Episode 76: Creating Prosperity Through Real Estate with Zach Winner – Transcript
Rennie Gabriel 00:09
Hi folks, welcome to Episode 76 of the Wealth On Any Income Podcast. This is where we talk about money tips, techniques, attitudes, information, and provide inspiration. I'm your host, Rennie Gabriel. In past episodes, we spoke about how to build an Income and Expense Report, how to measure the level of pleasure based on where you spend your money, how to track your money in 5-10 seconds, what to look for on a net worth statement to see how close you are to Complete Financial Choice®. And last week, we had as our guest, Michael DeLon. Today, we have as our guest, Zach Winner. Zach has been investing in real estate for over 30 years. He's the founding partner of Prosperity CRE, an investment firm that provides its clients with the opportunity to invest in commercial real estate properties that deliver ongoing cash flow, and build long-term wealth. I know what he does works, because I happen to be one of his investors. Zach, welcome to the Wealth On Any Income Podcast.
Zach Winner 01:15
Hi, Rennie. It's a pleasure to be here. Thank you for having me on your podcast.
Rennie Gabriel 01:19
Oh, you're so welcome. So let's get right to some questions. Tell me what you do and why you do it?
Zach Winner 01:28
Yeah, happy to. So you know, I'm very passionate about real estate, I invest in real estate. And I do that, because I've identified it as one of the best ways to create ongoing cash flow. And over the long term, if you stick with it, to become financially independent, and to build long-term wealth. So you know, I'm an attorney. But for many years, I haven't practiced as an attorney. And I no longer need to practice as an attorney to generate an income, because I rely on my investment properties to do that. Performing legal services and sending a bill to your client in compensation for your services, that's essentially acting as an employee. That's what most employees do. They're exchanging their time for their money. But to me, time is the most valuable commodity we have. We can't make any more of it. So you need to make the most of what you've got. And you need to use it wisely. And for me, using it wisely means using your time in a way that's going to positively impact the quality of your life. So I've been able to create multiple streams of revenue through investing in real estate. And so now, my investment properties are working for me generating income, and that's replaced the income that I was earning as an attorney. And so what that's done in turn is freed up my time to do things that I enjoy doing, and that I'm passionate about - like spending time with friends and family, and traveling to new and interesting places around the world. And through my investment company, Prosperity CRE, I'm also now able to help others create multiple streams of revenue by investing with me, alongside me, in the same properties that I'm investing with, and help them build their cash flow.
Rennie Gabriel 03:18
That's one of the things that I like, that's important to me. Two things. One, I have to agree with you completely, because the reason I don't have to work for a living is because of my investments - providing my income. So my money is working instead of me working.
Zach Winner 03:35
Exactly.
Rennie Gabriel 03:36
And I get to do things that are important to me, like supporting other people to become philanthropic, and I can donate 100% of the profits from the work I do to charity, because that's not money I need to live on.
Zach Winner 03:49
That's fantastic.
Rennie Gabriel 03:50
And, you know, and like I said, I know what you do works, because I'm one of your investors.
Zach Winner 03:56
Thank you. Thank you. Yeah.
Rennie Gabriel 03:59
Let's get to another question. Is there a particular charity that you support? And if so, what do they do?
Zach Winner 04:06
Well, my family's been supporting West Side German Shepherd Rescue of Los Angeles for about the last 15 years. And they rescue all different types of German Shepherds from high kill shelters in the greater Los Angeles area and place them with families. And so about 15 years ago, we adopted our dog Wolfgang, who sadly passed away this last year, from West Side German Shepherd Rescue. And when we adopted him he was about a year and a half old, emaciated, only weighed like 55 pounds - right? Bone thin, had parasites, but you know, he got healthy pretty quickly and he grew to 110-pound dog. He just loved to eat, and he was a loving, and caring, and loyal dog, and was really a member of our family. Our kids grew up with him and just a terrific, terrific pet. And so, we strongly support West Side German Shepherd Rescue.
Rennie Gabriel 05:09
And it's funny because I remember when we spoke about that, because although the bulk of my donations go to Shelter to Soldier, I also happen to be on a monthly donation program with West Side German Shepherd Rescue.
Zach Winner 05:25
Oh, that's terrific.
Rennie Gabriel 05:27
Yeah.
Zach Winner 05:27
That's terrific.
Rennie Gabriel 05:28
And so yeah, I know about them through one of my neighbors, and I love German Shepherds, and I'm glad other people own them, because I wouldn't. I mean, it's sort of like, there's enough hair to clean up from our dogs without having a German Shepherd.
Zach Winner 05:45
Yes, well, when we had Wolfie, every week, there were clusters of hair in each room, right. And we clean it up, and within a week, there were little dust funny clusters of hair again. But it was definitely worth the trade off. You know.
Rennie Gabriel 06:03
They're such wonderful animals. Well, let's talk a little bit about the business from the standpoint of who would be in your target market. Who are the people you're trying to attract?
Zach Winner 06:14
Sure, well, most of the people who invest with us are what we call accredited investors. And that's a securities and exchange term. And it basically means that it's an individual who has earned at least $200,000 in each of the last two years, and intends to meet or exceed that amount this year or with their spouse, $300,000. Or, alternatively, they have a net worth of at least a million dollars. So most of our . . .
Rennie Gabriel 06:41
That excludes their home value, correct?
Zach Winner 06:44
That is right. That is right. And so most of our investors are accredited investors. We also have some investors who are, what is termed, a sophisticated investor. And that basically is somebody who, either individually or with the assistance of counsel, has sufficient business financial investment experience to make an informed decision about the investment. So we have those two types of investors. But basically, you know, our approach towards investing is we're pooling investor funds together. So we're giving our investors the ability to invest in a multimillion dollar commercial investment property without having to invest millions of dollars, because we pull the funds together. Typically, the minimum investment is around $50,000. So it really makes it much more accessible to a wider pool of investors.
Rennie Gabriel 07:39
Well, and also, the thing that attracts me is that you and your partner are also invested in the same project that I'm invested in.
Zach Winner 07:49
Yes.
Rennie Gabriel 07:49
So you know, you have a personal interest in it succeeding.
Zach Winner 07:53
Yeah, and a lot of our investors want to see what we call "skin in the game", that we're personally invested. And so I believe in that, and I do invest personally in all of our investment properties. I also do it selfishly, because I know I have confidence that the investments are going to perform, and I want to benefit in that ongoing cash flow as well.
Rennie Gabriel 08:13
It reminds me of the first multifamily investment I made after I was broke and put things back together again, and my wife and I invested in a triplex and the realtor who found it said, he wanted half of it as well, and came up with half the down payment. So that kind of like confirmed this was a good deal.
Zach Winner 08:34
Right. Right. Yeah. He had enough confidence in it to take his commission and invest it in the deal.
Rennie Gabriel 08:40
Exactly. And personal funds beyond his commission. What would you say was the worst investment decision you made?
Zach Winner 08:48
Well, I'd have to say the worst real estate investment decision I made was pretty early in my career. I'd been investing for about six years. And at the time, I had started off investing in single family homes. I was buying single family homes around the country and renting them out. And that was fine. And I wanted to start investing in something larger. So I identified a small mobile home park in a small city in Arizona, called Yuma, Arizona. It's a pretty isolated city. And I was attracted to it because of the purported cashflow. And because the owner was offering seller financing. So I wouldn't have to go out and get a separate loan from a bank. And what I really didn't factor in sufficiently was the risk involved in buying a Class C, at best, mobile home park in a very isolated city. And after taking ownership, it really ended up being a huge time suck. It was taking on more and more of my time to effectively manage it to generate the cash flow. So you know, after holding it for about four years, I had had enough. But I really hadn't increased the value of the property and the market wasn't appreciating. So it was very difficult to find a buyer. And I ended up giving it back to the seller. And between what I paid him for the deposit and the cash flow I'd received, it was probably a breakeven. So it certainly wasn't a good financial investment. I'd say it was more an investment in real estate education.
Rennie Gabriel 10:25
I was going to say, but what you bought was an education in what works and what doesn't work.
Zach Winner 10:32
That's exactly right. That's exactly right.
Rennie Gabriel 10:35
Well, let's talk about the accredited investors that you work with, are there typical feelings that they experience?
Zach Winner 10:42
Yeah, so well, we have, you know, I'd say we have several different types of investors, several different categories, or broad groups. We have a lot of investors who work for tech firms, some of the largest tech firms in the world. And those investors have options in those tech stocks. And as you know, the stock market can be extremely volatile, especially these high-growth tech stocks. So those investors are looking for some stability in their investments. So investing with us is a way to diversify some of their investment out of the stock market. We have other investors who are using retirement funds to invest with us. So they have a self-directed IRA or 401k, and that gives them the ability to have more control over what they invest in. And they can choose to, again, invest outside of the stock market, or bonds or mutual funds, invest with us. And with those retirement account investors, the cash flow that they're receiving, and the profits on sale, go back into their retirement account. So it's growing their overall retirement nest egg.
Rennie Gabriel 11:51
And growing it without taxation.
Zach Winner 11:54
That's right. It's tax-deferred. Or if it's like a Roth IRA, it's tax free. That's absolutely right. It's a huge benefit. And then we have a number of investors who - like us - are looking for ongoing cash flow. And so they're investing with us to add to their, you know, multiple streams of cash flow. And some of them are already retired, and some of them are on their path towards becoming financially independent and quitting their W2 job.
Rennie Gabriel 12:23
Yeah. And one of the things that I do like about being one of your investors is the, being informed about what's going on, because, you know, you keep me - and I would assume all your other investors - up-to-date on what's happening.
Zach Winner 12:38
Yeah, thank you. Yeah, you know, I think our investors really appreciate the ongoing communication that we provide them. It's something I view is very important, is keeping our investors informed. So we provide ongoing updates on how the investment properties are doing, and how we're doing, and implementing our investment strategies. And I think they really appreciate that, that and kind of the open door policy we have of always being just a phone call or an email away.
Rennie Gabriel 13:06
Yeah. Yes. And I've never had a problem in having my inquiries replied to.
Zach Winner 13:13
Thank you.
Rennie Gabriel 13:14
So, well, obviously, one of the benefits of what you're doing is providing an ongoing cash flow. Do you have an example of a project, a property, or something of that nature?
Zach Winner 13:28
Sure, well, we can talk about a property you're familiar with, or an investment you're familiar with. In St. Louis, we acquired two industrial flex office parks. And so as an example, what we do is, what we like to employ is something called forced appreciation, where we come in and we implement various strategies to increase the overall net operating income that the property is generating. And when we do that, we're also very much increasing the overall value of the property. Because the value in commercial real estate, unlike residential single family homes, the value in commercial real estate is primarily based off of the net operating income. We apply a cap rate to that, and that has a huge increase in the overall value of the property. So we look for various strategies to do that.
Rennie Gabriel 14:23
Terrific. Yeah, it's a direct relationship between increasing the income, which increases the value of the project.
Zach Winner 14:30
Exactly. That's it exactly right.
Rennie Gabriel 14:33
Is there some resource - a free resource - that you can direct people to that might continue to support them?
Zach Winner 14:43
Yeah, if people are interested in learning more about our approach towards investing for ongoing cash flow and for building long-term wealth, they can get a free copy of our ebook, and that's on our homepage on our website. And our website is prosperitycre.com.
Rennie Gabriel 15:01
Right. I will put that in the show notes. And is there a question that I should have asked you that I didn't? And if I did, what's the question, and what would the answer be?
Zach Winner 15:14
Well, you know, one of the things that I think is very powerful about real estate are the numerous tax advantages. So we talked about the ability to invest via a self-directed retirement count, like a self-directed IRA, or 401k. One of the other things that we employ is the benefit of being able to depreciate the value of the property to offset the taxable income. So, for example, in the St. Louis property, that's a commercial property, which under our tax code would depreciate over 39 years. On that investment, our strategy is to hold it for 7 to 10 years. So we also conducted a special study called the Cost Segregation Study, which gives us the ability to accelerate the depreciation paper loss that our investors received during the earlier years of ownership. So the benefit to our investors is they're receiving cash flow, but paying little to no taxes on that cash flow, because it's being deferred due to the depreciation tax write off.
Rennie Gabriel 16:18
Yeah, and I'm glad you use the phrase, "paper loss". Because what the IRS is doing is saying, this property will not have a value at the end of 39, 40 years, so we're going to let you deduct that depreciating value against the cash flow you're getting. So yeah, it's all paper, but you have real money to spend and less in taxes to pay.
Zach Winner 16:46
That's right. That's right. So the tax deferral strategy is very strong when you factor in kind of the time value of money component of this all.
Rennie Gabriel 16:55
Great. Well, Zach, I want to thank you for being on the show. It's my pleasure to have you as my guest.
Zach Winner 17:03
Well, thank you, Rennie. It's really been a pleasure to be here.
Rennie Gabriel 17:06
And to my listeners. Thank you for tuning in. You can listen to the Wealth On Any Income Podcast on your favorite platform. And please rate, review and subscribe. And if you'd like to know how books, movies and Society programs you to be poor, and what the cure is, then log on to wealthonanyincome.com/TEDx. You'll hear my TEDx talk and can request the free 27-page Roadmap to Complete Financial Choice®, and receive a weekly email with tips, techniques, or inspiration around your business, or your money. Again, that's wealthonanyincome.com/TEDx. Until next week, be prosperous. Bye bye for now.
