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all right so my name is not adrian my name is attilio and uh we are uh realtors here in the state of hawaii that have come across this awesome financial uh planning group here that has this uh unique product that they're going under service they're going to be talking about adrian a little bit about you and our team and then we'll get going sure so i've had my real estate license since 2004 and um only just learned about this dst i would say like just in the last year and it was purely by by chance and by um just building my relationships and connection so i actually had run into kyle's wife at a personal development training and was sharing with her a little bit about my situation and i was stressed out because i knew that i was going to be facing a lot of taxes with um with the sale of my condo and she said you know what i think my husband can help you you need to talk to him and um so i spoke with kyle and he was very patient and listened to my whole big long dramatic story and you know then he gave me the good news which was he was able to save me 40 000 in taxes and i was going to be able to do the 1031 exchange and still have passive income coming into me you know so i just that was like the best news that i heard all day or all year and that you know for that matter and uh after going through that experience i felt like hey you know more people should be aware of this tool i'm sure there's other people like me that did uh utilize the strategy so here we are spreading the word and and and creating more connections with people like you guys and just uh sharing the info sharing the world well we're we're like chefs in the kitchen and we're all putting together the ingredients and the recipe for financial success that would be the nice little cake uh that we're putting together in this in this in this in in this baking project called financial success and i hope to have a dst story soon because i'll probably end up converting my residential real estate uh doing a 1031 and putting it into a dst and so now we want to introduce the other chefs in the kitchen uh from impact wealth right maybe have you guys introduce yourselves i don't know kyle you can call it and who are you gonna start with either you or troy oh sure i'll jump in real quick and i i like that analogy with the chefs in the kitchen i actually did go to culinary school yeah and business college as well and i've been a wealth advisor for over 15 years troy almost 15 years as well so combined we have over 30 years of experience in wealth management financial advising and um yeah adrian is it's almost exactly one year when you uh and my wife were sitting next to each other and we helped you with the dsc before even knew there was a pandemic on its way and i think just the the sheer timing of it helped you almost kind of insulate and covet proof some of that revenue stream uh from your property that was in a completely different state which would have made it difficult for you to manage during a time like this and so yeah so thanks for putting on this event today and this webinar and getting the word out to to to people all over the country and uh great that we have technology like this to meet together right on on a on a day like this and so um i'm kashimoto been a wealth advisor for many years i'm joined today with troy water he's the principal of impact wealth solutions the boutique wealth advisory firm um that that i'm with and troy's um he's been in business for a while he's also an accredited investment fiduciary and and he's going to talk about this specific tool called the delaware statutory trust uh we do full financial planning yet for the purposes today we're going to focus our energy and information on this trust and how it pertains to a real estate portfolio so i'm gonna pass it over to troy hi guys uh kyle thanks for the great introduction atelier adrian always great to see you guys and thanks for having us on again uh so ken you are a special guest so if stop me in the middle okay um but today we're gonna spend some time talking about a delaware statutory trust um many people have never heard of a delaware statutory trust or a dst um and funny enough many cpas even realtors have never heard of a dst before um so what makes a dst very attractive kind of to you know adrian's comment you know besides the fact that we can save you know money or continue to defer the taxes um dealing with investment property like capital gains like a depreciation recapture is that the dst allows the landlord to number one get out of the management responsibilities uh number two through selling their investment property and utilizing a 1031 exchange they can get access to institutional quality real estate so some of these things could be something like a amazon distribution center in thornton colorado which we closed on in august we bought that for about 65 million in cash and we basically packaged it up turned it into a delaware statutory trust in which investors like yourself can 1031 exchange into um and also more importantly 1031 exchange out another benefit of the delaware statutory trust is limited personal liability uh not only in the form of the maintenance costs and upkeep of the property but even more important um the utilization of a non-recourse loan now why that's important as you know is that if you have an investment property that has a mortgage on it whenever doing a 1031 exchange you need to 1031 exchange for sales price for purchase price which means that you need to sell equity for equity and debt for debt right that shortfall or whatever you you short on your replacement property will be treated as what we call boot which is just a unusual term for taxation capital gains and depreciation recapture so dst's come with a non-recourse loan and i'll explain how that works and why that is here in a little bit but why that's important is that if you do own investment property many times we can mix and match your dst portfolios to mix and match your loan to value rates so that we can continue to defer 100 of the taxes number two delaware statutory trust comes at very low minimums uh the minimum investment on a 1031 exchange on a dst is 100 000 so many times it can be used in combination with a traditional 1031 exchange let's say you're buying a physical property here in hawaii and you got a little bit left over and you just don't want to pay the taxes on it it's a great way to catch that leftover and continue to defer those taxes um next it's a great estate planning tool um we've all heard the horror stories of what happens when three people inherit a house um usually what happens is juan wants to continue to rent it um one wants to sell it and the other one might want to live in it but not pay any rent you know and usually what ends up happening is because they can't agree they're basically forced to sell the property divide the proceeds pay whatever taxes they have on the property well a delaware statutory trust is a great estate planning tool because it it it's based on what we call fractional ownership so as you can imagine this amazon distribution center we bought for 65 million dollars maybe a little difficult for 20 people to come in and buy it all together this particular investment may have had 200 investors in it so if you can imagine if we had this same three individuals inherit a delaware statutory trust and they each got their own fractional interest of that piece of that amazon distribution center they can each do what they want to do with their own piece not contingent on what the other person wants to do with theirs as i mentioned the dst is a great insurance policy when doing a backup on a 1031 exchange as you know there's several rules that come with a 1031 exchange when identifying property it's the three property rule meaning that you can list up to three properties in which you will close on um and you have 45 days to do that but you need to close on these one of or three of these properties within 180 days or the 200 percent rule because we have delaware statutory trust available on a regular basis it's very um it's very smart to list it as the one of the three properties or as a part of the 200 percent rule so that if two of the other properties didn't go through for some reason didn't go through the inspection or whatever it is the dst is available you can just continue to buy yourself more time defer taxes and collect income while you wait um as i mentioned we can design these dsts to defer 100 of your taxes and i have some examples today on how we can show you how to do that um but lastly you know the dst or real estate in general has a very tax favorable um code attached to it and that's what we call the step up in cost basis what a step up in cost basis refers to is that if you hold on to real estate or non-retirement stocks until you pass away your beneficiaries have the ability to inherit these assets at its adjusted cost basis or what we call data death appraisal value so meaning that if you bought a property worth five hundred thousand dollars and fast forward twenty five years it's now worth two million if your kids were to inherit that property and the value of that property at the time of death was 2 million and the very next day decide that they want to sell it for 2 million they pay zero in taxes that 1.5 million of gain plus depreciation recapture plus any other taxes that could be associated with that like a 3.8 medicare surtax is all bypassed right and basically eliminated the problem with real estate is that to hold a real estate property for the rest of your life to recognize a step up in cost basis usually comes with costs right as we know aging buildings aging investment properties tend to become more expensive to manage and maintain over time and therefore holding those real estate properties until death might become very expensive not to mention if you own a residential property your depreciation schedule is usually only for 27 and a half years and if it's a commercial investment property that's only for 39. why that's important is that after the 27 and a half year depreciation schedule on your residential property 100 of the income derived from that investment will be subject to ordinary income tax whereas in the past when you had depreciation you were only paying taxes on a portion of that income okay so what is a dst right i like to use the term a dst is the mother of invention right and what a dsd is is basically it was a way for people to pull their money to buy usually bigger and better properties the first the first version of a dst was more commonly known as the tenants in common structure the tenants in common structure was a way for 35 investors to pull their money together in the hopes to buy bigger and better investment property some of the drawbacks that occurred or that follow attendance in common structure is that number one every single one of the 35 investors need to qualify for financing now there's a reason why 35 is the magic number and that reason is because if it was 36 this would be classified as a registered security yeah and therefore would require a whole another bunch of due diligence legally fees structuring costs all these additional things so in order to avoid all that the tenancy common structure was left to be no more than 35 investors now of course as i said necessity is the mother of invention there needed to be a better way so in 2004 the irs passed the internal revenue code 2004-86 so if you went to the irs.gov website what you'll see is that on under internal revenue code 2004-86 delaware's statutory trusts are classified and deemed as like-kind property which makes it possible to to qualify for a 1031 exchange whether you're 1031 exchanging in or 1031 exchanging out and what a dst allows for is up to 500 investors to pull their money together so obviously this is a registered security and you have to be an accredited investor in order to invest in this which means that if you're single you're going to make 200 000 a year for the last two years if you're married you need to make 300 000 a year for the last two years or have a million net worth now why would why would someone you know what what is the difference between a dst and a tick but we can imagine now with 500 investors we can buy much bigger and better properties so for an example we have a multi-family portfolio right now that has four properties one in boston one in new york one in seattle washington and one in phoenix arizona which collectively have about thirteen hundred units in rent in which our dst investors own a fraction of all 1300 units we bought this property for about 450 million dollars in cash and now we're fundraising and we have about 90 million left right in this particular dst this particular dst has about a 200 million dollar mortgage on it and the benefit to the investor is that if you have a mortgage you don't need to qualify to get into this one and because like anything else if you don't qualify for a mortgage you can't be liable for it but more importantly you're not responsible for the management of the property not the day-to-day or what we call the terrible teas the toilets tenants trash trolls or any of that right and basically you get as adrian mentioned passive income now another benefit of owning a dst that our clients really enjoy is the diversification and of course the institutional quality of real estate you can invest into different asset classes like health care student housing multi-family housing even things like blue chip office and industrial um believe it or not companies like espn at t verizon zurich insurance their u.s national headquarters actually resides each in their own inland delaware statutory trust today and as i mentioned amazon distribution centers we actually have an amazon distribution center coming up here shortly this one particular is located in phoenix arizona and of course as you can imagine besides getting diversification by asset class you can get geographical diversification which of course you know is important right we never really want to keep all of our eggs in one basket or in one state so what are some of the basic mechanics of how a dst works well as i mentioned each dst allows for up to 500 accredited investors to pull their money together a dst as i mentioned has a loan not all of them do though some of them which is a non-recourse loan to your invest to all investors which mean and you can you can google this on the irs website irs.gov's website of what a non-recourse loan means but what a non-recourse loans means is that the bank or lender cannot take any action other than what is used for collateral each dst stands alone so it's not like a dst is a real estate investment trust it's not a big fund in which all of these properties are commingled usually each asset class stands each in their own delaware statutory trust you'll never see a multi-family mixed with an amazon distribution center or a student housing mixed with a hospital you know if it's a healthcare one it stands by itself multi-family stands by itself usually properties usually even stand by themselves you know you'll hardly see more than two to four properties per dst investors are allowed to put any dollar amount above a hundred thousand meaning that it'll take fractional things or even to the penny so let's say you have leftover of a hundred one thousand and forty three cents that you need to exchange you can exchange everything to the penny and defer the taxes all the way down to the penny um each dht goes through several independent third-party audits to provide unbiased evaluations of each property because as you can imagine this is filed with the sec right but not only does he need to go through a independent third party to get filed with the sec the broker dealer in which kyle and i work for we hire our own independent third-party due diligence company to fly out look at the properties look at the financials um look at the titling leases and all of these things to see if we're even going to recommend it or they're going to allow us to recommend it to our client once these dsts get approved by a broker dealer myself kyle and another individual in my office make up the investment committee of our dsts an we look at every single dstc if it's something that we would even invest our own money in and if it's not we don't recommend it to our clients so troy the the due diligence that you guys do on these properties just sound like it's just more than i even see like in residential real estate oh yeah absolutely over every raft yeah we have to you know um and not to mention and this is another benefit of looking at the dst is that when you do a 1031 exchange you usually have 45 days to do your due diligence on the property that you're going to be replacing these properties that we offer our clients through the dst has gone through months and months of extensive due diligence before it's filed or even purchased to be packaged in a dst it then goes through so would you say that like the reason why uh inland has never had to have a cash call is part of this all of this extensive due diligence that they do on their properties absolutely but but number two um inland is the biggest provider of delaware's statutory trust in the nation and basically they have the biggest pockets there have been properties that have gone into litigation in which has created legal fees um remediation fees and things like that but inland has paid for those expenses out of their own pocket and never went back to the investor and the reason for that is because as you can imagine if they went back to the investor for these costs my broker dealer would probably never approve another one of their projects again and therefore their capital raising and fundraising for their dst programs would be done and then makes money by getting more and more properties can you have a question yes is inland the only company you work with or other ones also we have other companies we work with but when we look at uh dst companies we want to make sure we look at things like track record um quality of properties asset size right um and and basically you know due diligence you know there are many companies that offer these programs in the us now you know where in the past there weren't that many inland accounts for 40 of all the transactions in the u.s inland private capital thank you and the second place um person accounts for eight yeah the biggest second is there's a distance second very distant yeah and they're the ones that are actually going to manage the properties what's that are they the ones that are actually going to manage the processes and invest the money yep they buy the properties with their own cash right and then what they do is they package it and structure it into a dst they manage the properties while it goes through filing they're collecting the rents and then once it passes and it's approved by a broker dealer they then put it out for offering and investors like yourself can buy interest out of that dst are they a public company or a private they're not they're privately held more so why we work with them right they don't need to answer to shareholders okay the other the other thing i wanted to point out because to be clear is to be kind is that access to inland is through is through a broker dealer which is who you guys are yeah right understand i just it's more you know in the world of like a bernie madoff you just want to make sure if you decide to go that route is it a reputable company you know anybody can say it's a reputable company but yeah we would do our due diligence ourselves yes please and then what you'll also find is that inland today is the second largest landlords to walmarts in the us second to the walton family trust um in the 90s they were number one they were the largest landlords to walmarts um in in in the us yeah but you know now the walton family trust is trying to buy back some of these properties from them yeah and and can to add more credibility to the conversation you know you're not can are you physically located in hawaii are you somewhere else yeah if we don't okay what you're seeing you know what's important about the credibility is what you're looking over the people's shoulders is that those back walls are actually the walls of properties that are here right on oahu you can come physically see us you know adrian and i um and this is not a sales job for troy and kyle the only reason why we got involved with them is pure circumstance because adrian needed to actually do a 1031 into a dst and it completely worked for her scenario so this is like first-hand live testimonial and for us you know adrian and i we we sell anywhere from 80 to 90 million dollars of real estate a year and we our reputation trust me is worth way more than one dst transaction and for us we just found that it was something that we really could get behind i personally you know i've got some rental properties i'm going to eventually i personally will convert them into dsts i'm a realtor in the business adrian and i actually own a property management division we manage over 800 residential properties right here on oahu and i don't even want to own property even though i own my own management company i'd rather i would love we understand moratoriums the moratoriums with uv ships and just there's a lot of yeah that's creating a lot of headaches right a lot of pros and cons you know when it's great it's great but when it's bad it's bad yeah and and and i'm like a warren buffett i i don't jump all over the place and randomly jump into things i'm buying hole and i'm just looking at this is the financial strategy for my kids uh my heirs on what i'm going to be doing to build wealth because i'm like you know and what i realized too is just because we didn't know about this doesn't mean it didn't exist it's just wealthy people know about this and by pure circumstance now we know about it through trolling troy and kyle and now we're trying to introduce it to as much of our spirit of influence as we can continue on troy go ahead ken we went through probably a number a few years back and probably longer american savings bank they were talking about 1031 exchanges it was uh in kahala the hunakai the old uh and we went there and actually somebody at the end brought this up uh you know sort of like you know they took the cost you know were kind of high but it was something that might be available if you want it don't want to manage anymore so we had like uh just a little tidbit of me hearing about it but nothing uh not many details yeah you know again i i like teaching by analogy because it's just it takes something complicated and simplifies it into concepts that everybody understands if these were ingredients and the end product or the cake was financial success adrian and i what's our purpose for doing these things and promoting them we know that if you have real estate you're going to need a realtor to help you sell it um and and the the process is is called the 1031 if it's an investment property so you don't pay capital gains and then now what you're going to do with the money we'd love to help you buy another property in our own market and get two transactions out of you but we're more of the long play and that we understand that if we can help as many people that own residential property here in hawaii transition their wealth into a dst we just had a conversation with good friends of ours uh that owned 30 residential properties uh all on the waianae coast and they were they have never adrian have they sold any of them no until now until now they're selling a property in the i'm just going to say in the sub million dollar range and they had a really good conversation with kyle and troy and had no idea what a dst was you know i think as as even as realtors we barely understand what a 1031 is but this next level of sophistication that's not a bernie madoff that's not already made up um if you google adrian and our names individually my dad was the fire chief for the honolulu fire department he has the exact same whack-a-doodle name like me so my reputation i grew up italian family your name actually fits right in to be honest with you you got an uncle atelier down the street but my my family's originally from boston uh and then originally from sicily so my yeah my reputation my reputation here on the islands is much more valuable than any one or two transactions so with that said continue on troy thank you thank you thank you so you know targeted target income for these types of programs are about five percent cash and cash return you know which by hawaii standards are extremely high um actually as kyle kyle and i found out yesterday even next to california standards um it's pretty high in terms of a cash and cash return um target appreciation is we look for a three to five percent appreciation on our dsts annually and when that number hits about 15 uh they're gonna sell these properties off yeah and then what do we need to do again another 1031 exchange you know because what we want to do is continue to defer those taxes over your lifetime and eventually never pay them yeah now taxation one of the benefits of a dst is very s is the exact same reason why people invest in real estate is that the income that the dst generates is also subject to depreciation just like the income from your current investment property which means that a portion of the income generated from the dst is tax deferred and what we do is we send you an informational 1099 at the end of the year your cpa is easily just extracting that information to put on your schedule e defer that income basically pay less taxes number two the step up in cost basis like we talked about or the swap to your drop strategy still applies to the dst right so if we bought into this dst at 500 000 25 years later the dst is worth 2 million and your beneficiaries inherited it at 2 million they could basically sell their interest off at 2 million pay zero taxes bypass all of that in their lifetime as well um as we mentioned the non-recourse loan right because you don't have to qualify for the loan legally you can't be held liable for it right so what happens is that you get all the benefits of the loan but none of the risk most dst's come with varying loan to value amounts health care is usually at a zero percent loan to value student housing multi-family usually at a 50 and that blue chip office is usually at about an 80 loan to value and the reason why we mix and match the loan to values is so that we can diversify your investment to kind of mix and match your existing loans and value if we need to you know troy go back to that slide real quick why are there there what does that mean those different ratios zero percent fifty percent and eighty percent there are some cases in which people are selling investment property that are debt free right and as we know whenever we do a 1031 exchange we need to go equity for equity and debt for debt if the client's intention is that after this dst transaction because i'm just you using this to buy time because eventually i want to bring the funds back home to exchange into we would probably go in a zero percent loan to value because they're exiting a zero percent loan to value which means that there's no mortgage on the property okay now at the same time what we find is that 50 is a very common loan to value number right so in this case if someone had a million dollar property with a 500 000 mortgage that'd be a 50 percent load to value they could easily 1031 exchange into a 50 percent loan to value dst replace the equity replace the debt by the same amount of real estate that they exited from defer all the taxes and they're on their merry way collect income while they wait now the 80 is there because we know that what is the normal down payment on most investment properties 20 right so in case someone has owned the property and they might not have taxes due to appreciation but they have taxes due to depreciation they might sell that property and still be at a 80 percent loan to value therefore they can 1031 exchange though those proceeds into a dst with an 80 loans of value again replace equity for equity debt for debt by the same amount of real estate and defer all the taxes so let's say someone has a 25 percent loan to value it's a 250 000 mortgage on a million dollar property and we wanted to keep the loan to value the same well we only have a zero we only have a 50 or we have an 80. but what we can do is we can put 50 of the proceeds into the zero percent loan to value dst i can put the other half into the 50 loan to value when i blend the two it's a 25 loan to value so we can keep the debt the same does that make sense yeah and ken i'll show you how powerful this non-recourse loan is okay shortly and these will be things that no one has ever talked to you about i guarantee it because some cpas that we work with we have to take them to school for a bit to teach them how the how to utilize a non-recourse loan to their clients advantage okay now um risks of a dst are no different than risks inherent with any other real estate investment property and what would those be natural disaster tenant damage environmental issues flood vacancy right but we we have coven right now let's go over it i got to add that on there um you know kovid right um but we keep a reserve fund on all of our properties and each property is insured for replacement value right excuse me when you say we keep are you talking about your company or you're talking about inland yep each dst has a reserve fund attached for every single property and each property is separately insured and i just have another question you mentioned about you can exchange into the 1031 and exchange out is that anytime you want or is that only when they actually uh they liquidate the property at the end good question so 99.9 of the people wait until they liquidate the property at the end and the reason for that is they want to participate in the appreciation okay but is there a way to get out of the dst prior to there is and it does happen yeah about 10 times a year how that works is you remember i told you there's up to 500 investors that pull their money together what inland will do is contact all of those investors to see okay ken wants to sell his interest out of this property out who wants to buy it right at that point it becomes a willing buyer a willing seller at agreed upon price transaction right in about 60 30 to 60 days your funds are inside of your 1031 exchange account for you to do something else with but if you can imagine the person who wants to buy your interest wants to buy it at the lowest cost possible and you want to sell it for the highest you're probably going to land somewhere in the middle right which is why many people wait to the end yep so that you can enjoy and appreciate or you can enjoy the appreciation i think like atelier i'm kind of like buy and hold and that's but it's also good to know what your options are just in case you know exactly absolutely okay so what are the fees right because you're on this call today we rebate one percent back to the investors but there are fees associated with dsts now those fees include things like sec structuring or filing fees uh legal acquisition structuring fees due diligence fees right which range depend on property between two and six percent okay now many people get confused that they think that a company like inland would buy this amazon distribution center for 60 million and then sell it for 65 because the property value went up our industry does not allow that to happen they need to sell it for the exact same price plus the cost to create and structure and sell the dst they can't mark it up and make a profit yeah that's that's um there's a word for that um like pyramid scheme what do they call that um our industry will not allow that because what they could do is buy properties and hold it for years and just manage it and resale it back to the dst industry does not allow that right so when they do audits on financials when the sec and a third-party due diligence company audits the financials they make sure that every expense is documented for and it needs to be a qualified expense to create and structure the dst normally inland or inside of the private placement memorandum inland also has the ability to charge a disposition fee like any other real estate commission if they sell the propert there's a commission they can take a fee historically inland has never charged a disposition fee on any one of their dsts and what can that fee be up to three percent yeah but the reason why they have never charged the fee on the disposition is because they leave their money in a portion of every single dst and what they want to do is they know that about 95 of all investors 1031 exchange their money out of this dst they'll 1031 it into another one right so they want to make the most amount of funds available to go into the next deal okay there is usually a property management fee which on average is about three percent gross on the rents okay but that three percent management fee is is above right your five percent which means that when the dst pays five percent to the investor it's after all costs and all fees okay all right and we touched on this a little bit right the goal of every single dst is to be sold um as you mentioned the long term hold right buy and hold type strategy we tell our clients that the dst is a long-term investment to plan for seven to ten years however in the multi-family space we have never had a dst last longer than five years we've always been sold off prior to that profits and growth and the reserve fund right is added into the closing costs and those things are distributed equally between all investors based on your ownership when the dst is planning to be sold we have about four to six months notice and what we'll be doing is contacting you attilio and adrian and saying hey this dst is selling off this is the price that we're in contract for this will be our proceeds was 1031 exchange again okay um should the client stay in for the full life of the cycle the funds are then sent again to the delaware or to our qualified intermediary and then basically the clock starts ticking again 45 days to id 180 days to close okay um and we talked about what happens if you don't want to wait until it goes full cycle we basically will send out letters to the other investors to see who wants to buy your interest and if you pass away along the way your beneficiaries have the same two options stay and collect rent while it sells off or choose to find a buyer a qualified buyer to buy off the interest okay okay you said uh three to five years is typical what's the maximum that you've heard of um the maximum dst that the longest that i've ever heard of was 5.1 years in that range yeah thank you we talked about choosing the right company right we can we have access to other ones pasco counter fitzgerald right um but you know we look at things like asset size history track record expertise and of course quality of real estate inland has been doing this for 50 years they're the biggest in the space multi-billion dollar company they have the most they have the most full cycle dst programs in the nation um they have their own bank legal department property management division and as i mentioned they're the largest landlord of walmart's in the us properties like at t verizon espn nyu zurich insurance amazon these types of properties each reside in their own delaware statutory trust here's the picture of the four founders these are still the four owners today they started off as school teachers in chicago right five years later they became the largest multi-family landlord in the greater chicago area and they started off by investing teachers monies teachers would give them like 500 bucks to invest in real estate and that's how they started off my story yeah and they still work today it's great you know um the their campus is actually next to mcdonald's in chicago you know and it's much bigger than mcdonald's campus actually um so here's some applications and some ways that some of our clients has utilized the dst so this particular client came to me and was referred to me by a realtor a commercial realtor and she came to me on day 43 of her day 45 left in her identification period he sold an apartment building which she bought in 1998 for 6.75 million and had a cost basis of 3 million dollars but she had a million dollar mortgage on it she recognized a million depreciation and what she wanted to do was she wanted to buy an apartment building which was much smaller much newer easier to maintain because she was having some health issues and she wanted to make something leave something behind for her only daughter that would be much easier for her to manage so what she did is she found a newer apartment building smaller less maintenance less upkeep less deferred maintenance and bought that with cash for four and a half million but she needed to replace an additional 2.25 million in real estate however she only had 1.25 million in cash so when she came to me she said look i need to find a replacement property and my realtor told me you can help me and the main thing is i don't want to pay any taxes okay um and she didn't really want to go out and get another million dollar mortgage either you know she was in her late 60s so what did we do well as i mentioned she sold her property of 6.75 million and had 5.75 million in equity because she had that million dollar debt she was collecting about 130 000 a year in income but she bought that 4.5 million dollar apartment building all cash no mortgage on it and that property was generating about a hundred thousand a year in income as i mentioned she had 1.25 million left because she had that million dollar mortgage so what did we do 1031 exchanged that into a multi-family dst that had a 50 non-recourse loan to value attached to it 1.25 million in equity at a 50 percent loan to value means we add on 1.25 million in a non-recourse loan she bought two and a half million worth of real estate in the dst if you add the two together she replaced her 6.75 million dollar property with 7 million worth of real estate her taxes are zero she bought more than what she sold and she's debt-free the dst pays her 62 000 a year in income her total income between the dst and the apartment building was 162 000 a year in income compared to 130. not to mention again we deferred 100 of the taxes right and we did this with two days left now we're not telling you to call us on day 43 right we want to do more planning than that right but because we have these things available on a regular basis you know we can work things like this with only a couple days left on our clock okay now this particular client of mine is also a senator she's a senator here in honolulu and she was given a home by her mom in which her mom bought in 1950 for 30 000 bucks okay and she was gifted this property in 1990 because her mom went to see an attorney and the attorney advised her to do what we call medicaid planning which is basically get rid of all your assets give it to your kids so that if you end up in a long-term care facility they can't put a lien against your your assets okay so in 2001 the property was worth 700 000 and in 2019 this was last year it was worth 1.1 million after finding out that she needed to do some repairs you know 50 000 right for the roof and some major discussion we decided you know what she needs to sell the property because she had a home equity line on the property which she used to buy her condo which she lives in now in kakaako so her net income on her property after paying down her heloc was 200 bucks a month or 2 dollars a year okay because she had that fifty thousand dollar expense she would have been in her nineties by the time she broke even paying two hundred dollars a month to pay off her fifty thousand dollar roof so in this example she thought that her cost basis was the value at the time her mom passed which was absolutely wrong because she was gifted the property before passing she didn't get the step up in cost basis her cost basis was what we call a carry over cost basis which means that her cost basis was 30 000 which is what her mom paid for it in 1950 minus the depreciation because it's been rented for 20 plus years her cost basis was almost zero and she sold it for 1.1 million her taxes was going to be incredible right so what we did is we 1031 exchanged the proceeds into a multi-family property located in washington dc that had a 50 loans of value because she had 200 000 in her home equity line on it so i needed to replace that mortgage her 900 000 in equity at a 50 loans of value added on 900 000 in the form of a non-recourse loan which meant that she bought 1.8 million in real estate right now the reason why we decided not to do anything else but the 1031 exchange the whole proceeds into something like this was because she's older she doesn't want to manage property anymore and she wants the the best tax treated income she could possibly get by buying 700 000 more in real estate than what she sold she has a huge depreciation tax benefit on her 45 000 of a year in income right so not only was she able to increase her income by almost 20 times she was able to save a ton of taxes on that because of the depreciation schedule right because she has more building value to depreciate than she did in her old property right so her taxable equivalent on the 45 000 is only about 35 to 40 percent of the income will be taxed the 65 the 60 to 65 percent is tax deferred which is huge right on 45 000 now if you think that's amazing i think this is more amazing and this is the power of a non-recourse loan because what we're taught whenever we do real estate transactions and we do a 1031 exchange is that cash can never be taken out at closing and the reason being is that cash taken out at closing is considered boot and therefore taxed okay so we created a way well i like to say i created it after i came up with the idea about a year and a half later i read it in a book and i'm like damn you know this guy kind of beat me to the punch i think but we created a way where our clients can access the equity in their property tax-free and then doing a 1031 exchange usually getting more income um while taking out the equity okay so how does that work in this example we had same similar situation except instead of his parents giving him this apartment building in 1998 he bought it from them for a hundred thousand bucks today that apartment building is worth 2.8 million dollars and it provides great income and what he wanted to do was take 400 000 audit closing pay the taxes and buy a property in las vegas okay and the reason why he wanted to do that was his daughter was going to live in it when they when she was going to college okay so his original intent was she was going to go to college for four years sell it after that you should have little to no gain pay whatever taxes again on it take the balance and pay off his mortgage at that point he would have paid off his mortgage on his primary residence he would have been done paying for college and he was going to retire from the federal government okay so his mom decided to do something similar the year before so when she did this and she took out 400 000 at closing she got taxed she had a tax bill of 150 000 the following year they thought it was a mistake so they came to us and said hey we need another cpa because we think our cpa screwed up and the cpa didn't right they just didn't consult the cpa before they did this right and they got whacked with this huge tax bill so that put his plans on hold he figured out you know what it's better i just keep the apartment building take the income and pay for my daughter's dorm right then paying 150 000 in taxes so after he told me what his plan was i told him hey look what if i had another way and he's like what how okay i said well right now you're getting 74 000 a year in income what if i told you i could pay off your mortgage and i can buy you a property in vegas and i can get you more income right would you want to hear how we do that he's like of course so he had his property of 2.8 million with no mortgage on it we told him take a home equity line out on the property for 800 000 okay and he's like what do i do with it take out the 800 000. what i do with eight hundred thousand go buy your property in vegas which he bought for 375 and i told him take the balance pay off your mortgage my mortgage is only 400. okay well pay off your mortgage at 400. he 25 000 left in savings right she was like what do i do now now we sell the property okay and you use that 25 grand to pay your interest only payments on that home equity line until you sell it he then sells the property for 2.8 million but because we had an 800 000 mortgage there's only 2 million in equity we 1031 exchanging the 50 loan to value we replaced his eight hundred thousand dollar mortgage with a two million dollar non-recourse loan we bought him four million of real estate in the dst we bought more real estate than we sold so there's no taxes right but the best part is that i increased his income by about 25 grand he gets a hundred thousand a year now of income from the dst not to mention he owns the property in vegas outright and he took the tax-free cash to pay off his primary mortgage he's debt-free now he's contemplating retiring four years earlier awesome right very happy person yeah and the cpa signs off of this because the cash was not taken out of closing it was taken out prior and he doesn't need to go get financing again so we're not robbing peter to pay paul because we replace his 800 000 heloc with a non-recourse loan right so in summary you know these are different ways you can use a dst right whether it's eliminating your mortgage you know increasing your net cap rate improving the depreciation or tax efficiencies on the income that you're getting but more importantly simplifying your life right while be creating right a more tax risk and fair estate plan and avoid capital gains depreciation recapture and of course the 3.8 obama tax or medicare surtax so with that um you've got any questions let me know i'll turn it back over to attilio and adrian all right and you you always got questions in the future unless ken you're reviewing your questions yeah i went down my list and everything was answered uh so basically if i can get the slide so i can i know you went over a lot of information and you know i'm listening to you but i'm also trying to skim the slide but i know i'd like to be able to look at them again uh more questions might come up is that possible no no problem okay and contact information yep that'll be in there if you can tell us a little bit about your background troy how did you get into this yep so um i i got into the business so like attilio you know i have a reputation as well um kyle and i were from the island of kauai my family started a business there in the early 80s um in which i ran up until 2007. uh 2008 i left the family business 2009 i got into financial services i started with a big company called axa advisors i started there as a financial advisor fast forward 2011 became divisional vice president and ran the honolulu office up until 2013. 2013 i left i started my own firm impact wealth solutions which you see today we have offices on every island now we serve 1500 plus clients we manage about 500 million in assets um and i have partnerships with organizations like hawaiian electric employees federal credit union also we have an exclusive contract with them and we're their wealth management financial services partner and i do pretty much all the retirement financial wellness classes for hawaiian electric maui electric and hawaiian electric light company it was because of this relationship we forged a similar relationship with hawaii financial federal credit union because of the work that i've done with hawaiian electric they want me to do for hawaiian airlines hawaiian tell and honolulu border water supply and then lastly or not really last but um because of all of this stuff going on because why so small our hometown kyle and i the city county employees of the island of kauai want us to provide the same financial wellness wealth management services to their employees and i also own a sister company called impact resource and insurance services we are the dedicated brokerage outfit for life insurance long-term care and disability for bank of hawaii investment services incorporated these are the 25 financial advisors at bank of hawaii an i help them serve their 25 000 plus clients um and trust or ultra high net worth clients on their estate planning asset transfer long-term care type needs a very busy man kind of yeah you know so the dst now like where the hell does all that fit in right so we have many clients um that own as you can imagine investment properties right and when they came to us so how i stumbled upon the dst was in 2013 um three sisters who are my clients today and actually like my close family friends now um they sold the largest single held piece of property in los altos hills california for 18.8 million dollars which they inherited in the 90s for 900 thousand dollars they were going to have a massive tax bill so i had to research what type of investments and tax codes are available for them to defer all these taxes and we stumbled upon the dst the dsp was the this was the first dst i did um and using necessity has become a mother of invention today my office kyle myself and a third individual richard we are the number one delaware statutory trust provider in the state so we partner with people and and real estate experts you know like adrian and attilio because as attilio mentioned realtors don't know this stuff you know and most of them want to sell you two properties right you know but it's what's right for the client you know by doing it this way so we partner with people like attilio keller williams you know um because they understand the value of providing this service to their clients and then um you know ken just a little side note for adrian and myself because i'm listening to all the stuff that troy's telling you i'm like yeah i haven't really told you who we are as opposed to just being another realtor as a realtor as a realtor so we are investors in the keller williams big island we are investors in keller williams maui we are investors in keller williams honolulu we have a uh like i said we have a separate property management division with a separate broker and we manage about 800 properties i think we're probably what adrian number three or four property management company we're in the top five for this state of hawaii what is this residential property management and um adrian and i do about 100 transactions a year uh there's about 6 000 licensees on oahu the bottom half sell about zero homes and the rest of the agents sell about five to seven homes so um we're always looking for ways to bring more value to our clients because we don't want to be just thought of as another real estate team we want to be consultants or advisors for our clients and that's when we came across troy and kyle we said we got to introduce this and put our marketing behind getting the word out thank you and that's it thanks so much for being on the you have the email my email address right as far as contact information and um ken if you want to give that to me i'll get the slides to you sure thank you thank you very much appreciate it very educational thank you for joining us nice to meet you guys hey aloha