Real estate allows you to do a lot of unique things that other investment vehicles like stocks and bonds do not allow you to do.
Before he proceeds, Fernando would like to remind everybody that he is not an attorney nor an accountant/ CPA. So if you want a more legal advice about this topic, please do find these professionals.
One of the things that he always tells people is that if you do not have living trusts or a will set up, you should start putting together your estate planning now.
Fernando started his living trusts when he was 23 years old, the reason is you never know when something might happen. If you have loved ones that depend on you, you need to make sure that they are taken care of.
The second reason for having an estate plan is to make sure all of your information stays private or semi-private. The worst thing that could happen if you don’t have an estate plan and you passed away then all your assets are subject to probate or probate court.
What probate does is it alerts the general public that you passed away and if you owe someone money or if someone thinks that they have a right to your property, then they will have the chance to state their claim. That could last from one year up to nine years.
For the long term strategy in real estate, rule no. 1 make sure you have a proper state plan.
Second, create not only an income for you but more importantly a generational income that you could pass down to your kids. To do so, as we accumulate assets we can delay paying capital gains and depreciation recapture.
If you want to understand further, Fernando’s advice in long term strategy in real estate, continue watching this video.
Fernando O. Angelucci is Founder and President of Titan Wealth Group. He also leads the firm’s finance and acquisitions departments. Fernando Angelucci and Steven Wear founded Titan Wealth Group in 2015, and under his leadership, the firm’s revenue has grown over 100% year over year. Today,
Find out more at
https://www.TheStorageStud.com
https://titanwealthgroup.com/
Listen to our Podcast:
https://thestoragestud.podbean.com/e/long-term-strategy-in-investing-in-real-estate/
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Hi! This is Fernando Angelucci. I had a buddy just recently asked me about the long-term strategy or the long-term planning that comes into play when real estate investment is a part of your life. So, it's very interesting because real estate allows you to do a lot of unique things that other investment vehicles like stocks and bonds do not allow you to do. So, I'm just going to caveat this with, I'm not an attorney or a accountant or CPA, so please get advice about the stuff we're talking about. So, one of the things that I always tell people right off the bat is if, you know, if you don't have a living trust or a will set up, you should start putting together your estate planning now. I created my living trust when I was 23 years old.
And the reason why is you never know when something might happen. And if you have loved ones that depend on you, you want to make sure that they're taken care of. The second caveat to having an estate plan is, making sure all of your information stays private or semi-private. One of the worst things that can happen is you don't plan and then you pass away. And all of your assets are subject to probate or probate court. What probate does is, it alerts the general public in the world saying, Hey, Fernando just passed away. If Fernando owes you any money, or if you think you have a claim to the assets in Fernando's estate, you know, now's your time to come forward and to state your claim. And that can last anywhere between, you know, one year, all the way up to I've seen some probate situations that were going on eight and nine years, just because everything was so messy and they were just trying to figure everything out.
So, rule number one is make sure you have a proper estate plan, cause that's gonna help a lot with the long-term planning. So, when it comes to real estate, you know, my long-term strategy is to not only create wealth for me, create income for myself, but then also to create generational wealth, that I can pass down to my kids. So, one of the ways that we're able to do that is by, you know, as we accumulate assets, we can delay paying capital gains and depreciation and recapture. One of the ways that you can do that is using something called the 10 31 exchange. It's a code in the IRS that allows for what's called like kind exchange. So, if you, let's say you bought a self storage facility when you were 30 years old for a million dollars, and then when you're 40 years old, you decide that you want to sell it.
And you find out that it was worth $3 million now. Well, on that gain from a million to 3 million of that $2 million gain, you're going to have to pay capital gains on that. And then, you're also going to have to pay the depreciation recaptured tax for all the depreciation that you took on the property. What the 10 31 allows you to do is to say, Hey, instead of selling this $3 million asset, that you're going to have a $2 million, you know, capital gains, you know, that subject to capital gains tax, where you could do as you exchange that $3 million into a new property, a new light kind of asset, and that allows you to push the depreciation or the the capital gains tax into the future. So, now you take your 3 million, you decide, hey, I'm going to get a 50% loan. And with this $3 million, I'm going to buy a $6 million facility, use 3 million in cash.
And then I'm going to get $3 million loan from a bank. Then you could do that. Now let's say this $6 million asset when you're 50 is now worth 10 million. So, now there's, not only the additional $4 million from six to 10, that you're gonna have to pay on the capital gains. But then there's also that $2 million that you're going to have to pay that you pushed forward from the previous transaction, from 1 million to 3 million. So now, there's a total of $6 million of value. That's going to be taxed. Well, what can you do? You can just keep doing that. So, now you can take this $10 million asset and exchange it into a $20 million asset. So, my buddy Scott asked me, he was like, well, if you keep pushing it down the road, like when are you going to have to pay the Piper? When do you have to pay these taxes?
And how do you get money out of these properties? So, let's first address how you get the money out. So, one of my favorite strategies is should never sell any income generating property. If you can help it. But if you do have to sell it, you know, do that exchange. One of the things that we prefer to do when you need capital is to do a cash out refinance. So, instead of selling the asset to get your gain, you can go to a bank and say, Hey, this property that I bought for a million bucks, it's now worth $3 million. I don't want to sell it. I need cash. What if we do a 70%, you know, a 70% cash out refinance, and then they give you physical cash that you can go spend. And that money isn't taxable.
Because when you do a refinance, it's considered a return of equity. So, you don't get taxed on that. The refinance proceeds that you receive. So, now let's talk about when do we have to pay the Piper? Well, say eventually in this long chain of exchanging properties, you're seventy years old. You're saying, Hey, I'm done. I just want to enjoy my money. At that point, when you go to sell, if you weren't using the refinance strategy, then you're going to have to pay all of those capital gains that you pushed forward. But the whole premises, okay. From age 30 to age 70, I have saved a bunch of money that I could have paid taxes with. And ideally put that money that I saved into another investment that built up in value. So, say for example, when you're 70, all of a sudden you decide to sell, you're gonna have to pay a million dollars in capital gains tax.
So a million dollar check you gonna have to write, well, what you can do is throughout those last 40 years, that million dollars of savings you could have invested into other vehicles that produce say 8% return. So, now over 40 years, 8% compounding, that million that you originally saved is now let's say 2 million or $3 million. So, now you get to take, go pay your million dollar tax bill with there's $3 million that you created by not paying that money to the government and investing it and allowing it to grow. So, that's one strategy. The other strategy, again, I alluded to in the beginning is to have an estate plan. And what you can actually do is, pass down your real estate to your heirs. And when they receive it, if you do it right, you can reset the basis so that they do not have to pay all the capital gains that you had accumulated over that 40 year investment life.
So, that's why it's so important to get with an estate planning attorney to start working on these strategies because they're so slow moving, that nobody really wants to pay attention to them now. Me and Scott were just talking about how, there was a company that, the owner of the company was building massive wealth and all of a sudden he passed away. By the time he was 33, you know, no one plans to die early. It just things happen. So, it's super important to set up your living trust and talk to an estate planning attorney. Maybe a trust is not the right model. Maybe it's a different, you know, different avenue. I have a living trust that encompasses my will and all my plans for all my assets and my family and those things. So, that's another strategy that you can use to say that, you don't need all of that cash.
You can pull out as much as you need with a cash out refinance and then allow your estate to pass on those assets to your heirs, which hopefully resets the basis or what you have invested in the deal. The basis of the investment in allows you basically to skirt that capital gains tax. So there's, you know, there's a lot of talks now about starting to tax those types of estates and at what level, how much, what dollar figure does it start to become tax? Cause there's an exemption up to a certain dollar figure. There's also plans, there's ways to get around all this. So, you know, towards the end of the light, your life, what you can do is you can gift shares of your companies, to your kids each year, per parent, per child.
So, that's an easy way to start transitioning ownership of an asset without paying the taxes on it. And then, like always regardless of what policy is made, you know, the policy makers, they usually use these strategies. So that, you know, our policy makers are wealthy individuals. They usually have to be wealthy to be able to campaign and get to where they are. And once they become a policy maker, they usually start building wealth as well. So, the very people that are saying, they're gonna go after these loopholes will always put loopholes in there for themselves. So, you just need a really smart asset and tax attorney. They can see what loopholes the policy makers are using and then allow you to use them as well. So, those are some of the long-term planning strategies that I implement in my own life. If you have any questions again, I'm gonna say it again, feel free to reach out to an attorney or an accountant. I am not either of those things. But if you have any general questions about what I do in my life, you know, feel free to drop some comments below, ask questions, you can reach out to me on social media. You can go to our websites. So, feel free to reach out. Thanks again. And I'll catch you next time.
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