RUN YOUR MEETINGS LIKE A CEO

      Subscribe to our Newsletter.

      How ‘Unlearning Things’ can Maximize your Investment Earnings: Welcome to Episode 187 of Building My Legacy

       In this podcast Stephanie Walter, CEO of ERBE Wealth, talks about how the wealthy become wealthy and maintain that wealth. More importantly, she explains that anyone can follow this successful formula by ensuring their investments create cash flow. Stephanie’s company specializes in real estate syndication — putting together a group of investors to purchase a piece of real estate that’s bigger than anyone could buy on their own. Investors are paid a monthly distribution — typically more than they’d earn on more traditional investments such as a 401k.

      Syndication also offers important tax advantages, as Stephanie explains, another reason the wealthy are attracted to this type of investment. Whether you’re a would-be entrepreneur looking for a profitable business … someone who’s not getting ahead in a “W-2 job” … or looking for a new way to build your legacy … you’ll find our discussion with Stephanie very interesting.

      So if you want to know:

      • What you need to “unlearn” to begin investing as the wealthy do
      • Why syndication can be a safe investment — even during a recession
      • Why most wealthy investors don’t have a 401k
      • How successful syndicators choose their markets and their properties
      • The tax advantages of “cost segregation” and 1031 exchange properties

       

      About Stephanie Walter

      The CEO of Erbe Wealth, Stephanie Walker is a capital raiser, syndicator, 1031 exchange advisor, and real estate investor. After selling the insurance agency she owned for 16 years, she now teaches people to “unlearn” what most of us have been wired to think about money and re-educates people on attaining lasting wealth. She sees herself as the gateway between investors and well-vetted deals. You can learn more about Stephanie and her company at her website, erbewealth.com

       

      About Lois Sonstegard, PhD

      Working with business leaders for more than 30 years, Lois has learned that successful leaders have a passion to leave a meaningful legacy.  Leaders often ask: When does one begin to think about legacy?  Is there a “best” approach?  Is there a process or steps one should follow?

      Lois is dedicated not only to developing leaders but to helping them build a meaningful legacy. Learn more about how Lois can help your organization with Leadership Consulting and Executive Coaching:
      https://build2morrow.com/

      Thanks for Tuning In!

      Thanks so much for being with us this week. Have some feedback you’d like to share? Please leave a note in the comments section below!

      If you enjoyed this episode, please share it with your friends by using the social media buttons you see at the bottom of the post.

      Don’t forget to subscribe to the show on iTunes to get automatic episode updates.

      And, finally, please take a minute to leave us an honest review and rating on iTunes. They really help us out when it comes to the ranking of the show, and I make it a point to read every single one of the reviews we get.

      Please leave a review right now.  Thanks for listening!

      Transcript



      – Welcome to today’s “Building My Legacy” podcast. I have with me today, Stephanie Walter. She’s CEO of ERBE Wealth, and she brings an expertise that is a little bit different than what we often see. She wants to share with us some of what she’s learned about: what is it that the wealthy do to become wealthy and maintain that wealth? You know, we all work hard to make a living, and we don’t always think through. How are we letting that living, the work that we do really work for us as well? So with that, Stephanie, one of the things she talks about is unlearning things so that you can really do things the right way to maximize your earnings. So Stephanie, with that, just tell us a little bit about your journey, how you got to doing what you’re doing, and then we’re gonna take it from there.


      – Sounds great. Thank you so much for having me. Yeah, I started out like most people. I had a W2 job, had it for many years, got frustrated based on a review I had where I was told I was doing a great job. I was one of the best people at what I was doing, and therefore, I’d get a 2% raise. And I remember going home and my dad actually was still alive at the time, and talked to him about how frustrating that was. You know, I went home and figured out what a 2% raise would mean for the rest of my life and was pretty discouraged and, you know, spoke to my dad who’s actually, he was the second generation entrepreneur, and so he basically said, “You have this road ahead working for someone else or you can work for yourself,” And so shortly thereafter, I started an insurance agency and you know I love that, but I actually got into single-family rentals very shortly thereafter of just buying properties. Didn’t have a great deal of education, but just kind of had a good sense of where I thought, you know, the growth in Denver would happen and everything. And in 2016, I was invited into, like, a boot camp for apartment investing. And I thought, “Well, let’s check this out. This sounds interesting.” And in that class, I was taught about what a syndication was, which is really just a bunch of people investing in one property altogether, something bigger than anyone could do on their own. And I was sold at that point. I thought what an amazing concept. I’d never heard of it before. So I kind of threw myself into educating myself pretty thoroughly and completed my first syndication in 2018, realized I never, ever wanted to do one of those ever again by myself, so I joined forces with my partner, and he is excellent at finding phenomenal deals, and I am excellent at finding investors, so we paired very nicely together. And so we, yep, finished, I think, our eighth deal together. But basically I had started working with wealthy investors and learning a lot of stuff from looking at what they did with their money that was very different than what I did. So I started implementing some of these strategies from them in 2018, 2018-2019. And I just recently sold my insurance practice after 16 years. I can be quote unquote, “retired.” I don’t think I ever will retire, but the point is, is that I have enough money to do the things that I love and impact people that I want to. So that’s the short of it.


      – Okay. So let’s talk a little bit about what are those strategies that you learned that wealthy people follow, that most of the rest of the population does not?


      – Yeah. I think one of the really interesting things I saw was looking at their financial statements to notice that most of them do not have a 401k. They invest largely in cash flowing. Either they’re investing in syndications, they’re investing in businesses, but they’re always getting a return on their investment, and that investment is being paid to them as cashflow. I think what startled me the most is I was quite impressed with myself when I started working with them because I felt like I’d done well. You know, I had a nice net worth, but at the end of the day, my cashflow wasn’t really anything. So I think what really surprised me about the wealthy was that if you ask them what’s more important: Net worth or cashflow, they will 1,000% say cashflow. So when I shifted, and it really is a mind shift, a mindset shift to say, I’m a focus on cashflow as opposed to this, what my, say, my 401k is accumulating and it’ll be worth this much in 20 years. Just really focusing on what my cashflow is. And when I shifted that, I changed how I had been investing up to that point, I guess. For the people at home, I had rental properties that had a lot of equity in them, and so my goal was to own them for another 20 years, and then they’d be paid off, and then I could get significant cashflow. Well, I decided after, you know, learning more to sell these properties and invest my money into these real estate syndications to where I get a monthly cashflow check every month. And that made all the difference.


      – So let’s talk a little bit about syndication. What is it? How are they structured? And we talk about real estate booms and busts, so how are people impacted by that?


      – Yeah, well, a syndication is just, it’s basically as easy as I said, which is a group of people that purchase a piece of real estate together. That piece of real estate is usually bigger than anyone could do on their own, but it’s structured in the sense you work with a management team. For my investors, that’s myself and my partner. And then we bring in, we find the deal, which is not an easy task in any market but especially this market to find a good deal, basically. So we look at probably hundreds of deals a year before we find one that meets the requirements that we would want to present to our investors. We do all the due diligence. We do all the, you know, getting the loan and all of that stuff. Then we present the deal to our investors. They can invest with us. They’re considered passive investors, so they come in with their investments, and from day one, they’re paid a monthly distribution, which, depending on our properties, it’s usually between 7 to 8% that they’re paid every year. It’s really like owning a business because we have a very clear plan of what we want to do with the property to make it increase in value, and then we have a very clear exit strategy; How long we plan to hold the property and then sell it. For us, that’s usually three to five years, but at the end of it, our returns for all the properties we’ve done up to this point have been a 20% annualized return that people can expect. But as far as the booms and the busts, if you do research, what we mostly invest in is multifamily. So multifamily is one of the best types of properties to invest in. If you look at how it’s done through the recession of 2007, 8, 9, those those properties did extremely well because you sort of think about during a recession people lose their houses, maybe lose their jobs, so they’re gonna move out of their houses, they’re gonna move into an apartment. But the most recent, I guess, scary thing was COVID. And that was definitely, you know, nothing that any of us had ever been through before. But what we found during COVID is that it was extremely important that we had invested. We had the foresight to invest in places that were extremely landlord friendly. And largely, I’ll say Florida and Texas are big, big markets of ours, that largely those economies were kept open, and as a result, our rents had been collected at about 96%, so we did not really see any effect through COVID, But there are other places in the country, you know, that probably did have an effect, but it did not affect us.


      – That’s amazing. And so when a person comes to you, do they buy into a specific property in the syndication? Or is it the average, the mean, the grouping of the properties?


      – Yes. There are funds in our space, but we just do individual properties. So if you invest with us, you’re besting with us in a specific property.


      – Got it. And the minimum investment that people can make in order to be a part of this would be what?


      – It’s about 50 to $100,000 just depending on the property. And, yep.


      – Okay. So 50 to 100,000 and then you start seeing a return within what period of time?


      – Within the first 30 to 90 days you get a monthly distribution. And that’s where it just kind of depends on the asset, that because of what our goal is to achieve in that property. Like, one that we’re purchasing in a couple of weeks, it’s fully occupied and stabilized, and so returns will start almost immediately. Whereas some, we have to do a little, you know, fixing, housekeeping type things. But those distributions are paid out at least between the first and the third month. And then they’re paid monthly all the way through the whole-


      – Three to five years that you’re holding it, correct?


      – Yep, mhm-hmm.


      – So you also talk about tax mitigation as a strategy that the wealthy use, and how does your syndication work relative to tax mitigation?


      – Yeah, I don’t usually lead with that with a lot of people just because I think the average person doesn’t really think a lot about tax issues. But for our deals, that’s a huge, huge benefit that the wealthy are drawn to right away, and it’s called cost segregation. So what that means is every time we purchase a property, we do what’s called a cost segregation study. It’s done by an engineer who goes in, and it’s quite a complicated process, but what the goal is is to accelerate depreciation. Your normal depreciated asset commercial property is between 27 and 39 years that you can take that depreciation. Cost segregation, I just tell people to think of it as accelerating the depreciation. We accelerate certain types of depreciation within that property to one, five, and seven years. And as a result, that’s a huge tax savings that people get for investing. In the first year, it can be upwards of 43% of their investment. And then each year they continue to get that tax depreciation while we hold the property. So it’s a very valuable tool that we use. And I know a lot of people ask, “Well, you know, there’s a lot of things happening in Washington, DC. They’re talking about getting rid of the 1031 and things like that.” Well, I can tell you that the cost segregation has been around for over 100 years, and there has been zero, zero talk about cost segregation in any of these plans, so I think we’re safe with that for a while.


      – Okay. So let’s talk about 1031 exchange since you brought that up. Explain for the audience: What is that? And where is its value?


      – Yeah, 1031 is for people, in my world, they’re for people that have rental properties or, say, a business that they want to sell. And if they identify that property as a 1031 exchange, once they sell the property, they have 45 days to identify up to three properties that they would like to put their profits into. And by doing this, they’re able to defer their taxes, and that becomes quite appealing depending on what that tax bill’s gonna be. And then once they’ve identified those properties, then they have, boy, I believe it’s like 180 days to do the closing from the close of their sale to buying the new one. And I think some misinformation, and I honestly had the same misinformation in my head, is I thought that if I sold my property and wanted to do a 1031, say I had a single family rental, that I would have to buy another single family rental, which I really didn’t want to do. But really, a 1031 exchange is you can exchange it for any real type of properties. So that means you could go from a single family into a multifamily, into an apartment, into land, into industrial, into any real property. So really the options are pretty limitless with that.


      – Well, you got it. Great. So 100,000 to begin the investment process, you have to have a certain amount of income to be able to do that, but that makes sense because otherwise you’re not going to be looking at how do you mitigate your taxes, right? And so if you were looking at a, let’s say an average person who is, maybe, in the middle to the end of their career, and looking at where’s my financial wealth? What do I need to really do and think in order to have that sense of security? Where would you begin? What would you suggest having the experience that you have?


      – Yeah, it was funny. I had actually the opposite spectrum of that. I had an intern this summer, that was 21, that asked the same thing. And I think I would honestly tell them both the same thing, which is, you know, invest in cash flowing properties or, I mean, not just cash flowing properties, cash flowing investments, whatever those ended up being because having that cash is gonna give you a lot of freedom. I know my mom is 75, and I’ve had her invest in several of these because she gets that monthly cashflow check. And what a great thing for someone who’s retired is to know that that check is going to be coming in every month to supplement, you know, maybe what she’s not getting with social security or, you know, and the beauty actually of… I could go on for a long time. I don’t want to go off on a tangent, but what’s wonderful about apartments is they tend to really keep up with inflation. And I think I spoke a few weeks ago at a conference, and I looked up what the average rent increases were from 1980 to 2021, and on average, rents went up 8.86%. So it’s a wonderful hedge against inflation. I know a lot of people are concerned with that possibility, but the last thing I would say about that is that a lot of people do believe that the wealthy become wealthy because they invest in, oh, high-risk things, you know, and they just got lucky with that inside tip or whatever. And what I’ve found that is not true, and in fact, the wealthy are extremely cautious about what they invest in. And so these syndications, depending on, you know, obviously doing your due diligence and figuring out if you’re with the right team is one of the lower risk, higher reward things that people can do to get that cashflow every month. And I guess that’s what I focus on because I’ve seen that change my life, having the cashflow that replaced my income.


      – So part of what you’re saying is that if you do this wisely, you could literally have this become your income by being very strategic and having the right people manage it for you.


      – Correct. Yeah.


      – So what I’m also hearing you say is you invest in properties all over the United States, not just in Denver where you’re located.


      – Yeah, my first indication was in Fort Collins, Colorado. It’s a college town. My partner lives in Florida. He’s been there for 40 years. And for 35 of those years, he was a commercial broker, and so he has incredible, you know, boots on the ground as we call it in the industry. He has incredible connections. So that is kind of by default, where we have ended up doing most of our investing, but Florida is kind of in an amazing place, as far as, you know, 2000 people a day are moving there. You know, the different cities we’ve been investing in have like huge housing shortages. So it just happens to be one of the best places you could invest in. So yeah, largely Florida, Texas. We have a property there. We would be open to getting another property as well, but Florida’s easier for us because we have our own property management team, and we find that having the property management team there, kind of under our thumb, is that we can really keep track of our expenses, and these properties run much more efficiently as opposed to hiring, like, the third-party property manager.


      – So what happens in a downturn? I mean, people right now are talking about how real estate has become overvalued, and it will, at some point, readjust itself. What happens then to your investment?


      – Yeah, that’s the beautiful thing about commercial real estate, and apartments in particular, is that the value of these apartments are based on the income, that the net income that they provide. That’s how the value of the asset is worked out now for our own houses. And maybe we have a single family rental that, now that’s very different. You know, the value of our house is determined on what other people can sell that same house for in our neighborhood, and so then if you’ve got someone that, you know, it doesn’t pay their mortgage and ends up going under and that ends up selling, then can dramatically affect the values of your houses. And so that’s a much, you know, there’s just a lot more involved in that. But as far as the multifamily space is, is based on income. So that’s why if you are interested in doing research to see how multifamily has performed, basically since they started recording that, it does not fluctuate. And largely during periods of recession, it stays stable or even goes up a little bit. So it’s a very stable, is what I tell people, investment. So even if there is a correction, it’s not going to affect the multifamily space.


      – That’s interesting ’cause we tend to think of that one as also being in neighborhoods that may be a little bit more problematic, correct? And with that then comes concerns about just the overall vitality.


      – That if an apartment complex is in a neighborhood, oh I got you, that if something happens, say, where there’s a lot of foreclosures and stuff like that. That’s a good question. I have not seen that in, you know, when we have done research on, the last real recession that would have affected multifamily would have been in 2007, 2008. We are just extremely, extremely careful about where we purchase our properties, probably, I know a lot more than I ever was when I did my own investing. We do market studies of what specifically, what is the unemployment there? What are the job prospects? Is there only one company that is, say, you know, someone says, “This is a great deal to invest in.” That’s what I do a lot, is the market research. So it’s very important that it’s a diversified economy, so there isn’t just one employer that’s employing for everybody in the town. And we try to invest only in towns that have a population of over 100,000, but even then, we’re doing very deep dives as far as we’re contacting the city, we’re seeing how many permits have been pulled, we’re trying to determine where the path of growth is gonna be, are there any, you know, what are the new things that are coming into that economy? So the market is a very, very important consideration to where we invest.


      – Got it. What have we not talked about that the audience should know about? Our time is rapidly coming to a close. So what have we left out?


      – I guess my feeling is, I’m really passionate about this, obviously, but I just feel that we are, as a society, kind of told you need to work your W2 job and then put away into your 401k, and eventually you’ll be old enough to access that money and you’ll be able to have this wonderful retirement. Unfortunately, I’ve seen, when I was an insurance agent, that a lot of times the money is not what they thought it would be. Or there’ll be a fluctuation before they go to get that money that really changes the way that they thought they would end up retiring. So I’m not saying to shift all of your money, but at least consider, you know, looking into these alternative investments. I don’t really like that, that’s the term that they’re given, but these investments that provide you with a cashflow and these tax liability because I think as people participate in them and they see the power that the cash flow and the freedom the cashflow brings them, they’ll want to continue to do it.


      – You know, it’s a great strategy, isn’t it, for entrepreneurs as they think about getting into starting a business ’cause so many of them don’t pay themselves, but you need a way to be able to do that, but this could be a way they could do that if they planned ahead, which is not always so easy to do.


      – Yeah. Yeah. And it is. I tell people a syndication is really nothing but a business. If you, you know, say you don’t like real estate for some reason, you are purchasing a business, it has expenses, it has payroll, it has income. And we’re trying to manage that business for an amazing profit.


      – Okay. Thank you. To manage the property for an amazing profit for people and so that you have cashflow, I think that, in today’s world, is something really important to think about. So Stephanie, thank you so much. I appreciate the tips that you’ve given our audience, things that they really should think about, we all need to think about. So thank you very, very much.


      – Well, thank you so much for having me.


      – You are so welcome. And to those of you who are listening, thank you for being with us today on “Building My Legacy” podcast, and please remember to also visit our website at www.build2morrow.com Thanks so much.

      Pin It on Pinterest