Latest / Go Big with Gib Podcast / Ep 111. From Wall Street To Main Street

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Ep 111. From Wall Street To Main Street · Go Big with Gib Podcast

• 0:00
  SPEAKER_00: Welcome to the Go Big With Gibb Podcast, where we talk to professionals, business owners, and entrepreneurs about their big wins.
• 0:13
  SPEAKER_00: Hey guys, and welcome to this episode of Go Big With Gibb.
• 0:17
  SPEAKER_00: I'm Gib Irons, your host.
• 0:18
  SPEAKER_00: Um, it's great to have you with us today.
• 0:20
  SPEAKER_00: I want to talk a little bit about the difference between stock investors and real estate investors and kind of talk about why I moved all of my personal investable assets from Wall Street to Main Street.
• 0:35
  SPEAKER_00: At an early age, I learned the benefits of investing in stocks, bonds, and mutual funds.
• 0:42
  SPEAKER_00: As a matter of fact, my maternal grandmother had purchased several blue chip stocks like in her 30s and 40s, and she ended up living to be almost 90 years old.
• 0:54
  SPEAKER_00: So she held those stocks for over 50 years.
• 0:57
  SPEAKER_00: And during that time, the stocks increased in value significantly, so much so that she created a trust so that when she died, I had a trust that was there to pay for all of my college expenses, as was my sister also had access to the trust.
• 1:16
  SPEAKER_00: So we were able to go to college and get a four-year degree without having to worry about tuition or housing, which was a huge benefit.
• 1:24
  SPEAKER_00: And as some of you may know, I ended up going to Pepperdine University, which is one of the most expensive um college educations in the entire country.
• 1:34
  SPEAKER_00: I learned very early that you definitely can grow a tremendous amount of wealth with stocks, but it was a long-term play.
• 1:43
  SPEAKER_00: When I was 28 years old, I opened my own law firm, Irons and Irons, and I created a retirement account for the firm of 401, and I began contributing religiously to that 401 at 28 years old.
• 1:59
  SPEAKER_00: By the time I was 43 years old, I had um almost exactly$1 million in my 401k.
• 2:06
  SPEAKER_00: That's when I got introduced to the world of alternate investments, you know, real assets, real estate, syndication, and those kind of things.
• 2:14
  SPEAKER_00: And I realized that I wasn't gonna be able to touch that retire, those retirement funds until I was, you know, 59 and a half at best case scenario.
• 2:24
  SPEAKER_00: I realized also that those those retirement funds really weren't benefiting me in any way in terms of my quality of life and standard of living now.
• 2:35
  SPEAKER_00: And so what I did was I set out on a journey to free those retirement funds, which I did in January of 2023 when I took an early distribution from my retirement and I liquidated the entire account.
• 2:50
  SPEAKER_00: So I had a million dollars in the 401k account.
• 2:53
  SPEAKER_00: I liquidated the account and I paid a 10% early withdrawal penalty.
• 2:59
  SPEAKER_00: Um, and for me, in hindsight, looking back on it, that 10% penalty, uh, which was$100,000, was well worth it to free up those funds.
• 3:09
  SPEAKER_00: So now I have all of those funds invested in after-tax investments.
• 3:16
  SPEAKER_00: And there's a ton of benefits to transitioning those pre-tax dollars to after-tax investments, and I'll talk about that in a minute.
• 3:25
  SPEAKER_00: But that same year, I used a ton of real estate depreciation and a charitable giving strategy that I've spoken about in the past so that I didn't have to pay any additional tax.
• 3:39
  SPEAKER_00: Basically, um I paid that$100,000 penalty and that was it.
• 3:45
  SPEAKER_00: My tax burden was totally alleviated from the hundreds of thousands of dollars that I had in real estate depreciation and from the charitable giving strategy.
• 3:56
  SPEAKER_00: At age 45, which is my current age, I now own 18 properties in my personal real estate portfolio.
• 4:04
  SPEAKER_00: And now that includes my house here in Greenville, my beach, my condo down at the beach, my uh mountain house in the Great Smoky Mountain National Park, and a commercial building in Moorhead City, and then 14 single family condos that are all rentals.
• 4:23
  SPEAKER_00: In addition to that, those 18 properties in my personal portfolio, I also have invested over$1.5 million in real estate syndication.
• 4:33
  SPEAKER_00: I don't just talk the talk of real estate syndication.
• 4:36
  SPEAKER_00: I've really walked the walk and invested a tremendous amount of my personal net worth in real estate.
• 4:42
  SPEAKER_00: So that's how I went from Wall Street to Main Street.
• 4:45
  SPEAKER_00: But now I want to talk to you about some of the pros and cons of investing in paper assets versus real estate.
• 4:52
  SPEAKER_00: First, let's talk about um paper assets, you know, stocks, bonds, mutual funds.
• 4:57
  SPEAKER_00: So stock portfolios are subject to market volatility.
• 5:01
  SPEAKER_00: My experience with my 401 is a really good example of that.
• 5:06
  SPEAKER_00: At the height of my 401, I had a million dollars in the account, or maybe even a little bit over that.
• 5:13
  SPEAKER_00: And then it dropped all the way down to$800,000.
• 5:17
  SPEAKER_00: That was a 20% loss.
• 5:19
  SPEAKER_00: Um, and it happened quickly in one year, all due to market volatility.
• 5:24
  SPEAKER_00: In other words, something could happen on the other side of the world in China or Indonesia or any other place, and it could drastically affect your stock portfolio.
• 5:35
  SPEAKER_00: And so I saw the the this these huge fluctuations in my portfolio value that you don't see in real estate.
• 5:44
  SPEAKER_00: With stocks, if you invest with after tax dollars, you are going to pay taxes on all your profits.
• 5:51
  SPEAKER_00: So, whatever your call spaces is, you are going to pay tax on any realized gains.
• 5:58
  SPEAKER_00: With real estate, you're not always going to owe tax because of things like depreciation.
• 6:03
  SPEAKER_00: Now, I want to talk a little bit about due diligence.
• 6:06
  SPEAKER_00: One of the things that I find absolutely astonishing that I think might help you in thinking about your investment journey is that people tend to invest with their financial advisors somewhat blindly.
• 6:22
  SPEAKER_00: I see a lot of investors, they go to a financial advisor.
• 6:25
  SPEAKER_00: The financial advisor makes some sort of a pie chart based on their age.
• 6:31
  SPEAKER_00: And so they might say, for example, for a younger person, you're going to want to have 40% equities.
• 6:38
  SPEAKER_00: We're going to look at large cap stock, you know, being 40%, and then we're going to have some small cap stock, and we're going to have, you know, international holdings and emerging markets, but they're going to create a pie chart based purely on percentages that basically correlates with your age.
• 6:55
  SPEAKER_00: For younger people, they're going to have a more aggressive portfolio.
• 6:58
  SPEAKER_00: And the older you get, the more conservative it's going to be.
• 7:01
  SPEAKER_00: But the individual holdings, whether they be mutual funds or whatever, a lot of times people put little to no thought in terms of what they are investing in.
• 7:12
  SPEAKER_00: They basically abdicate all of their responsibility to the financial advisor to give them good advice.
• 7:19
  SPEAKER_00: This episode of Go Big With Gibb is brought to you by Irons Equity.
• 7:23
  SPEAKER_00: At Irons Equity, we specialize in helping investors like you create long-term generational wealth and save money on taxes through recession-resistant real estate investments that create passive income for you and your family.
• 7:37
  SPEAKER_00: If you want to secure your financial future, go to investwithgib.com to schedule a 30-minute introductory meeting with me, GibIons.
• 7:45
  SPEAKER_00: Again, that's InvestWithGib.com.
• 7:51
  SPEAKER_00: You know, with real estate, it's a totally different thing.
• 7:54
  SPEAKER_00: Um, in a private placement in real estate, we give the investor um, first of all, we give them a private placement memorandum where it explains everything about the acquisition.
• 8:06
  SPEAKER_00: You know, this is the property that we're acquiring, this is the cost, this is the debt structure, um, these are the anticipated returns, these are the risk.
• 8:15
  SPEAKER_00: You know, there is just a tremendous amount of there's a heightened disclosure with real estate and private placement memorandums.
• 8:25
  SPEAKER_00: You know, I have investors that I may talk to five times or more just to make one single investment.
• 8:32
  SPEAKER_00: And those investors, we go through the pitch deck together, I answer a bunch of questions, they understand the dynamics of the deal, the returns, um, and they just have a full understanding.
• 8:44
  SPEAKER_00: Another thing with stock portfolios is generally a financial advisor will charge you a percentage of assets under management, and that fee is charged regardless of the performance of the portfolio.
• 8:57
  SPEAKER_00: So the portfolio could lose money and the financial advisor still gets paid.
• 9:04
  SPEAKER_00: Another thing about stocks and probably the biggest advantage of stocks over real estate is the liquidity of the investment.
• 9:13
  SPEAKER_00: With a stock portfolio, you can literally um withdraw your money and convert your money to cash in two to three days.
• 9:22
  SPEAKER_00: Now let's talk about investing in hard assets such as real estate.
• 9:26
  SPEAKER_00: Real estate is a more stable asset class, it's not subject to the same type of market volatility that you see with Wall Street.
• 9:33
  SPEAKER_00: Now, there are different things, like there's certain markets that are uh market conditions that can can definitely alter the trajectory of an investment, but I don't see as much volatility.
• 9:46
  SPEAKER_00: Another thing that's a benefit of real estate investing is real estate is a fantastic hedge against inflation.
• 9:53
  SPEAKER_00: Um as inflation rises, the value of the dollar decreases, and real estate tends values tend to increase alongside inflation.
• 10:05
  SPEAKER_00: So it's a great hedge.
• 10:07
  SPEAKER_00: As your money becomes devalued, real estate is going up in value, um, and so are rents.
• 10:14
  SPEAKER_00: And so um it's a great way to maintain the value of your money, especially in an inflationary market like we have now.
• 10:22
  SPEAKER_00: Another thing about investing in real estate is there's tremendous tax benefits.
• 10:26
  SPEAKER_00: Um I've talked about this a million times, but it really is one of the biggest um game changers with real estate is that we get these paper losses, this depreciation where we've really actually made money, but we're able to take depreciation against the the lifespan of the building.
• 10:44
  SPEAKER_00: So we're able to depreciate the building based on the applicable lifespan of the building.
• 10:50
  SPEAKER_00: As we were talking about earlier, the the amount of due diligence that that my investors do in private placement um investment opportunities is just astonishing.
• 10:59
  SPEAKER_00: Like they spend um you know at least an hour watching a webinar.
• 11:04
  SPEAKER_00: They review the pitch deck in detail, they get on a call with me and the lead sponsor, and we grill them with questions and ask them every different kind of question that, you know, how often have you ever invested in a stock where you're able to talk to the CEO of the company and grill them with questions?
• 11:22
  SPEAKER_00: I would venture to say that most of us have never had that opportunity.
• 11:26
  SPEAKER_00: And then let's talk about the fees.
• 11:27
  SPEAKER_00: In a real estate syndication, the the lead sponsors and the capital raisers, such as myself, we only get paid if the deal performs well.
• 11:37
  SPEAKER_00: So a lot of times there's some sort of an acquisition fee that's like 2% of the investment.
• 11:43
  SPEAKER_00: So if an investor invests$50,000 with me, I get a$1,000 acquisition fee, which is quite frankly, based on the billable hours at my law firm, that's like two hours of my billable time.
• 11:57
  SPEAKER_00: And so I generally spend more than two hours with every investor, even if they only invest$50K.
• 12:04
  SPEAKER_00: So that's a losing proposition for me if I were to trade out my time that could be spent for the law firm trying to raise money, uh raise capital for real estate.
• 12:15
  SPEAKER_00: And so the way I look at that, though, is that I'm gonna make the real money on the back end.
• 12:20
  SPEAKER_00: There's generally a waterfall distribution and a promote in a real estate syndication where you know the general partners and the limited partners will split the profits like 70-30 or 80-20.
• 12:33
  SPEAKER_00: And a lot of times there's a waterfall, like a hurdle that you get to at a certain IRR.
• 12:40
  SPEAKER_00: So if the deal performs exceedingly well, so if the deal performs exceedingly well, the split gets to where the GP gets a higher percentage, like for example, you might go from 70-30 to 50-50.
• 12:55
  SPEAKER_00: So all of those things um really create an alignment with the investors.
• 13:01
  SPEAKER_00: The general partners want the deal to perform well, and their interest is truly aligned with the investors because we don't get paid if the deal doesn't perform.
• 13:10
  SPEAKER_00: The biggest drawback with real estate, um, and I I'm I don't hide this from anyone, but it's the illiquidity of the investment.
• 13:18
  SPEAKER_00: A lot of times these real estate syndications are a five-year hold.
• 13:22
  SPEAKER_00: Now, I have seen deals that were three-year holds, I've seen five and seven-year holds, and I've seen some that were as many as 10.
• 13:30
  SPEAKER_00: Regardless, any kind of real estate investment is is totally illiquid for a period of time.
• 13:36
  SPEAKER_00: You invest the funds, and those funds are tied up during that time period.
• 13:40
  SPEAKER_00: But to me, that shortfall or that shortcoming associated with a real estate investment is overcome by all the massive benefits that you get, as we discussed previously.
• 13:53
  SPEAKER_00: So if you're currently invested really heavily in Wall Street and you want true diversification, think about reaching out to me and we can have a talk about real estate syndication and how you can invest a portion of your portfolio in real estate.
• 14:07
  SPEAKER_00: Now, even though I liquidated all of my stocks, bonds, and mutual funds and converted them into real estate, I don't recommend that my investors do that.
• 14:17
  SPEAKER_00: But what I do recommend is that you try to achieve true diversification.
• 14:22
  SPEAKER_00: And if you just diversify within one asset class, which is paper assets, you really aren't diversified.
• 14:31
  SPEAKER_00: As a matter of fact, if there is a stock market crash, you could stand to lose everything.
• 14:37
  SPEAKER_00: So think about that.
• 14:39
  SPEAKER_00: Protect yourself, seek true diversification with real estate assets.
• 14:43
  SPEAKER_00: And um, thank you so much for joining me today.
• 14:46
  SPEAKER_00: I hope that this has been a helpful episode, and I look forward to seeing you next time.
• 14:54
  SPEAKER_00: Thank you for listening to this episode of Go Big with Gibb.
• 14:57
  SPEAKER_00: If you haven't already, go follow us on social media at GibIons.
• 15:01
  SPEAKER_00: We'll see you next time.