Whitney Sewell: This is your daily real estate syndication show. I'm your host, Whitney Sewell. Today, we've packed a number of shows together to give you some highlights. I know you're going to enjoy the show. Thank you for being with us today. All right, Eric, I know you get this question all the time, but you know, someone's thinking about an exit, right? And they want to maximize that opportunity. Give us some details on how to do that as well.
Eric Most: Absolutely. Let me illustrate it. And this is a business interest gift, not a real estate interest gift, but they're the exact same. So we were helping, I got a phone call from a guy named Pete, and he called me up and said, hey, I was given your number from a friend. I'm thinking about selling my business. And he said, before you do anything, you have to call Eric. And so I said, great, what are you thinking? And he knew he was calling the National Christian Foundation. So there's a charitable component. He says, well, I was kind of planning to give a tithe on the proceeds of the sale of my business. So 10%, I said, great. What do you think your business is worth? He said, I think my business is worth about two and a half million dollars. And so at a $2.5 million business, by gifting 10% after the sale, so after he sailed, not talking, not doing anything with NCF, he was going to be able to give away, he and his wife, about $168,000. That was huge for this family. That was absolutely transformative for them, honestly. Um, but then I said, well, let me show you what it looks like. If you give 10% of your business prior to a sale to NCF. And by, by doing that, um, keeping the exact same numbers, the same two and a half million dollar business, um, gifting 10%, he now was going to have a charitable impact of $250,000. And his take-home pay was actually going to be more because of the reduction in taxes. And so he literally would walk away with more and he was able to give more away. And he's like, that's awesome. And I said, it is, but let me also let you know, like the tax law that we have here in the US, it's actually one of the most generous tax laws in the world. But few of us leverage it to the full level. And so the more you give, the more generous the tax code is effectively. And so I showed him a 25 and a 50% asset gift to NCF prior to a sale. At 50%, he was going to be able to give away $1.375 million. And his take home was going to be about $175,000 less than before he called me. So for $175,000 less, he's going to give away $1.2 million more. When he saw that, he started crying because he never knew that that was possible. And I said, hey, go home, talk with your wife, Linda, pray about it. You have to make the gift prior to any type of binding letter of intent. And so I just made emphasize, I can reemphasize it multiple times on here. And so he called me back about two, three weeks later and said, hey, we wanna do a gift. I said, great, what are we doing? He goes, we're doing the 50%. And so we did the 50% gift. And here's the neat thing, Whitney, Um, and this doesn't happen every time by any means whatsoever, but it was just a beautiful God story. In my opinion, um, uh, business ended up selling for $3 million. charitable impact, then 50%, 1.5 million went into his giving fund. And he actually walked away with as much or more than before he even called me and had he done just a gift after the fact. And so, and this was life changing type of opportunity. And so the same thing happens with real estate. Though real estate. And so we're going to pivot this example to real estate because it's a real estate syndication show. And I love that. Um, there is a triple tax benefit to using real estate, um, in your charitable giving kind of strategies. Okay, triple tax benefits. So one, you get a deduction based off of the fair market value of the asset by percentage that you give to a nonprofit like NCF. Okay, there's one. Two, your folks have already been realizing one of them, and that is the depreciation, right? Depreciation is a great thing until it's not, right? Because when you have that exit, what happens? There's that depreciation recapture. And, and so that's what ate my lunch on that, my, my opening introduction, where we sold commercial real estate, I did not know, I did not calculate that depreciation recapture, shame on me. And so I, I ended up having a large tax bill. So the port part that we own of real estate, we pay no depreciation recapture. zero of that. So you get a taxable benefit of deduction. We pay no depreciation recapture. And then the income while we hold it and before sale is completely tax free to NCF as well. And so you have that tax avoidance and NCF receive those funds. And so even if it's an exit of a real estate property, you get huge, huge tax benefits, which then allows you to give more money to the charities that you know and love.
Whitney Sewell: It's incredible. I was thinking through too, you know, you're talking about, you know, this triple tax benefit and it made me think about, uh, you know, like, would my, would my CPA be familiar with this, you know, and, and even maybe how you are, cause I'm sure you get questions. Well, could you talk to my CPA about this? Right. You know, and, and is that something that happens often? Do, are they typically well-versed at all, you know, in this type of setup, you know, what does that normally look like?
Eric Most: Yeah, as a whole, most CPAs, tax attorneys are not well versed in the charitable side of things. It's not their fault. Let's just be clear. It's kind of like medical doctors. I have several friends that are doctors and the amount of time that a medical doctor is trained on nutrition versus pharmaceutical is vastly different. And so they might get three hours of nutrition and they'll have 40 hours of study in pharmaceutical. And so what is the right solution for everybody's health? Well, it's pharmaceutical. It's the only thing they really know. The same thing applies generally to a lot of CPAs, tax attorneys, and things like that. Their practice is not one where they see generous people wanting to give money away. And so, and they haven't had the training and the equipping there. And so there's a lot of times, there are a lot of times that, that we have people that say, Oh, my CPA says you can't do that. And, and, and we do, we're happy to come alongside in a winsome way. And so, so they don't look bad. We come alongside and like, no, no, like you do it this way. This is this way we've, we've you know, we did over 200 of these asset gifts this year alone for over a billion dollars. Like we've been doing this for a long time. And so they don't get many at bats when it relates to the charitable side of things. A lot of CPAs are more historical in their work too, right? It's like, well, let me see what you did this year. And I'm going to write it down in the work. Then there are some that do some great performance, but again, they're not often, understanding the real great tools of asset-based giving. And so we are happy to come alongside and educate. And we also do webinars consistently. We actually have national webinars that some of our tax attorneys do that share and try to provide CE and education. And that's something you could do. If you hear this today and you're like, hey, I want my CPA team, my advisor team, to start hearing about these things. You can send them links to NCF and we're happy to provide them some good free CE and they get to learn about these different tools that they can apply to you as an individual. And our offices across the country, our other folks that work alongside me, we're very well-versed at coming alongside and saying, you know, like, Here's how you do it and we have a proven process and and that's something that really differentiates NCF and other donor advised fund platforms as well. So we have a team of over 350 people that work in NCF, many of them we have over I think the numbers over 17 complex gift attorneys that work for NCF with so much history and we do we do repetitions we're at bat at bat at bat time and time and time again. One of the heads of our, our tax side of things. was a senior level person with the IRS for over 20 years, and he kind of had a halftime mentality and that was the, you know, the first part of his career was success and the second part, say, significance and and he's he's coming he's joined NCF and so we have people that have more experience with the IRS that work for NCF than are currently working at the IRS. And, and that is a significant difference. We have, there are other DAF providers out there, but they most of them don't have anywhere close to the in-house counsel that we have to help people. They're, they're using outsourced attorneys, outsourced tax professionals that, again, they're not getting as many at-bats and they don't see the repetition of these things.
Whitney Sewell: Yeah. I appreciate how you just said, Hey, it's not their fault. They don't typically see a lot of people wanting to be overly generous. And so it's not been something, it's not been a tool they've had to have in their, on their belt. Right. And so in that you all come along beside them, cause I can see, you know, asking questions of a CPA typically, you know, they're, they're just, uh, you know, that's probably not going to work or we can do this other thing over here when, you know, if there's a connection to somebody like you all, then maybe there's a way to, kind of connect you, right? And say, well, Hey, I'd really like for you to talk to this group or, um, and get some help there. The, the examples that you gave, I think are so helpful, right. To think through, uh, you know, the business owner of two and a half million. I love the God store, by the way, where it was actually 3 million. That's just so incredible. Uh, love that. Uh, but you know, but it's helpful to think through, you know, the 10% gift would have been 168,000. I think you said, uh, and then, but. you know, it allowed him to give 250 versus 168 and lower his taxable income. I just think that's, I think about that a moment, right? That is such a great example. Anything else as far as maximizing our opportunity, Eric, that you'd leave us with?
Eric Most: Yeah, one thing that some people, I just wanna make sure people clearly understand though, when you make a charitable gift, these funds have to be used for charitable purposes. So you don't have access to this capital for personal gain in the future, right? Or personal benefit. And so I think that's just a good thing just to make sure everybody understands, because sometimes people are like, oh, well, how do I do this or that? It's like, no, no, no, like these are now dedicated, they have to be given to 501c3s or recognized charities and things like that. But no, I think that's a good overview of assets. You can think about this and apply it to multiple different things. If we want to get into really sophisticated business owners, there are, I mentioned it earlier, there's intellectual property rights and patents can actually be a really great tool of generosity. We have a giver that they're open to sharing their story. They share their story often. We own the largest crane and rigging company in the United States. It's a company called Barnhart Crane and Rigging.
Whitney Sewell: I know of them, yeah.
Eric Most: Yeah, they're valued at almost three quarters of a billion dollars. And through our ownership, we spend off about $45 million of charitable giving every single year. Um, and Alan comes in and Alan is just an incredible guy. Um, and, and, and, and go and, and, and, and Whitney, we should link, uh, something to, um, his story, his jog story. Um, cause it's super inspiring. Um, but he's like, he always pushes NCF to guess, Hey, how do, how do we be more efficient? How do we be more efficient? And we said, well, Um, we worked with them and we came up and we worked with the IRS and, and, and we were able to get a private letter ruling that allowed for us to gift for him to gift his intellectual property. And so he ended up gifting the intellectual property of Barnhart Crane Rigging, which is the name. And so 30 cents of every dollar. is owned by NCF effectively, and we pay no tax on intellectual property. And so that creates even greater tax efficiencies for them, and things like that. So there are more things to explore. We're just doing kind of like maybe a little bit more than a 101 here.
Whitney Sewell: Eric, a lot of us have heard people talk about impact investing. And it's something you all are a big as well, and are helping a lot of other people do that. Well, better than they ever imagined, I believe. Give us an overview of that.
Eric Most: Sure. So impact investing, when we, there's a lot of people talk about it in different forms, but it's how are we making an impact with our investments? And it can actually be with your private capital, your personal capital, and also your charitable capital you can use to make impactful investments. And frankly, that's what we all want to do, right? Like we want the investments that we make to make an impact. And I think we see that more and more today with investors, is the desire for seeing good being done. And so we're able to actually use your charitable capital. So we talked about capital that comes into the giving fund, that you can't use that for personal gain and personal benefit, but you actually can use it to make investments in organizations, in funds, or also in private deals. Let me give you just a quick example because sometimes it's easier with examples, as we talked about before. So we had a giver who had a medical practice down in Grand Junction Colorado beautiful place you've never been you should go to the western slope of Colorado. Um, and he sold his medical practice. And then he, then he got in contact with us and he's like, Oh, Hey, how do we do, you know, we want to do a gift. It was like, sorry, you're too late on this, but what else has got entrusted to you? And they had their medical building. And so he says, Hey, let's give our medical building before we even think about selling it. And that's what they did. So they gave their medical building. This building was worth about a million dollars. So gave the building to NCF. It then was sold under contract. The million dollars comes into the giving fund at NCF. It was a very tax efficient thing. It offset that gain from the sale of the medical practice. And so that was a beautiful thing. And so now he has a million dollars roughly sitting into his giving fund. Well, they're a family in Grand Junction is not a large town in Colorado, and they, they have a daughter who's really passionate about dance, and there is no Christian dance studio in in in in Grand Junction. And so they said. And there was also a lack of event centers. And so they said hey, what would it look like if we used our charitable capital to purchase a building that we can be used for this for these purposes and so we help them do that and so they actually identified the Indian. The motorcycle dealership had been closed and been for sale for some time. And so they literally created an LLC, and then utilize the impact foundation which is an organization that NCF asked to get started from NCF to make a investment a to their LLC. to be able to purchase the Indian real estate, the old Indian dealership. And so they gave themselves a loan. That can be a market rate, that could be concessionary, that could be a 0% interest rate. They literally get to set the term. And so they made it kind of a little bit below market. And so they weren't having to pay as much as they would had they taken the money out of the bank. but they were still wanting to get interest and have growth in that. So they gave it as a loan to their LLC. And this could be to theirs or it could be to somebody else's. They then use that money to purchase the real estate. Today, there's now an event center that two churches meet in. They host community events in a Christian studio, all because of their utilization of their charitable capital to make an investment that then, here's the thing, that cash flows, right? And so they're paying off their loan note with interest, and that comes into their charitable bucket, back into their bucket, completely tax-free, that they can now reinvest or they can then give those dollars away. And so that's a high level kind of overview of some impact investing that can be done with your charitable capital. There's many, many other ways to do this, and we can talk more about it at another time, maybe.
Whitney Sewell: Yeah, I think that's so creative. I love that. It was kept in the family, but it still had major impact. It just continued to grow, right? It wasn't just a rush to give it away, right? Like often happens, like you talked about, right? Uh, very strategic, uh, and yeah, impact on numerous fronts. They're like numerous things happening within, within that building as well. Love that. Uh, are there, uh, you know, what other ways that you see people invest? I don't know. Maybe give us a couple other ideas there. So help, help the listener to think out of the box a little bit.
Eric Most: I mean, that was a situation where a, you know, an individual, we call them givers, because we're not the end recipient of any of this money, by the way. So this giver had a passion for this specific project. And that's a great use case for impact investing. Um, we also have, there are many and there's growing more and more, um, pooled investment funds that you can invest in. And so you could have another, uh, kind of like the work that you do with real estate syndication. You can have somebody else that's doing that and you can literally use your charitable capital through the impact foundation to make an investment in, in deals. Um, so you can have one offs. Um, it could be somebody that says, Hey, there's a, So, you know, there's this great organization that has a coffee shop and they employ, I know this group, but they, they have a bakery and coffee shop. It's in Boulder, Colorado. and they are employing foster kids that are about to age out of foster care. And so they're providing them with job, they're providing them with on-the-job training, they're providing them with resume work, and then this bakery also feeds the homeless, and so it's just this beautiful place. And so you're able to use your charitable capital to help invest in the startup of that cafe. And so that's kind of like a direct investment that you can make. It could be an equity or a debt investment as well. And so these don't all have to be debt instruments. They could be an equity instrument as well and get a return. Many of your folks that are listening here might've seen the show, The Chosen. Very, very impactful story about Jesus. A lot of people might think that because it's on Angel Studios that it might be, they see this as crowdfunded. It's the largest crowdfunded show in the history of crowdfunding and shows. And a lot of people, my dad included, said, hey, how do I use my charitable capital to give to them? It's like, well, you can't, they're a for-profit. Um, but what we did is we actually worked with the impact foundation and we created a fund. And so if you want to give, you can use your charitable capital and you can give to the impact foundation for the chosen. If you give less than $25,000, it's for, it's, it's just a tax deductible gift to them. So you're not going to get a return. If you give more than $25,000, it's actually an equity stake in the chosen and you get a return. Um, that's tax free back into your charitable pocket. And so that's just another type of example of what you can do. There's also an organization that I love, it's called Talatin, and they're an impact investment firm that focuses on small to medium enterprises in the developing world, primarily Africa. And they're focusing on job growth in African entrepreneurs, and it's a debt fund. And so you can make an investment using your impact investment, using your charitable capital in that organization, that's then really working to seek to create great jobs. And it has a return, they have a targeted return of about 8% as a debt investment, that's going to come back tax free into your charitable pocket to invest again, or to be able to give away.
Whitney Sewell: These examples are so helpful. I'm having all kinds of ideas, Eric. You know, that good man, I should have thought of this before now. Right. Or I'm glad we're talking about this stuff now.
Eric Most: And we have talked about it a little bit, but I can't give you one more because I think this one's near and dear to you. So, um, One Child is an adoption organization and one of their board members is a guy named Rod Brenneman. He was the former CEO of Butterball, the turkey company that we all know in Thanksgiving time, except for those like you and Roanoke who maybe go out and get your own turkey. So he introduced tunnel farms at all the orphanages that they have around the world. And so they put up these open air tunnel farms that they're farming fruits and veggies. And these actually are profit generating within three months to six months. their job creation machines. The one that they have in Africa, they have one at Zimbabwe maybe, it employs almost 300 local community members. Well, one of the main reasons for children being orphaned is actually because of finances. Families can't afford to keep the kids. And so here's a beautiful case where the orphanage is building a sustainable community and job infrastructure, where actually people are getting their kids back out of the orphanage and fewer kids are being orphaned, to begin with. This is also profit generating. And so it actually pays for the complete work of the orphanage there in country within a very quick period of time. And so Rod Brenneman goes around to his friends and says, hey, I want to invite you to invest in this tunnel farm, and it's going to be a zero return investment. But here's the deal. I'm never going to come back and ask for another penny from you ever again. And so at $500,000, they're able to literally build up one of these tunnel farms that then is self generating and is going to completely sustain the work of the ministry there in that country in perpetuity now going on. And so that's another case of impact investment.
Whitney Sewell: Eric, I hear often this concern of going from one 1031 exchange to another 1031 exchange to another 1031 exchange. I mean, I hear it often, like, when does it stop? And oftentimes, unfortunately, the exit plan, like you and I have talked about, is death, right? And we would often probably prefer a different exit plan, right? Yeah, absolutely. And you all have a solution for this. And let's dive in there.
Eric Most: Yeah, absolutely. Yeah, I always think that death is a pretty bad exit plan as it relates to our investments, right? And why we say that, just to be clear, I mean, most of your listeners will know this very clearly, but why death is the exit is because our children, the inheritors of that asset, will get a step up in basis and won't have to pay that huge capital gain. So if they then sell that asset, they broke that cycle. But how do you do that today? What's also very interesting about those assets that we see, that they now think the exit plan is really probably only death, is a lot of times those assets aren't ones that are really necessary for income either at this stage. Um, and so they had been right as they've been building that portfolio and 1031 exchanging, 1031 exchanging over the years. And yet you keep having to get hairier and bigger, bigger and, and sometimes uglier in the assets and compress time that you have to find it. Well, a great exit strategy is gifting that asset. So just like we talked before about gifting real estate, uh, you can gift a real estate that's been in 1031 exchanges. Now here's the beautiful thing. Remember, we don't pay any depreciation recapture. And by gifting into a donor advised fund or a supporting organization, which is another tool that NCF has, you get the benefit of fair market value deduction. So let's take that property that you've been 1031 exchanges. It started as just a small little house or small little duplex so long ago that you picked up for $25,000. That was your original basis. And as you've moved along, right, you've upgraded and upgraded and upgraded along the way. And now that assets, a million dollar property, a 2 million, a $10 million property, who knows where that's gone over the years. By gifting it to NCF instead of just doing the next 1031 exchange, you get a fair market value deduction. And we pay no depreciation recapture. So you get the benefit of avoiding that capital gain from that $25,000 original basis to where you're exiting it. And you didn't have to die. And so the proceeds then flow into your giving fund, and you're able to grant those or invest them as we talked about in other segments about using, you know, impact investing, things like that, and making kingdom impacts in different manners.
Whitney Sewell: Yeah, that's great. Right. I mean, it's, uh, I, I love that we have this option, uh, you know, cause we're so concerned about having to pay that tax bill. Right. Uh, and, uh, in this way we can have a much bigger impact.
Eric Most: Yeah. And, and, and this does dovetails into another discussion that we were going to have and, but I hit on it a little here, so I might as well just, just jump right in. Um, You might also have listeners who one of their friends had a foundation, like, oh, you should have a foundation. And there is a place for a foundation or a private foundation for the work of some of these asset classes, but not for a 1031 exchange and not for an asset gift, a hard asset gift, okay? So a private foundation, if you were to do that exact same strategy that we talked about, gifting that property into a private foundation, you get the charitable benefit of original basis. So you get that charitable benefit of that $25,000. You don't get the benefit of fair market value deduction. And so a lot of times people think, oh, I need to set up a foundation to do these things. You really don't. A donor advised fund, at least with NCF, it takes two minutes to set one up. Yes, we talked about how long it takes to do a gift and things like that. There's more complexity to doing these gifts, but it's a much simpler, more cost-effective gift and gifting strategy. And so a lot of people, we've actually converted a lot of people that, that started a private foundation and realized, you know, this wasn't all that I thought it was. And they converted over into a donor advice fund or supporting organization with NCF. And, and it really solves a lot of their problems and their headaches in a much more efficient way.
Whitney Sewell: Yeah, you know, you're talking about a private foundation. I hear people talk about private foundations often as well. But maybe help us to, you know, obviously at a high level, or for time's sake, unfortunately, you know, we talked about private foundation, donor advice fund and, you know, supporting organizations, you know, how do we distinguish and the difference there?
Eric Most: Yeah. So, um, three things for those that are watching the podcast, you can kind of see my hands, but, um, we'll put, uh, I'll, I'll use it for those listening. I'm a listener to podcast type of guy. Um, and so on the left hand, let's put a private foundation. Okay. Um, a private foundation, um, and we'll put, uh, supporting organizations and, um, donor advised funds on the right hand, um, on the left hand side of here, private foundation, um, you have some of your least tax efficiencies as it relates to it, unless you're using cash. Just purely giving cash can be efficient, but we already said and established earlier in this show that friends don't let friends give cash. Right. And so that that rule still applies, but giving into a private foundation, it's most efficient if you're giving cash. other type of assets, business, real estate, intellectual property rights, patents, royalties, all those things, gifting it into a private foundation, you get the taxable benefit of fair market value. I mean, I'm sorry, you get the tax benefit, strike that, you get the tax benefit of basis, original basis for that asset class. By gifting that into a donor advised fund or supporting organization, you get the benefit, that's on the right hand here, you get the benefit of fair market value deduction. There are also limitations in how much you can give and get a deduction. In a private foundation, it's a lower amount that you can give to get charitable impact. In a private foundation, you have greater control over that vehicle though. You have greater control over who you give to. So the donor advised funds and supporting organizations are dictated by the IRS code that says you have to give to a 501c3 or recognized charity. And you're just an advisor. And so the DAF provider, so that would be NCF, National Christian Foundation in this conversation, has the right to deny your grants. We actually have to have that right. The IRS requires that. In a private foundation, you've got nobody telling you, no, you can't give to this organization. And so you have greater control in the private foundation. So the more control you have, generally speaking, the less taxable benefit you get. So on the Donor Advised Fund, NCF actually becomes the owner of those assets, or part owner if you gave part of it. And so because of that, you get better tax treatment, but you have a little less control. So NCF has the right to say, no, we won't grant to those. And NCF, we allow you to grant to anything that is 501c3 or recognized charity, as long as it's not antithetical to an orthodox view of Christianity. If it's innocuous, no problem. So if you want to give to, like I said before, American Heart Association, Wounded Warrior, Alzheimer's Association, no problem whatsoever. There's no faith component to the work that they do. But we aren't going to give to things that are antithetical to Orthodox Christianity. We'll say no to those things. So we've talked a lot about donor advised funds and many of you have heard the word supporting organization that I've used, Whitney just used a minute ago. This is another tool, it's very similar to a donor advised fund. but you actually have more flexibility in a supporting organization. Generally speaking, it takes more assets to have a supporting organization. It generally takes a minimum of about $10 million of charitable assets to have a supporting organization, but it works much more similar to a private foundation. So you, in a donor advised fund, you're not able to pay program expenses. You can't go and pay for flights and things like that. You can do that in a private foundation, okay? You can do that in a supporting organization though. So there's more similarities between those two charitable vehicles. You're able to, in a private foundation, employ family members. You're not able to employ anybody in a donor advised fund in a supporting organization, you are able to employ people but they cannot be family members. And so you're able to employ a third party to be able to manage the work of your foundation effectively. And so those are some differences and kind of a high level entry of those different assets. You have greater investment flexibility over the supporting organization than a donor advised fund. Though we talked about how you can use the impact foundation and things like that to be able to make investments and really feel like you have a lot of flexibility.
Whitney Sewell: Thank you for being with us again today. I hope that you have learned a lot from the show. Don't forget to like and subscribe. I hope you're telling your friends about the Real Estate Syndication Show and how they can also build wealth in real estate. You can also go to lifebridgecapital.com and start investing today.