to find an asset that'll make sense for that. They haven't found lots of them. They're just doing one building. I think it's like 20 doors. But then again, you lose all the tax advantages. You really. I'm sure you could structure it so that you can. I know you can, but. But out of the gate, most people don't do that. So the owner wants his tax benefits, right? He's used to getting the tax benefits. Well, that's one of the things that would keep me from it, is if I can't reap the rewards of the savings on taxes, I'm not interested. Right.

So, Tyler, I want to kind of pivot a little bit about cashflowguys.com and so now you're kind of like, okay, I can do this, and now I'm going to teach it, right? And, you know, the typical question I get is, well, you're doing so great, Mark. Why teach anybody? Are you going to create your own competition? So I'm going to boomerang that back to you, and how do you answer that question?

Teaching for me was not intentional. I did not set out to be a teacher, a coach, or any of that. But it came to the point to where I launched my podcast as a means to tell people about what I do, as a means to educate people that it's not rocket science to do what we do. But, you know, with the right systems in place, the right training, this isn't, you know, we're not having to reinvent the wheel. But really the back end of that is I was looking to position myself in my marketplace as an expert, as a multifamily guy. I wanted to position myself as an expert as a means to attract capital so I can raise private money. That's what I do. That's how I've done all my deals. All hunt, most of. Well, all but three have been private money. So to do a lot of deals, I got to raise a lot of money, which means I put on the podcast, I'm teaching people. Because what I've learned is that if you teach a hundred. I teach a hundred people. Every step of what I do, only one will take action, and that person will probably quit. Maybe two will take action. The other 98% are going to look at what I do and go, that's way too much work. I'd rather just have you do it. So where do I write the check? And then we're done. It's that simple. So in the nature of building this podcast, podcast kind of went crazy. And I got this big audience, and with the audience comes this responsibility. Next thing you know, I got people sending me these emails going, you absolutely have to train me. And I'm. I got some off the wall requests. One guy offered me like, 100 grand to be his, like, personal coach guy for he wanted 90 days for 100 grand. I said, I. I don't know. I don't even. That doesn't even make sense. That makes me a little weird. Me a little bit.

Right, right.

I don't want to be anybody's personal anything. Sorry. I don't care how much money there is. No, thanks. But we had, we found, to fill a void because the audience, the listeners of the show of Cash Flow guys were screaming for it. They wanted to know exactly what we do. So initially I thought I was helping people by doing it for free, you know, being the greatest guy in the room. And that was great. I got wildly popular. But what I found out is that people didn't really take it seriously because they weren't invested in it. So I was pretty much talking to the wall and running myself ragged at the same time. So I started charging for my services, basically to qualify people so that I could weed out the people that weren't going to take the time and invest in themselves, number one, and then later invest with us. And it worked out quite well. So that's kind of how we fell into the teaching piece.

So my last question before we get to the tip of the week. What do you think differentiates a successful client, one that takes action, versus an unsuccessful client, one that, you know, might try, gets frustrated, and then ends up quitting?

Sounds cliche, Mark, but they're. Why. I think their origin, what. Why they're there is going to make all the difference whether they do it or not. You know, my wife has Ms. Okay. That means. What that means is at 47 years old, in a matter of time, I don't know how long. We don't know. It's roll the dice, she's going to be in a wheelchair, which will become highly convenient for her, inconvenient for her. Right. She's an identical twin. Her sister died. Her identical twin sister died two years ago, three years ago, suddenly from the same dise. Ms. The complications of Ms. So for us, we wanted to live our lives now. We didn't want to wait till we're 65, live the great American lie. And, oh, at 65, I don't have to work anymore, and I get to live on less money than I do now.

Yay.

What's that? So for us, it became, when we want to take the waiver on Wednesday afternoon, damn it, we're going. And when we want to go to the Keys or do whatever we want to do or fly to California, we want to be able to do that. The only way for that to happen was passive income. So the people that aren't taking the action simply are too comfortable. They don't have any real reason that's pushing them over the edge. It's a fact.

Great, great answer. All right, Tyler, well now we're at that point of the podcast. We're going to put you on the spot. Your mentorship has been amazing. I love your model, Scott. I can tell where he loves your model.

You.

He's got that whole note thing spinning in his.

And we didn't even get to like the, the, the, the bad, you know, the non performing notes. That's a different podcast for a different day, Mark.

I know, I know. So Tyler, what is your tip of the week? A website, a resource, a book, something actionable where the art of passive income listeners can go right now, improve their businesses, improve their lives. What do you got?

I would say go directly to cashflow guys.com. right now, right on the homepage there's this little bugger that's. This is.

This is. You're taking my tip, Tyler.

Oh, well, I haven't gave you. That's not really the tip. That's just the instruction you can keep. There's a course in there, it's free, it's series that's going to teach you how to analyze a multifamily deal, how to analyze an income property deal. It's going to give you everything you need to know to analyze a deal. It's absolutely free. Because my tip of the week is, is to take action and invest for cash flow. Don't invest in piles, invest in streams.

Don't invest in piles, don't invest in streams. Scott. Todd, what's your tip of the week?

I think that's the best comment ever. Like don't invest in ponds or piles, invest in streams. Right. Like that's a great one. But Mark, look, I started reading this book the other day and I'm really enjoying it. It's kind of an older book. I've seen it on the bookshelf for years, but I might be late to the party. But I'm here now. It's thinking fast and slow. You've read that book?

Oh, Daniel Kahneman. I read it. Great book. You know, there's another book that I read and it was the guy that. It's the guy, right, it's. Who's like that great author that does all those great books? You know, he wrote Flash Traders, he wrote the Big Short. Michael Lewis. Yeah, so Michael Lewis wrote the Undoing Project about the story of their Partnership Amos Tversky and Daniel Kahneman. And it is fascinating.

Yeah, I'm gonna have to read that one.

That's a great tip. Yeah. We're getting real geeky now.

Yeah, we are.

Behavioral economics.

Yep.

What do you like about that book, Scott? Are the godfathers of behavioral economics?

Yeah. I mean, what I like about it so far, and I'm still reading it, is just the thought process behind the two systems. System one. System two.

Right.

And the fact that, you know, essentially everything that you're learning to do kind of comes down to these systems of making choices. The, you know, the system one is the fast and the emotional. System two is the slower and more deliberate, more logical.

Right.

And so I think what happens over time is, you know, like, what. What does happen over time is some of the stuff that you start off with that system, too, that's more methodical thinking. As it becomes ingrained in your kind of the way that you think or your habits, you start to put that into system number number one. It just becomes faster. No thinking.

Right.

So let me. Let me bring this back to what we do. We buy land. Okay. Very first time we buy land, we're using that system too, like, very slow.

We.

We don't want to take action now. Like, I'm buying land like crazy. It's now a system one piece. But if I ever need to go back, what I should be doing is I should maybe be scanning some stuff to really put it that back into that system too. Whether I dig a little bit deeper on certain things.

Right.

Other times, it's good to go. So it's really about balancing the way that you're thinking and just knowing, like, the reason I'm not taking action right now is the System 2 process that I'm trying to think through. And once you kind of build that out, I think it helps you to kind of learn stuff better and faster.

Yeah. Yeah. It's great. You know what my biggest takeaway with that book is? I don't know anything, basically. I mean, you know, you think you know something. It's like, no, you could be wildly off. And so you, you know, kind of walking through the world with a humble sense of uncertainty can really serve you.

Yeah.

And make you a better decision maker. So my tip of the week is going to be learn more about Tyler scheff@cashflowguys.com and of course, I might as well just plug it GeekPay IO because Tyler's eventually going to use it to manage the note stream. So the only way to automate collecting notes. GeekPay IO there's other things out there, but they're really expensive. This is the most affordable solution out there. GeekPay IO and also, give Tyler some love. Go to cashflowguys.com he also had yours truly on the podcast, which was phenomenal.

A couple weeks ago.

Yeah. Yeah. So, Tyler, are we good?

We are awesome.

Scott, Are we good? Mark? Great. All right. I want to thank all the listeners. Just remind them the only way. The only way we're going to get the quality of guests like a Tyler Chef from cashflowguys.com is if you do us three little favors. You got to subscribe, you got a rate, you got to review the podcast. Send us a screenshot of that review. To support thelangeek.com we're going to send you for free our $97 passive income launch kit. Please do that. All right, sky, you want to leave us out, Mark?

You know what? It's very simple. 1, 2, 3, let. Let freedom ring ring.

And that needs some practice.

It's much better. Much better than where it started.

That was actually one of the better ones. Tyler, you should. I mean.

Oh, go back to the first pod. First view. Oh, yeah.

Ready? One, two, three.

Let freedom ring ring. It's hard to do on zoom, too.

It is much better in person.

It is way better in person.

Second delay. That's not really there, right?

Yeah, exactly. All right, go. Go enjoy your jet skiing, Tyler Scott. Go enjoy flying your plane. And I'll figure out some other. Other means of getting an adrenaline rush.

Maybe I'll read a book, can fly a plane.

Fly behind him with my drone and film it for you.

There you go.

There you go.

You could get the rush that way.

I want to do the paramotor thing. I really do. I just got to convince the wife. Kids are still. She's like, look, if you die, you know, the kids are still too young. Like, okay, gotta wait.

There's that.

Five more years. What's that?

You'll be all right. Okay. Wear a helmet.

Exactly. Exactly. All right, thanks, guys, and thanks, everybody. We'll see you next time.

Thanks, Mark. Thanks, Mark.