– NAREA –
Ken is a Real Estate Investment Advisor (REIA) and raise investment capital from private investors, Self-Directed IRAs, 401(k)s, profit sharing and pension plans for the acquisition of commercial and residential income-producing properties. Their company, Overland Group Inc., and other separately-owned affiliates develop, construct, finance and acquire real estate that is leased to Family Dollar, Dollar General, Big Lots, O'Reilly Auto Parts and other Fortune 500 National Credit Tenants.
Ken is also president of the National Association of Real Estate Advisors (NAREA) and an educational instructor licensed to teach courses on Residential and Commercial Real Estate Investing and Investing in Real Estate Using Self-Directed Retirement Accounts in numerous states. Ken teaches national webinars and speak at conferences for The Entrust Group and Equity Trust, the two largest self-directed plan administrators in the nation.
Ken has over 30 years experience in all facets of the real estate industry, with areas of expertise including commercial and residential brokerage, construction, development, financing, property management and financial planning. Ken holds the CCIM, CPM and REIA designations.
So this is a little bit more of a probably a Suffi, little bit more sophisticated class, we're not going to be talking about the basics of how to do a real estate investment. Because this is a group that probably is beyond that point. I don't know. I thought I do.
Just ask you a couple questions right at the beginning and see exactly where you are and what you do. How many of you are real estate investors right now?
Okay, and how many have not done any real estate investing?
Okay, you to stay after class? Well, yeah. Just kidding. So, we're going to be talking about real estate syndication. What that concept is, we're going to be talking a little bit about 1031, tax deferred exchanges. And then at the end of the class, I'd like to just share with you a few stories and give you some examples of things that I've done, where I've incorporated 1031 tax deferred exchanges with real estate syndication.
But first, let me kind of introduce who I am.
I I'm president of the National Association of real estate advisors. That's an organization that works with commercial real estate brokers and agents and, and investors that want to do commercial real estate. We, I got a bachelor's degree in accounting from BYU, and an MBA from the University of Utah. So if you're a Utah person, I'm generally conflicted on most games, whether it's basketball or football. But anyway, love both programs. I'm also president of our organization called overland group, and that consists of five independently owned and operated companies where we do a bunch of different things.
So a little bit about Noria, this is kind of the sales pitch side of things, just to kind of let you know what we do. But
we offer two basic types of membership.
If you want to get on our website, which is Nari a group.org, you can sign up for a basic membership and it costs you absolutely nothing. You'll start getting all of our real estate information and things that we do. If you want to get a little bit more involved in the program, you can actually sign up for a pro member. And that's $199 a year. If you sign up here at the show, and put in a code, go to our website and put in a code called summit 2019
will give you that for 25% off so you can get it for 150 instead of basically 200. And some of the benefits. We do a monthly newsletter, we have all our normal media stuff, webinars, podcasts, blogs, blogs, then we have affiliate partners like I don't know if any of you attended Matt Sorensen's class. But if you were to sign up and do a directed IRA through them, you get a discount by going through our company, then you can put a personal profile, if you're especially a broker that does this, you can put a personal profile on, you get discounts to our educational classes, we offer a designation called the certified commercial advisor CCA designation. It's a little bit like CC, I am except we focus more on that brokerage side, then the investing side. And then you get free forms and checklists. And the next classroom going to teach you about how to do if you're attending that class about how to do investment analysis. So and we have all that available. And our company basically does construction development, property management, brokerage, all the normal stuff. Plus we do some real estate short term loans, and work with other developers and builders that need capital short term. So we have a bunch of investors that work with us on that.
So let's talk about real estate syndication. How many of you have ever done a syndication? Awesome, you're with the L. And you've done one, two, so or more than one? Yeah. So I just want to tell you, this has been nothing to do with the mafia. So let's get that straight to begin with. This is about real estate stuff. But there are some regulations that are involved. If you're doing real estate syndication, you're going to be involved with
the SEC to some extent, because they regulate all syndications public and private.
Do we have somebody here that can be a timer?
So we have, when do we get out of here?
We're out of here at 330. Okay, so we have 38 minutes. And so
starting at three o'clock,
every five minutes, raise your hand, and then when I get down to about 320, five, I'm going to stop, we're going to open it up for q amp a or anything anybody wants. So, okay.
Yeah. And if I'm, if I go beyond 325, just walk out. Okay. So the SEC regulates all securities laws. And you have to ask yourself the question, Why in the world, is a real estate deal as security. And real estate transactions by themselves are not securities. But most often, when you're doing a bigger real estate deal you're involved with, you're involved with some form of ownership, like a partnership, or an LLC, or a sub S Corp.
Those are all regulated by the SEC. So that's how they get you is if you what, a real estate transaction and an LLC, now you fall under the guise of the SEC.
So and most of these
syndications that we do in real estate, they can be
they can be public, they can be private, they either have to be registered or unregistered, or not n registered, but exempt from registration. So, if you're doing a real estate investment trust, that's a registered public offering. And that all relates to and that all relates to the public side of the business. What we tried to do is do exempt registrations. She'd had enough and I hadn't even got five minutes into the presentation.
We try to have exempt registration exit deals that are exempt from from registration with the SEC. So to do that 99% of the projects that want to be exempt from registration fall under the guidelines of what's called rule 506 of regulation D of the Securities Act of 1933. So we're really big on trying to be in compliance with rule 506 of regulation D. That's what it's all about, if you want to put together your own real estate deal, and, and form an LLC, and it's not hard to do that, to be honest with you, you can get online, you can form a LLC and cautious $70. To do that with the state and get Articles of Organization is what they're called and, and then you usually have to work with an attorney to get an operating agreement for that. But once you do that you're in business, you can go out and buy or put under contract a piece of real estate. And then if you want to get a bunch of investors together, you can do that. But you want to make sure you start try and stay in compliance with rule five or six. So here's the basic requirements.
You can't do what's called general solicitation unless you work solely with accredited investors. Okay, we'll define that term in just a minute. So if you're working solely with accredited investors, you can go advertise publish it everywhere, let people know what you're doing, and you're good to go. But as soon as you get somebody in there that is not accredited, then that's when the compliance issues can cause some problems for you. So, company may sell to an unlimited number of accredited investors or up to 35 non accredited, sophisticated investors. And so on anyone transaction, if you wanted to put together a real estate syndication, form your LLC put your real estate deal inside that go raise equity capital, as long as you meet the accredited requirements, you can advertise anywhere, but if you don't, then you have to read then you have to advertise only to those people that you have a pre existing business relationship with. And so I went to the I went to the state securities division and said, okay, what's a pre existing business relationship? And they said, Well, friends and family count. I said, Okay, how about the people that I've got on LinkedIn? And?
And they said, well, we're not sure. Tell us about that. So I told them a little bit. And I said, I've got about 201st tier connections, I've got about 1000 second tier and almost 5,003rd tier.
They said, Well, I we think your first tier LinkedIn connections would qualify as a business relationship, or even somebody that you've done business with and exchange business cards, it can be that loose. But they said, no second tier connections, not their direct connection. So I got pretty active A few years ago, and I'm,
I capped out on LinkedIn at 30,001st tier connections. And so I have a pretty good network of people that I work with and do these deals with. But so the next thing is, whatever you do, and this is just a good business policy always provide full disclosure. And so we work with a securities attorney, which I'd advise you to do, and prepare a private placement memorandum or private offering memorandum. They're the same document. But that'll get you going. All of that is probably going to cost you somewhere around 10 to $12,000. Depending on who you use, and what you do. If you're paying more than that, call me because you've got the wrong attorney. But
10 to $12,000. I've had, I've had attorneys quote me up to $50,000 to do this year from San Francisco. So you're going to pay double what just take everything that I'm saying and multiply it by two or three times.
We're from Utah, we get better pricing. So but yeah,
accredited investors are people that have a net worth of more than a million dollars, excluding their home, or they make an earned income of $200,000 a year and have done for the past two years, and are expected to do that again, the next year. Or if you're a couple that's investing, then the threshold can go to three. But it's not you have to have 1,200,000 a year, you just have to have one of the two. So yes.
That was a really dumb idea on my part, because I'm going to call on you every Friday minute.
No, that's good.
that's good. That's perfect. But if I call on you again, you'll know I've lost it. Okay.
So any questions on the syndication side? That is a really quick overview. Yes.
I've been asked these questions, right. But nobody's ever verified.
My answers, right? Yeah.
No, I get into trouble.
Someone will verification is typically recommended by the Yeah,
yep. You get yourself in trouble if you don't qualify. And so what we do is, is we have an investor qualification questionnaire that they're obligated to fill out. And then and then it has to be verified by an independent source like a CPA.
you've got you've got issues if you don't verify. So it's always good. If you're going to do one of these always good to verify the investors? Yes.
Some do that.
We haven't required that because a lot of times they don't want to disclose how much they're worth, but, or give you all their tax him information. So we've, we've found that if they just get their CPA or, you know, somebody that, you know,
can verify that then we have them do that third party. Yeah. And that works really good. Any other questions? If not, now, we're going to talk about 1030 ones for a minute. And then we're going to combine the two and try to see if we can make sense of how to do all of that. So on a 1031, tax deferred exchange, that's all regulated by section 1031 of the Internal Revenue Code. And it allows an owner of an investment property or exchange property and defer paying federal and state capital gains tax. If they acquire what's called a light, do what's called a light kinda exchange.
And a light kind exchange. How many? Most of you haven't done a 10th 31? Right.
Oh, you've helped with one.
Oh, you are how, How'd that go?
awesome. And I get questions all the time. Well, can I? Can I sell my condo and buy something else? You know, retail property or land? Or? Or can I sell my land by an income producing property? The answer is yes. As long as it's real estate, it all qualifies. The thing that doesn't qualify is you can't sell a property and trade into an LLC. That is not like kinda exchange. So even though you got that property sitting inside your LLC.
That's not like kinda exchange. So that's where it kind of gets a little tricky. And, and so
you can exchange your business for business. Yep. Yes.
Yeah, ask this lady right back here.
If you have a if you have an LLC, can you exchange into another LLC?
into a new LLC?
Well, yeah, so we're going to get into that in just a minute. But
you, when you're doing a 1031, exchange, whatever name you're coming out of,
you're going in that out of the what's called a replacement property, you're going into the are Yeah, the relinquish property is when you're coming out of going into the replacement property. I have never run across somebody wanting to do an LLC into an LLC. And maybe that would be considered a light kind of exchange. But I don't have a good answer for you on that. It seems like a simple question. But most of the people that are doing deals with me, are coming out of a piece of real estate, and they want to go into a new development project or a new acquisition that I'm doing. And so they have their ownership. And it could be, they can own it any way they want, whether it's an LLC or a trust, or whatever. They just have to whatever they're going out of, they have to come into the new relationship under the same ownership. Yes.
that's a bad idea.
called under twice, I'm going to call on her for more times before this is over. Now I like it.
I feel like you're engaged.
So most 1031 tax deferred exchanges are handled through a 1031 are handled through what's called a Qualified Intermediary.
There's some local people that do these things. And there's some national organizations that do them. Two of the biggest that I'm familiar with our first American exchange, and Old Republic exchange, haven't done anything with Old Republic exchange. I've done some deals with first American exchange, and probably not old Old Republic, because they're not here in Utah. They're located in other states. Yes.
Who did? odd. So they're here, I just haven't done a deal with them. And if you go to their website, it doesn't show that they're doing business in Utah's and tax as an exchanger. Yeah, the title companies here. So.
So most people doing a 1031, there are three different rules, but most people that are doing a 1031 are doing it with this three property rule. And basically, what that does is that just says, you're going to identify three properties, like tying properties of equal or greater value than the one you're selling. And, and then, and you do that within 45 days, and then you're obligated to close within 180 days. And that was our calendar days, counting holidays, weekends, everything. If you miss your date, you're toast. So
it's really important to hit your date.
Reverse 1031 is just the Office of the regular 1031.
Okay, so going into
a regular 1031, you're coming out of a property that's not associated with the 1031. And you're doing at 1031 into a new property of equal or greater value. A reverse 1031 reverses that process. You're in a 1031, and you're getting out of it.
these transact actions require the parties involved to meet all the applicable laws of the IRS and the SEC.
So they're more complicated. But if you're
Are any of you thinking about maybe doing a deal where you're bringing in other partners?
Several hands? Well, no wonder you're in this class. So
if you're doing that, you have to be in compliance with all of the rules for both the 1031. And the SEC. Now, I'm going to give you a couple of examples of deals I've done where I mix it up, but I've got a bunch of stuff. So
here's how we do it. When we combine it. There are basically four things you have to adhere to. And then we'll talk about and then we'll talk about a couple of examples. Okay. First, the 10th 31 exchange investor enters into a purchase agreement with the LLC to buy a portion of the land or real estate. Yes.
Well, we're 15 minutes down.
So the 1031 exchange investor works through a Qualified Intermediary, same program,
the 1031 exchange investor purchases a portion or fractional interest in the real estate.
And then the last one, the 1031, exchange investor in the LLC, enter into a tenant in common agreement,
specifying who owns what and how the deal works. Okay.
So let me give you a couple examples of that.
Oh, I'm just going to throw in this one little tip, before we do that, if you're a syndicated, the sponsor of one of these investments, and you want to do these, you're working with a 1031 investor that wants to put their money in your deal.
It's always good if you get what's called a limited power of attorney. Because they're going to be on deed on the property that you own. And you have to go back to them every time you want to do something, I get a signature from them, whether you're borrowing money to do the loan, paying anything off, transferring the land into the into a deal, putting a first mortgage on the property,
they have to sign off on all that. But if you get a limited power of attorney giving you the right to do that, as the sponsor and the manager of the LLC, then you can generally handle all of those transactions, and not have to be chasing them down. I had one deal where I had to a guy was on a cruise somewhere in the Caribbean. And we had chasing down and he, when he landed at a port had to go find a place that he could sign documents and they had to be original signatures. So then we had to FedEx and back to the states in order to get the deal done. So I learned that lesson the hard way.
So here's a deal we did up in Helena, Montana.
it was staples store that had gone dark. And many of you know that staples has done a lot of downsizing in the last few years. And they had a 25,000 square foot store. And we approached Big Lots, we didn't own it, but we thought it might be a good investment really good location up there. And so we thought it might be a good investment. So we approached Big Lots to see if they wanted to participate. They wanted to be our tenant on the property. And they said, Well, if you can get us up to 30,000 square feet, we'll do it. And so we had to put a $5,000 5000
square foot addition on the back of the property in order to do it. But and then at so we got this 5000 $5
million deal we're doing
raising about 2 million in equity capital. And
and we had a couple of own to trust that approached us on doing a 1031. And they were coming out of a four Plex that they owned in Provo, not one phase. But coming out of a four Plex was tired of doing the management. Now they wanted to get a more passive investment. And so they did the deal with us. Well, their deal was about 700,000. They came in with 350 and cash. And they needed 350 and debt. And so we worked with our bank, which was US bank on the deal. And they said sure, we can let them sign on the debt for 350. So they get meet their debt requirement. And some of these are all cash deals, some of them have debt with an F, if they have debt, and you're you're selling a deal that has debt, the deal that you're going into has to have death. So
So they came into the deal with us, but they could not be a part of our LLC, we actually had to sell them
an interest in the property itself. And so they owned an interest, and our LLC owned all the rest. And, and then to blend those two together, we took the
we took the two parties and created what's called a tenant and common agreement spelled out all the terms of what we were doing. And we became joint venture partners in the deal. And, and they owned a certain percentage ownership and the project and our LLC owned everything else.
That's kind of how they work.
Any questions about that?
Yeah, so the question becomes, the question was, what risk is associated with one of those? And could that put me at additional risk, because they may be coming out of a mortgages 300 50,000. And now, we're going into a mortgage, that's 3 million or more, right? And so, fortunately, for us, US Bank was willing to basically bifurcated the loan, and say, okay, your portion is 350. And you're not responsible for anything above that. And the LLC, is responsible for all the rest of the DAP. So
if you sign a power of attorney, and then I screw up your deal, you're toast. You know, if I, if I do something that messes up your deal, if you don't sign a power of attorney, then I just go back to you every time we want to do something and ask for, you know, your signature on doing that. So you can retain that if you're a 1031 investor. Usually most
most people are not going into that deal unless they feel comfortable enough with the sponsor, that they know that the sponsors not going to take advantage of them or or do something to to jeopardize their their money.
In a short time frame, so yeah, that that would be difficult. So.
Okay, here's another example. And then I'll end with this, what's our time How we doing?
So we're in good shape. Okay. So the second example, this was a self storage project that we're doing in Woods cross Utah 536 units.
You know, it just occurred to me, let me let me say a couple other things.
Do we have hand out of these projects?
Where are we? Yeah, no, not this project of the deals that we're doing. There right there. We ought to put them somewhere and let's put them in the back on some chairs. So if you want to get a copy of the deals that we're doing,
this is just a two page, single, you know, double sided presentation, but you can get on our website and download the entire offering memorandum. And everything, we have it on our overland website, overland corp.com. If you go there, you can download that. And then this presentation. I've
you know, because you only have 40 or 50 minutes to make a presentation like this.
You don't get to cover everything that you'd like to say in a class like this. So we've put on a Nari a website, Noria group.org. We've down I've written a white paper, about 14 or 15 pages on each subject that I'm teaching. And we've we've downloaded them yet. Okay, within the next day or two, they'll be downloaded onto our website. And you can get on there through the newsletter in our media center through newsletters and white papers, you can get on there and download that no cost and, and get a lot more information about what's going on. So this transaction was a ton more complicated than the previous one. That one we had 110 31 investor in this
one, we had three. And among the three investors, we had a total of
just over a million dollars of the equity capital raised on this. So I'm not quite half, but a lot of the equity capital raised on this deal was from 1031. Investors. And, and so each of those investors
owned a percentage ownership of the land that we were purchasing.
Our land deal was a million and a half dollars and, and we had us as an LLC, and three other 1030 ones in there doing this deal. But
if you're raising equity capital, and you have a chance to work with a 1031, it's a little bit more complicated.
But it's a pretty slick way to raise a lot of equity capital in a short period of time.
The 1031 investor is motivated to get into something good and a profit for you, it's probably better than the one that they're getting out of. So these are good deals. And
on this deal,
say somebody came in for half the ownership of the land. But it only represented 25% of all the capital that you were raising.
Are they now 50% owner and your deal? Or a 25%? owner in your deal?
It's kind of a complicated question. But the reality is, even though they own 50% of the land, they only own 25% ownership of your entire deal, because now you're building a new project on there. And so they don't get a 50% ownership and your whole deal. And all of that is spelled out in the tenant in common agreement. That's where every nobody knows what ownership interests they have, how the whole deal works. And, and we go one step further. And we make we create in the tenant and common agreement. We mirror the rules, regulations and agreements that we have in our operating agreement for the LLC, in the tenant a common agreement, so everybody in that tenant in common, all the parties are agreeing to the same thing. So does that make it complicated enough?
No, that's a purchase.
We don't we know, we didn't lease the land that that is something you probably could do. But
yes, yeah, they own and that's what I was trying to explain is they own part of the buildings, but they own it a lower percentage and the percentage ownership they had in the land. So yeah, they own a bit of the whole thing. A land lease would complicate the heck out of the whole process. You could do it with a land lease, but it's probably more difficult. And now with some of the deals, what these three
projects that that we're doing
one's 116 unit, apartment deal, and St. George, and actually Washington city. And another one is and the two other two are in Mesa, Arizona, one's a two story Self Storage project. And one is, is 112 unit assisted living project. So we're doing different things, and raising different investment capital for all three, they have different types of returns. And for the small one, the storage project, we're letting both accredited and
non accredited investors come in to that one. And the minimum investment amount on those is 25,000. And the bigger deals the apartment deal and the assisted living deal. Minimum attachment on those is 50. And and you're just offered to accredited investors only. So we can do some general solicitation on those.
So if I confused anybody,
have you? Is this something you want to do? Or is this something you think like?
Yeah, this is this is this is not real estate one on one. This is this is probably this might be considered more of a graduate level course.
The thing that's held me back
by selling the same time in 100, a day period.
Yeah. In a situation like this, so one at a time and increase my ownership in the new entity.
Absolutely. But the key will be
the ownership interest that you get in the land. Is it or or the project that will be coming in one at a time? So you'll wind up having eight different ownership interest in there. But
yeah, yeah. Yeah.
He'd be doing a separate 1030 ones.
I think so I think it'd be easier just to come in one at a time as you got them done.
Yeah. You could do the same thing for something like this. Yeah.
But hey, that's why you hire an attorney. You know, otherwise, what are they? What else? Are they good for? Right. Yes.
From what I understand, so the question was in an opportunity zone, which is the new thing that's come up, which is, you get some tax advantages. If if you're going into an area that
Yeah, having some issues, income, economic issue, so lighted, whatever the term is you want to use? So? Yeah, they will actually defer. What it is, is if you invest in an opportunity zone, over 10 years, they will reduce the amount of your capital gain tax every year, for 10 years, until at the end of 10 years, if you've held the property in there.
No tax, you completely
eliminate the capital gain tax. So yeah, you can do those kind of deals. And I don't know all the ramifications of the opportunities zones, because I haven't done anything in there yet. But I've been thinking about it.
mountain game during the process of the whole, that's what you get?
What fun is that?
The IRS give us and the IRS take it away.
Right? It's always that way.
All right. Well, we're with in a minute or two.
If there aren't any more questions, there's always somebody that doesn't want, I'm just kidding.
It depends on the deal that I'm doing. Okay, if I'm doing a small deal, like our,
like your Self Storage project that we're doing down in Mesa to story,
that'll be about an $8 million project, we're going to raise somewhere around two and a half million on that. And I'm going to accept both accredited and non accredited investors into that deal. So we'll do a private placement, memorandum, all the same stuff that we would normally do, regardless, provide the disclosure, but I am only, I'm only contacting people that I have a pre existing business relationship with.
Now, that's a big group. That's my 30,000 LinkedIn group. That's everybody else I know on Nari or anywhere else. And so it's a pretty big group plus all past investors and stuff like that. And now guess what, we now have a pre existing business relationship. We can all get together and do a group hug up here if we want or, but, but yeah, so. So that's what I'm doing with that one. On the other ones. I'm doing a major
a group called info used to be called info USA net, they're now called info group. But they are a major player in the mass email marketing program. And we're doing a major campaign with them. They have identified
almost 400,000 accredited investors throughout the, throughout the United States. And, and we're doing an email campaign that started last Tuesday
to 50,000 of those guys. And, and what they do is for the first week, they seed
that investor, potential investor group through Facebook advertising, so if you his Facebook ads showing overland group, you can blame me. But they do that to that group for about a week. And then they go out with email blasts, and they found that if they see that with an email campaign first, then you get a higher response rate.
When they actually when they actually get your email, because they've already seen 500,000 impressions from them before, you know, I mean, collectively, not individually, but but 500,000 impressions, and then and then we do to email blast to them. And we'll see how that turns out. But yes,
probably more than I carry kale, but I've done.
I, I started out working for a company, a financial planner, when I got out of the MBA program, and they started doing real estate syndications back in the 80s. And, and then, starting in 1987, I started my company and I have probably done
30 or 40 of these.
It's easy, you're just selling an LLC, or you're selling a, an international with a tip. What? One sign off, you gotta be careful how you structure your deal, you can't have one guy messing up the whole transaction, but we usually put majority rules in there. So I mean,
I haven't had a lot of people that have balked at the idea of selling a profit. So property at a big profit. So that doesn't seem to be the issue. But I, I usually we like to keep these long term. And what we normally do with our investors is if we have any, we tell them stay in up for five years. And if you want to get out, let us know. And, and we'll buy you out, it'll lead to BS or I'll find another partner that'll so another investor that will come in to buy you out if you want to get out and
and I've had two or three of those. And within days, I've usually got another partner that one investor that wants to come in so it really hasn't been a big deal. But for the most part, these are long term investments, they like b&m and and they're there. They're just good opportunities.
So well thanks.
Appreciate the time.