Advantages and Disadvantages of Real Estate Ownership – All Things TIC (Tenancy In Common)

Karlin Conklin: There you go.

David Moore: Like that better, right? So we’ve been talking about a lot of different aspects of IMG and what you guys do there. And I just want to put out there; people, you got to understand, gain has nothing to do with profits. So I’ve got… Equity Advantage handles exchanges, and in recessionary times we all think, well, gee, I lost money on this property. You could lose a property to foreclosure short sale and still have tax liability.

So what happens in that situation you’re subject to something called phantom gain, and in a foreclosure the debt on the property is treated as a sales price. So if the debt exceeds the basis, you’ve got taxes. So a lot of times what will happen is something goes away, and fortunately during the last crash we had a lot of people with, once again, non-recourse debt, so that that didn’t beat these people up with their ability to go get financing going forward, but they would be in a situation where they were losing an asset and they had a simple choice, do I want to lose it and pay for the privilege of doing that…

And if you look at the tax consequence, it’s typically going to be around 40%, or maybe they do an exchange, which is really funny ’cause I don’t get any money during that relinquished property, right? We’re just sort of stepping in pre-foreclosure. When it’s foreclosed it’s ours not theirs. So we’ve isolated the taxpayer from actual constructive receipt of debt relief, and that’s where the trigger point is. But they could go into something like you’ve got and take care of it.

David Moore: So, when you look at gain on a transaction, really one of the most important people in your life is going to be your tax people. Karlin was talking earlier, we were talking about experts, and it’s critical you take advantage of the experts in your life. And there’s absolutely no such thing as a dumb question. You got good people in your life, little nuggets of knowledge are going to help people get where they want to go, or at least see what’s possible there. So we were talking during the break about putting money into Wall Street, or putting money in the banks, and it’s sort of interesting because here we are, the borrowing rates keep going up, but what do we get in savings accounts? Still next to nothing, right?

Karlin Conklin: Right.

David Moore: So it’s sort of funny how that happens. If the rates are going down, boom, my savings accounts get adjusted immediately. But going up, it’s sort of a lagging thing that happens there. So I would just caution people, when you’re going to sell stuff, take a look in your life, if you’re tired of… If you’re a refugee from rental housing, you don’t want to deal with that, consider something like IMG and Karlin has to offer, because it’s going to be a great place for you to go without paying the tax. If you just sell and pay the tax, you’re going to have depreciation. Federal is 25% typically for most of our clients, appreciation’s 20%, state is going to be state dependent. And so you got to understand what the state’s going to charge you, and then if you make enough you’re still subject to the 3.8% on top.

So it’s pretty easy to hit 40% on this stuff. Do you want to give up 40% of what you make if you think, hey, I’m going to take the money, go put it in Wall Street? You’re taking a 40% bath before you even get started, so how long does it take you to get back to where you were pre-sale? So when I look at these things, if you’re on YouTube sometime, you can’t fall asleep, pull up… We’ve got a video on end games.

David Moore: And that was one of the reasons, that video is one of the big reasons I wanted Karlin in here, because we talk about… We talked about oil and gas. I’ve got people in there, we’ve talked about DSTs, we talk about installment sales, structured sales. There’s a whole bunch of different options there, but I still wholeheartedly, we’re going to be talking about opportunity zones, OZs, and really not a big fan of them, huge, because for real estate to real estate, because we’ve got 1031, we can defer everything. And it’s sort of like a Roth IRA, but if you’re selling something else as a capital asset, or you’ve got a 1031 that’s failing, you know, maybe that’s a place you go. If you don’t find anything, that OZ can be a great opportunity. So the idea is there’s things out there that you can do if you know the right people.

David Moore: And that was my main point I wanted to get you in here to have you talk about, because I’ve got lots of clients that are very happy with your product. And so I just wanted you to go get in here and talk about what it is and how you do it, why you do it, how you got into it. And in these closing minutes, so sort of for the good of the order here, Karlin, the good of the real estate world, what do you want to leave people with? And then I’d like you to explain to them how best to get a hold of you if they’ve got questions and things they’d like to talk to you about.

Karlin Conklin: Absolutely. You know, what’s funny is, a segment or two ago, when you talked about real estate being an alternative investment, that just kills me. Because I think it is the investment, at least for me. The disadvantage…

David Moore: Is the investment?

Karlin Conklin: It is the investment. The disadvantage of real estate ownership is that it’s illiquid, versus a lot of other things, you can turn around and sell your stock or you can sell… If you’ve got gold in the closet, you can sell your gold. Real estate is fairly illiquid. Whether it’s the loan that’s pulling you back or you’re in a syndication like we do and nobody else wants to sell, your money is tied up.

So what we will often encourage our clients to do, especially if they’re investing as a limited partner, with as little as 25, make sure you got some cash in the bank. This money is going to grow, but you’re probably not going to touch it for three to five years. So be patient and know your own personal portfolio, what it’s doing. So we’re working with clients in IRAs, in exchanges, we have a lot of clients come to us that are not in 1031 exchanges, but they’ve just pulled a million out of the stock market, they want their own entity, and so they still invest as a tenant in common, because whatever happens in five or 10 years when we sell the property, they may want to exchange with us or they may want to take their money and go.

Karlin Conklin: So there’s a lot of different ways to invest. If somebody wants to reach us, I would encourage you to go to our website and check it out. It’s www.imgre.com. You get my direct email, is karlin.conklin@imgre.com. You can certainly reach out to me as well. We are very, very accessible. If I’m not available, Dave Mikkelsen, who’s our Director of Investor Relations, he’s amazing, and he also has an Economics degree. So we can help shepherd you through, or at least ask questions so that you can find your own answers. And we’d love to hear from you.

David Moore: Great. Well, thank you so much for being our guest today.

Karlin Conklin: Thank you. Okay.

David Moore: And happy holidays to you.

Karlin Conklin: You too.

David Moore: And we will do this again in the not too distant future…

Karlin Conklin: Perfect.

David Moore: When we’ve got some rearview mirror to look at, and sort of compare notes on the different economists we just had in our different events, and whether they were right, wrong or partially right or whatever, but…

Karlin Conklin: Absolutely. Thank you.

David Moore: Thank you so much.

Karlin Conklin: And thanks for having me.

David Moore: Thank you everyone. David Moore, Equity Advantage, 1031exchange.com, and please subscribe to our video stream. It really helps us with content and helps us get out there. If you’ve got ideas for something you’d like to see us cover, please don’t hesitate to reach out and we’ll be happy to accommodate you. So happy holidays, everyone. Thank you for joining us. Bye bye.

Karlin Conklin: Thank you.