Co-Investing in Real Estate for Passive Income

Welcome to today's episode of Wealthy After 40. We have guest Frank B. Hanna, Jr. He is a private wealth advisor who has a passion for helping individuals build wealth. After running successful family establishments in the restaurant and hospitality industry, he made a bold transition into finance driven by a desire for fulfillment and recognizing a gap in the industry. So Frank, tell us. Like what that gap is that you saw and the need and why you think it needs to be, you know, filled. Yeah. So, well, thanks for having me. Yeah, I I think the gap that I kind of noticed was on the kind of proactive, independent, like, you know, counsel that, that we as all like young entrepreneurs look for, and sometimes we get neglected from, you know, an accountant or an attorney standpoint, advisors sometimes look down on you unless you're, you know, financially A student, you have enough assets there. So I grew up in the restaurant business, did that for years. And from, you know, most of my twenties, I really thought that's what I was going to do for a career. And I got out to age. You know, 30 and I decided that I, I wasn't happy and regardless of the amount of money I could or would be making longterm, my personal life was, was not well. So I left at the age of 30 and once I kind of unwound my Role and responsibilities and equity within those restaurants. I was left with like next to nothing. So I started kind of from scratch at age 30 and I had been kind of on the sidelines from the, from a family business type of standpoint. So I'd seen, you know, I've been been able to You know, understand, you know, from a, from a far level a state planning, the impacts of proactive income tax planning. And again, at the end of the day, I really felt like, Hey, you know, the, the good ideas that we were kind of bringing to the table, to our relationships. We're coming from us and I didn't feel like our advisors were really bringing those proactive ideas to the table for whatever reason. I think they, you know, not that they weren't aware of them. I think they were just overwhelmed, had too many clients. And I just said, Hey, I think there's a spot for A boutique, sophisticated financial planning advisor that really focuses on, you know, quality versus quantity, you know it's not always the clients that we look at are not always, hey, they have to be ultra high net worth. We have a lot of clients that are, you know, Young entrepreneurs that we have a lot of respect for and it's more, Hey, you know, how can we get you leaner, more efficient, you know, well budgeted and make sure that you're sticking as much in your pocket as possible. And then all the way up to, Hey, we've got clients that are, you know, in their you know, 50, and they've, they've accumulated a lot of money and what, what other ideas can we do to make them more efficient and make sure that all that. Hard work and equity that they build up in their, you know, assets are passed to the generation, the next generation of people they care about, not to the federal and state governments. Yeah. Yeah. So true in creating that wealth and then managing it, two different steps for sure. So I know we talked about before I went live that we wanted to discuss the other options for invest, investing besides residential, maybe flipping homes. So give us some insight into some of the properties and how you give your clients access to that. Sure. So everybody, you know, hears about real estate and everybody kind of wants to be involved in real estate. And, you know, they hear about some of the benefits of that, but real estate can be really risky and a daunting task to take on. And if you don't know what you're doing, you can get in a lot more trouble. Then it's worth. So we kind of recognize that. And we you know, we as a firm manage close to a billion dollars in client assets. But we did recognize that and said, Hey, listen, we know we can be independent and objective and offer all the things that every other advisors. You know, can offer in terms of, you know, stocks, equities, fixed income, but from that real estate portfolio or that real estate arm, can we, can we kind of mirror what some of the sophisticated like private equity groups and some of the hedge funds are doing and really, really utilize our knowledge, background and put together like a real syndicated real estate portfolio? Or platform that we can bring down to, to the quote unquote, smaller investor and allow them access to, you know, really high end, nice real estate without them having to do all the heavy lifting and have all the knowledge and all the things there and, and really take a lot of the risk off the table and by investing in our programs, which some of our programs you can invest in for as little as You know, 10, 000, 5, 000, like, so it's, they're pretty low thresholds, but you get predictable tax favored income. You get all the benefits of owning real estate, like pass through depreciation. You can take all the deductions for, you know, whatever we're doing with the programs. And we have programs in a variety of different asset classes. So everybody's got kind of a different opinion on, Hey, I love multi family or I love self storage or I love student housing or, or I don't like those things, but I'm interested in, you know, industrial warehouse space. I like that story behind that or hotels or, you know, whatever the asset class may be, we, we basically spent. A substantial amount of time, money, and energy over the last like 10 years, kind of vetting the marketplace across the country and really found who are the most, the best strategic partners in that space where we do enough volume that we can kind of say, Hey, listen. Give us access to your programs. And instead of, you know, having a handful of investors participate in that, we can spread that down to a lot of much, you know, a larger group of smaller investors. So that's where we've really seen substantial growth in our business. I said probably. You know, close to 10 years ago, the real estate piece of our business was about 10%. I'd say this year, it's about 70%. You know, a lot of people again, like the idea of having a tangible asset that they can go visit touch and, and regardless of how much money you have in it, like people do take pride in that. You know, I, I joke or tell a story that we, we had a guy that did a 1031 exchange and some of our investments are 1031 exchange eligible. And I could get into that concept in a second if you'd like, but he sold a farm that was producing little to no income and he loved Charleston. So he said, Hey, do you have any programs in Charleston? And we had a really nice. Student housing facility that's right, right on in town for college of Charleston. And then there was a self storage that was right there too. So he rides down there with his wife and calls me and takes pictures and goes into the, the front deck, you know, the lobby and talks to the girl. And he said, I, you know, I, I checked in, everything looks great. Everything's clean and everybody's nice. Business is good. And he calls it his self storage and his. His his student housing facility and I joke with him and I say that is yours. I mean, you might own the sidewalk out front, but you know, you do own a piece of that. So people that kind of resonates with people where if you're investing in like a re or a mutual fund or something like that, you know, you really don't know what you. What you own and especially over the last two years, two years plus with all the volatility in the markets you know, gets very uneasy as an investor standpoint. We all know. Hey, we've got to invest. We've got to put dollars to work. But when you ride that roller coaster ride and you look back over two years and you're left with. About what you put in or sometimes even less, it's you know, it's disappointing. Yeah, yeah. So this is a great option for those who are fearful. Maybe there's a better word for people listening of the stock market and, you know, maybe, or even don't have the time to really ride out all those waves, right? That's a very, very long term. And real estate, I think, is maybe not quite as long term, but yeah, great, great options. I love that you said, you know, somewhere they can see, they can drive to, they take pride in that a stock is really just a number in the air. Right. So yeah, let's dive into that 1031 exchange. What is that? What does that mean? How can our listeners learn more about that and how would it apply to them? So the 1031 exchange has been around for over a hundred years and it was, You know, built into the IRS code as an incentive to keep your dollars working, reinvest in real estate and ultimately like help the economy. But it essentially means that if you buy a property and it's simplest terms. and go to sell that property. If you X, if you elect to execute a 1031 exchange you can avoid realizing any profit or loss, hopefully profit in that property. As long as you reinvest your dollars into another property within a fixed timeline, you know, typically 180 days without getting into a whole lot of that. But what I see is. My ultra wealthy clients who started very small did this and they just did these 1031 exchanges and, you know, property values are going to appreciate over time some more than others, but most of them just never ever realized the taxes. So if they bought a property for 200, 000 and ended up selling it for five, five, 100, 000 rather than pay the taxes and cash out which in that scenario could be as much as You know, 100, 000, depending on the situation, they roll that money and do a 1031 exchange and then buy another piece of property. Now we have, as part of our platform, have some programs that go by another strategy called a Delaware Statutory Trust where you can actually do the same thing. So you can invest in a passive real estate option like ours, and when that program sells we can elect to do a 1031 exchange and continue to roll those profits and, you know, grow that, that snowball of wealth. And it would blow your mind what those dollars can look like if you start doing this. And, you know, fast forward 20, years what that can mean for yourself personally and your, your, your family's generational wealth. So that's, that's one of the biggest things I see is like a lot of people, again, get nervous. They, they have some successes in their investment, you know, career, whether it's real estate and other things, then they get nervous, then they cash out. They pay a bunch of taxes. They park the money on the sidelines and they never feel good about when the right time is to get, get back to work. Right. So. I'm a big advocate of diversification. I know you guys have touched on, you know, contributing to your qualified plans, you know, making sure you're, you're doing as much there to lower your gross adjusted income, that's a no brainer doing budgeting and figuring out what other dollars are on the sidelines and just systematically keeping those dollars to work or getting those dollars to work. And then above and beyond that, if you're interested in investing in real estate. And, and this could be a nice passive option for you to get started and you could ultimately, you know, like, like this for a period of time and then go tackle hard real estate. But I know a lot of people that have gotten in a lot of trouble investing in real estate that don't know what they're doing. And. Although I own traditional assets, I, I've kind of slowed down on my real estate investments where I've got to go out and manage my own properties just because I'm doing this for everybody else. And I know that it's easy for you or me or anybody to get distracted from your day to day job or responsibilities. And now you're managing real estate and you're getting a tenant calling you that's got a broken pipe in the middle of the night and they've, you know, have a fire or an accident or a problem. And it's easy to take your eye off the ball and screw up your bread and butter, which is your. You know, your day to day job. So again, I'm, I'm, I encourage a lot of my clients, like just consider this. I definitely have clients that are your hands on kind of control people that like traditional real estate, and I'm a big advocate of that too, but if you don't have the wherewithal or the savvy or the time to do that, like this might be a good place to start. Yes. Yeah. So to clarify to listeners traditional and then. into your program. We're talking about active and passive income. Passive income means you don't spend hardly any time at all managing that. And it just grows. Whereas the active, which if you have that traditional, you know, real estate, yeah, you're the landlord, whether you've got a property manager or not, you're actively involved, which means you're not really sitting back and letting your money work for you. So I just wanted to explain that to them. And really building in, you know, stocks. Stocks, bonds, those are all passive. You stick your money there. There's not a lot of work. So it's very, very important to build that out, but yet being active, you know, if that's something you enjoy, that is your date, you know, maybe that builds out to be your day to day job. Then that's great. So. Yeah. No, I think it's great. And I think ultimately, like my goal has been, you know, try to continue to build that passive income. Whether I'm renting properties on my own or, and I'm just getting rent, or I'm investing in like our truly passive deals my goal is to ultimately like have my passive income grow larger than my active income. And that's when you can truly like realize financial freedom. So, There's no bad time. It's never too late to start. It's one of those things where and there's no, there's no dollar amount that's too small. Like it's really like I did this when I first got into the, to the business. And I said, I'm going to try to start putting 200 away a month. And something and I remember it took me like a couple months to feel comfortable enough to like take that auto draft out of my account to go do that 200. And then I realized that I didn't even notice it was gone. And then you take that to another level and another level. And then again, it's a nice. a safety net or a rainy day fund where, you know, you might come into a problem and you'll be very thankful that you forced yourself to pull those monies out of your high profile checking account that makes you feel rich and that you can go spend those dollars. Yes. Yes. Very important. Taking those small, small steps. So I had a couple of questions Oh, since a lot of, a lot of my listeners are approaching retirement age can we talk about strategy of if they are involved in one of your programs, but they're actually in the stage of now I'm retiring, I need to start. Pulling the money out for a wage, right? How would they go about that? What does that look like with this type of investing and yeah. Yeah. So good question. So you can invest in our accounts within like an IRA. So like IRA is like a good topic. So whether it's a 401k IRA, any, any qualified retirement account basically says you can't touch those dollars till you're 59 and a half, half without a penalty. And then above that age, you can take those dollars out, but you've got to pay income taxes at your tax bracket, whatever that is along the way. So just to clarify that you, you certainly could take your IRA and invest in deals like ours that are passive real estate options, that there's no drawback to that per se. However, you know, some of our deals are traditional real estate access that have some degree of liquidity. So there's always a balance there. So again, we, we don't have to manage every asset that our clients have, but we want to understand everything that they've got going on. Their liquidity needs, their timelines, when they're going to start drawing down these assets. So in the terms of most of our real estate deals. I'd say the relative short term, they're typically three to five, four to six years. But again, we encourage diversification. So If you're interested in investing in real estate and then you're getting towards retirement, we want to really understand, hey, what are your liquidity needs? What's that safety net if you're going to run into the unforeseen and have some type of catastrophic event or, you know, health situation or whatever the case may be? Figure out what, what dollars need to be available immediately if you've got to, you know, pull, pull the string, but above and beyond that you know, how can we keep those dollars working for you? And then, you know, I, I compare spreading our dollars across a lot of these real estate deals is like a ladder bond portfolio. So like the maturities of all our deals liquidating it's rare and, and. You know, rare in most cases with our clients that almost every year for clients that have been with us for a while, we, we continually go to them and say, Hey, Dalene, good news. One of your real estate deals with us is selling. Do you want to reinvest those dollars or do you want to. Take them out, you know, in the form of retirement dollars to supplement retirement. So again, liquidity is, is, is big for us, especially for clients that are going into retirement. And we want to just, you know, understand what, what their retirement goals are, right? If they're, you know, some people, when they get into retirement, That 59 or 65 age to 75, they want to go have fun, spend money, travel, do things like that. And then typically 75 to 85, you know, people typically slow down a little bit and have less, you know, lucrative. Ideas with how they want to spend their money. So I think that's where it's key to talk to your advisors and be a hundred percent clear with what your goals and objectives are. But, you know, I think our deals are, are, you know, not you know, not. Not, not important to discuss with your retirement retirement advisor, but I do think it's a really nice tax favored retirement option. So outside of your IRA, if you invest in deals like this in your brokerage account or non retirement assets, you don't have to liquidate those, those dollars or have that. That deadline when you can touch them and a lot of our deals pay, you know, I'd say 5, 6, 7, 8, 10% but because they're real estate and you get the tax benefits of, of investing in them because of the tax shelter and things like that, it might feel like you're making a lot more money than that. So that's the conversations we have with people. Some people will say, well, I can go to my banking now I can get 5 percent in a CD. So I'm just going to park there, park it there because I'm scared of everywhere else. And I say, that's fine. But at your tax bracket, that's really getting, you know, 3 percent net net of taxes where again, there's more risk and other things. But if you don't need those dollars, there's, there's definitely ways to get a little more, a little bit more bang for your buck. Yeah. Yeah. Awesome. Great conversation today. Thank you for joining me. Where can listeners connect with you and find out more? Yes, so our website is www. revxwealth. com. So it's revxwealth. com. Our company's called Revolution X. We're all over social media if you search RevX Wealth. My email, feel free to email me personally if you had a question. It's Frank, F R A N K, H A N N A, Hannah. At r e v x wealth. com. Happy to speak with anybody, ask, answer any questions, no strings attached. I'm happy to talk to anybody that calls and just reference the show. Awesome. Thank you so much, Frank. All of those links will be down in our show notes Are you tired of feeling overwhelmed by your finances and unsure of how to take control? Want to break free from debt and create a retirement future you'll be proud of? You're in the right place. Join the 90 Day Financial Freedom Accelerator today and experience the transformational power of coaching. Imagine a life where you control your money instead of it controlling you. In just 90 days, we'll guide you through the fundamentals of budgeting, saving, and debt reduction using the proven cash flow payday budgeting method. It's simple. effective and it works. Don't miss this opportunity to take charge of your finances and create a brighter future for yourself. Head over to the website www. elevatefinances. us to learn more and to apply for coaching.