More money, more problems.
One of the major pain points for high net worth individuals involves taxes. Today’s guest was hit hard with a $497K bill in 2010, and that’s when he decided stop giving his money away to the IRS and start investing in multi-family properties!
David Zook is a wildly successful entrepreneur and experienced investor in the multi-family space who has syndicated over $50M worth of real estate in his career. His portfolio includes 3,000 apartment units in several states as well as Ambergris Caye, the largest resort in Belize. David has entered the ATM market as well, capitalizing on another investment that offers tax-advantage cashflow.
David is also a sought-after speaker and published author who has presented at venues such as the International Business Conference, The Jason Hartman Real Estate Mastermind, and The Cash Flow Wealth Summit. He credits his success to working with world-class teams, and today he discusses why it’s patriotic to take advantage of available tax breaks, the AHA moment that initiated his transition from passive investor to real estate syndicator, and how multi-family investing has evolved over time. Whether you’re a high net worth individual looking to reduce your tab with the IRS or a syndicator looking to raise money, this episode is for you. Listen in as David shares how he leverages paper loss and cost segregation to reduce his tax bill from $475K to nearly zero.
David Zook – Key Takeaways
[5:43] Why it’s patriotic to take advantage of tax breaks
- Incentives encourage certain activities (e.g.: oil exploration)
- Government rewards for engagement
[7:27] The tax benefits associated with multi-family investing
- Without creativity, can write off in 27½ years
- Take ‘paper loss’ (allows to claim 3.6% annual loss)
- Cost segregation study accelerates depreciation
- Reinvest capital would have given to government
[10:49] How to exercise cost segregation
- Licensed professional evaluates property
- Report breaks down depreciation of component parts (i.e.: washer/dryer, pavement, plumbing)
- Write off 70% of physical asset in five to seven years
[13:07] David’s advice around choosing syndicator (as a passive investor)
- Find competent people with track record of success
- Watch syndicator closely in early stages
- Start small
[15:08] How David transitioned from passive investor to syndicator
- Came into market with cash, partner brought opportunities
- Ran out of cash, invited family to invest
- Finally had to slow down as ran out of cash
- AHA moment on board of local startup bank, discussing .5% interest on CD
- Realized could offer others double-digit returns via multi-family
[18:02] David’s approach to passive investing
- Not involved in daily headaches
- Must trust, believe in partners
- ‘Team is more important than asset’
[20:24] How David raised money for his first deals as a syndicator
- Psychological challenge (reputation in business)
- Lived in Amish country, visited successful farmers
- Listened to stories, identified pain points
- Shared own successes
- Raised $850K
- Now can send email, get funding in two hours
[24:51] How David structures a deal
- 5-10% range of cash-on-cash return
- Investors concerned with consistent quarterly cashflow
- Keep it simple
[26:28] How multi-family investing has evolved
- Fewer deals today, must hustle
- David’s team no longer aggressively chasing deals
- Good broker, reputation for closing can procure 5-10% discount
[29:52] David’s ATM investing opportunity
- Started as passive investor in 2012
- Became partner last year, raised $9M in seven months
- Introduces investors to exclusive asset class
- Fits philosophy of investing for tax-advantage cashflow
Connect with David
Email [email protected]
Email [email protected]
Resources
Email [email protected]
- 8 Real Life Lessons for Syndicators and Their Investors
- K-1 Sample (How Depreciation Works)
Free eBook: The Secret to Raising Money to Buy Your First Apartment Building
