The Fastest Way To Build A Six Or Even… Seven Figure Real Estate EMPIRE!
No matter what your portfolio looks like, there’s a very good chance that you’re unaware of all the ways you can save money and legally slash your taxes.
So, how do you legally reduce your tax liability?
To answer that question, today’s guest is Toby Mathis. Toby is a founding partner at Andersen Advisors, where he’s been a tax attorney for over 25 years. He’s helped over 100,000 clients prepare better tax returns, and he has a deep understanding of how to become wealthy and legally slash your taxes so you can keep your wealth.
In our conversation, we dig into several tips and strategies to reduce your taxes. We talk about the three types of income (and how to make more money in each), how to set up a nonprofit that pays rent to your real estate portfolio, and the three specific traits everyone needs to have to become an elite entrepreneur.
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Key Takeaways with Toby Mathis
- Why Toby is excited about investment opportunities to empower debt-burdened and rent-burdened Americans in tough housing markets.
- How affordable housing investments can be run as 501(c)(3)s, collect state money, improve people’s lives, and create 100% write offs.
- The best ways to shelter, slash, and save multiple income streams from tax.
- Why it’s all but impossible to get rich creating short-term active income.
Toby Mathis Tweetables
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Josh Cantwell: So, hey, welcome back to Accelerated Investor. Hey, I’m your host, Josh Cantwell. And today I’ve got a fantastic discussion with a 25-year tax attorney. He’s a founding partner at Andersen Advisors and he’s made a career focused on saving people money and making money with business owners and entrepreneurs. His name is Toby Mathis. And as a result of their work at Andersen Advisors, with tens of thousands of successful investors and clients, they’ve prepared over 100,000 tax returns. Toby’s pieced together some specific methods for building wealth and for educating people on what it takes to become wealthy and also to legally slash their taxes and then stay wealthy. So, in this conversation, the first thing we’re going to talk about, number one, is the three different types of income: active, portfolio, and passive, and how to not only make more income in each one of those categories but then also how to slash your taxes in each one of those categories. We’re also going to talk about, number two, the opportunity to set up a nonprofit and get government-subsidized dollars to use in your nonprofit and then have your nonprofit pay rent to your real estate portfolio. And number three, we’re going to talk about three specific traits that Toby feels like everybody needs to have to become an elite entrepreneur.
It’s a fantastic discussion around tax, around reducing tax, legal, reducing liability, and really talking to an elite investor who owns over 300 different real estate investments himself. His name is Toby Mathis. He’s with me today on Accelerated Investor. Here we go.
Josh Cantwell: So, hey, Toby. Listen, welcome to Accelerated Investor. I’ve been looking forward to this for a long time. Thanks for carving out a few minutes for us to talk a little bit about tax and legal, different types of income. I’m really excited to share some of this wise sage wisdom with our group. So, thanks for jumping on.
Toby Mathis: Hey, thanks for having me. It’s always fun to talk taxes and asset protection and all the stuff nobody wants to hear about, right?
Josh Cantwell: We’ll talk about that. We’ll jump into how to kind of set things up from the start to really do it the right way because kind of rewinding in the middle of a deal is hard to do. But, Toby, as we kind of introduce you to our audience and they get to know you, why don’t you just talk a little bit about some of the passion projects and things that you’re working on right now so we can kind of get a flavor of like what do you do on a daily basis and what are you excited about? And then we’ll talk a little bit about today’s market, some of the weird stuff that’s happened this past weekend but let’s first talk about you and some your passion projects. Tell us what you’re working on and what you really kind of do on a day-to-day basis for your clients.
Toby Mathis: Yeah. Well, I’m one of the principals over at Anderson Business Advisors. We love growing our firm. There’s about 500 of us. I’m an avid real estate investor. The founder of Andersen and myself, I’m a founder as well, Clint Coons, we invest together. We have over 300 properties nationwide and we’re really avid investors, so we teach from experience a little differently than some of the folks he might run across that don’t actually do what you do. But what I really love right now is like this is personal view is that we’re about 5 million to 7 million units under build in the United States that we have an affordability issue for housing. It’s going to cause mass homelessness and serious issues in our economy for especially folks making under $50,000 a year. And I love trying to find other ways to bring housing that’s a little bit lower cost for those people because there are so many people that are debt-burdened and rent-burdened and it’s just tons of fun. I know that sometimes we’re just looking at the dollars and cents but when you’re doing recovery housing, shared housing, transitional housing for people aging out of everything from foster care or transitional housing out of creative ways to get people out of jail so that we’re not paying $80,000 a year for incarceration, there are some really cool things that you can do as an investor. And I love diving into those niche areas. They’re actually really cool.
Josh Cantwell: Yeah. I have affordable housing. I’ve looked at a lot of mobile home parks and a lot of cities and counties don’t want mobile home parks but that would seem to be part of the solution, a shared housing, some of these kind of things because you look at these other places in the world like Israel, Tel Aviv. You look at Toronto, Canada, the average property is $400,000 to $500,000 for your average. You got Rome, Italy. You know, if you have a flat in Rome, it’s easily almost half a million dollars for a small apartment. I’ve been to Rome. I’ve been in one of those. They’re very small. And that’s all because these areas were built and there is no affordable housing built behind them. And all of a sudden, your average property is unaffordable for the average man. And so, that’s where we’re kind of headed right now. It was good two, three years ago. Interest rates were low. There was a lot of new builds, a lot of starts with apartments but still, the average house being built wasn’t $150,000, $200,000 a house that somebody could afford. It was a $400,000 to $700,000 house that was more of that mini-mansion. So, that is a passion project if you have your hands full, if you’re going to try to help solve that one.
Toby Mathis: Well, here, let me just blow your mind for a second. Do you know that affordable housing is actually a charitable activity that you can run it as an exempt organization? You can run it as a 501(c)(3). We have folks that get into residential assisted living, transitional housing. You almost have to be a 501(c)(3) when you’re doing recovery housing but you can still own the real estate in a for-profit but receive state monies and grants as the nonprofit and then pay the rents out to the for-profit so you can actually basically be renting from yourself. People don’t realize this but I can literally write off 100% of my money if I want to invest it into affordable housing if I set it up right. Nobody knows about it.
Josh Cantwell: Toby, is that the setup? You said if. You left me hanging there.
Toby Mathis: Yeah. Let me explain it. So, I have two great clients of mine, Frank and Sherry, and their daughter was affected by substance abuse. And if you know how some of these halfway houses are, I don’t know another way to put it but some of the housing, you can’t even have ibuprofen, right? You can’t have any sort of drugs at all. And if you have other issues, mental issues, psychological issues, whatever, physical issues, then it’s a no-go. So, they looked for a different solution, especially for people that were incarcerated. So, they went specifically for women who are nonviolent offenders, who are in jail typically because they were with somebody who was a drug dealer or involved in that world and they got taken down with it. They don’t need to be in a jail where we’re paying as taxpayers $70,000 to $80,000 a year. So, they went to the State of Washington. This is exactly how they structured it. We set up a nonprofit to advocate for recovery housing. Because of that, they were able to get audience with municipalities and state organizations, including the Department of Corrections. And Drug Court basically said, “We need beds. So, how about we give you $800 a month per bed and we need two people per room? This is the size.” They gave the requirements and they were able to get contracts.
Well, I think they have five houses right now under contract with a bunch more online where the state is basically saying, “Hey, we’re going to give you let’s say it’s five-bedroom house, ten beds, $8,000 a month, whether they’re used or not, for transitional housing.” And it’s so much cheaper to go that route. That’s for housing purposes. That’s maybe $10,000 a year per inmate. And all they are is they’re required to work out of that house. They can’t party, they can’t have guests, they can’t have alcohol, they can’t have drugs. It’s easy for the state to monitor. It’s great for the community because people actually embrace it and they say, “Hey, we’re actually assisting now. We’re not just locking people away.” But the beautiful part was they could own the houses in their for-profit realm. So, you can just own it. Typically, you’re going to put a house in an LLC, right? You’re probably going to have a holding LLC in a jurisdiction like Wyoming, where nobody can take it from you, and a topic for another day. But you’re going to have the for-profit. Then it’s renting to the nonprofit. The nonprofits receiving the grant moneys and paying the money.
So, basically, you could run it either entirely as a nonprofit or you can do a combo and these things work fantastic. Fantastic. And you can still do your depreciation, you can still do your cost seg and accelerate your depreciation, and you just have to choose whether you’re going to have the money flow directly into the for-profit realm or whether you’re going to keep a bunch of it in the nonprofit realm or how you’re going to set it up. You really have a lot of flexibility there but that’s just one example.
Josh Cantwell: Perfect example. So, even in that 501(c)(3) not-for-profit, you still took a salary out of there. There’s just no profit distribution. So, it is the profit or you set it up in such a way that that’s the way you take money out of it and you have a salary out of there. And then any of the rents that need to flow back to the for-profit real estate, whatever your mortgage is. And so, then your nonprofits stay in that to buy the next piece of real estate or to set up the next entity. And you just take out what you need for your personal living, pay off the real estate, pay down the real estate, etcetera, etcetera. So, it seems like a genius type of idea. What about, Toby, for somebody that says, “Ooh, I don’t know if I want to focus on like people that were incarcerated?” Maybe some people don’t have the stomach for that. Is there another example?
Toby Mathis: Yeah. There’s a residential assisted living. There’s transitional housing especially for young people or there’s housing for ill people that are unable to work. They’re handicapped or whatnot but there’s tons of different programs. Here’s the deal, though, Josh, is you don’t have to run the nonprofit. There are groups like as a landlord, I have entire apartment complexes that I rent to organizations because they need housing for their people and they’re receiving public assistance. So, again, you have to look at it. There’s the operator side and then there’s the real estate ownership side. So, in residential assisted living, for example, when you’re working with the elderly and you’re saying, “Hey, we need housing that’s not a nursing home,” they want to live in regular houses but you might have five people living together, right? There’s the operator, the person that might do, hey, maybe they make meals, maybe they clean it, maybe they do laundry and things like that. And then there’s the landlord and you could be one or both, or you could just be an investor and just be a lender. And once you understand that this whole world exists, it’s pretty interesting.
I choose like I am not an operator but I rent to operators and because I understand what they’re doing, I can go out shopping for them. So, when somebody like wants Hosanna House in Winston Salem and they may say, “Hey, I have a need for eight people if you can get it. Here’s the amount of the funds that are available. Can you find me something?” And now you’re going shopping to fill that need. And these are long-term leases. Usually, they’re 2 to 5-year leases. So, it’s just a different avenue and you could just be the operator too. You don’t have to be wealthy. If you have a heart for this thing, you could go put these things together because I’ll give you an example. I have a client, Michelle, who’s also up in Washington State. She gets a grant of $75,000 a year per home plus she gets the rent. She has other people going out and buying the houses and providing them to her, renting them to her nonprofit.
Josh Cantwell: So, those buyers know that she is going to be a super reliable payer of the rent if you will because she’s the operator and getting the money from the state, the government, etcetera, etcetera.
Toby Mathis: She’s doing it with her kid. She’s like, “Hey, kids, go out and start buying your house.” So, her children, who are now getting to their adult age, are starting to go out and buy houses. And it’s like how do you find cash flow properties in Seattle or in that area? This is how you do it. You’re not going to get it on a regular rental. You’re going to get it by being a little bit creative and going in and solving some of these issues. Now, I’m just giving you one. There’s tons of different things. You can do shared housing. There’s a great company called PadSplit that does that. It increases your net by about 200%. In my experience, we back-tested and I have clients, one client with over 1,000 units so I can just look at them and say, “How much did you increase?” And he was like, “Oh, this is my portfolio before. This is my portfolio after. But you can see it’s right around on average 200%.” But again, you’re just going in and solving a niche instead of saying, “Hey, I’m just going to rent the house, lock, stock, and barrel altogether.”
Maybe you’re breaking it into rooms and renting four or five rooms out and you’re just looking at that’s an easy tax solution. They’re a great company where they’re handling all the payments and everything else, and you’re just getting a little more out of your property, which ordinarily you might walk away from something saying, “Hey, you know what? The cap rate is just not good enough on the regular rents but this might give you another shot to go back in and still monetize something that you might have walked away from.”
Josh Cantwell: Yeah, I love it. I was going to ask you about the market but I’m actually going to save that to the end because we’re already on to this discussion around different types of income. And as a legal and business and tax advisor, we were talking before the show about different types of income. And I don’t know that every entrepreneur or every investor really understands each type of income that they can make and then how that’s taxed and also how to slash the tax and shelter the tax legally. But we’ve already kind of jumped into it, right? You have the operator income. You have the real estate income. There’s different ways to shelter that through cost seg which you already mentioned, accelerated depreciation, bonus depreciation, which you mentioned. So, instead of going out all these different bunny trails, why don’t we kind of bring this back to center, Toby, and go now one bunny trail at a time, talk about a specific type of income that you see with your client. And how is the best way to not only make the income but then that shelter it, slash it, and save it from tax? There’s a lot of different ways to make passive income. I think maybe people are responsive for one or two.
Like, I have a preferred return as a limited partner or I make a loan and I get interest income. That’s two different forms but there’s a lot of different things that you’ve done for clients. So, why don’t you just start with your favorite, and then we’ll go on to two, three, four, or five from there?
Toby Mathis: Yeah. I’m here. Let me give you the easy view of income. This is your 32nd MBA, right? If you understand this, you’re going to be way ahead of everybody else. There’s really three types of income, and we sometimes break it down into two types of income. We usually say active or passive but that’s not right. There’s something called portfolio income that sits in between them. Active income is like when I was 16, I worked for McDonald’s. You’re making $4 an hour back then and you work 40 hours a week. You think you’re going to get $160 but you don’t because your federal income gets pulled out. But you also have this thing called old age disability and survivors of Medicare, also known as Social Security, also known as the self-employment tax that’s getting pulled out and you end up getting punched by this thing. And that’s the way I want you to think of it. The tax code is literally going up and just popping you in the forehead and saying, “By the way, I’m going to assess a bigger tax on you that I’m not going to do to everybody else,” because active income is the only type of income that gets hit with the self-employment tax or the Social Security. They just go pop. So, pretend you’re in Catholic school and you’re goofing off, and then a nun comes up and hits you with the ruler. Right? That’s what…
Josh Cantwell: How did you know that actually happened to me when I was in fifth grade?
Toby Mathis: I can see fellow trauma babies. Mine would throw erasers. They had really good aim. But he saw you in the back of the room, moving your lips, they’d, “Whoosh.” They had good arms, those nuns. But they would definitely correct your behavior. And the tax code has that as a correction, right? Yeah. Believe it or not, when you look at the total collections of tax revenue, some years, the employment tax that Social Security is more than the rest of all the income taxes. It’s the surprise tax that nobody talks about. It’s the biggest. It’s right there as far as income tax and the employment taxes are side by side. You can opt out of that. Like, you could literally say, “I don’t want to make any more active income. I’m simply going to go into portfolio and passive income.” Portfolio income, you already mentioned one of it. Interest, royalties, capital gains, or technically portfolio income, none of these are subject to employment taxes unless you’re the creator of the intellectual property like you write the book or you write the code that gets you a royalty. But otherwise, because now you’re working, you’re back up into the active. If you’re just an investor, you’re going to be in this realm where there are no Social Security taxes. And that’s point number one, the biggest. There are two buckets that we collect the most revenue for out of this country.
And you can opt out of one of them and the way you do that is get out of the active realm. If you’re in the active realm, then I would encourage you, like your doctor, your lawyer, or somebody who’s making a lot of money, there are ways to reduce it but probably it’s a very long topic. The easy ones are retirement accounts, deferring it. You can defer. I have clients deferring $700,000, $800,000 a year going into a defined benefit plan for companies they own. You have your regular 401(k)s. You have charitable giving. Like, if anybody ever tells you there’s nothing you could do, they’re just not being creative enough because I could literally write off 60% of your income, which is going to be about 70%, 80% of your taxes, simply by transferring it into an exempt entity. And anybody can do that. So, that’s the active realm. The passive realm really comes down to there’s only two types of passive income and that’s rents and businesses that you do not materially participate in. Everything else, somebody tells you like, “Oh this type of income. Your capital gains is passive.” No, it’s not. I mean, technically it can be. If you exit a syndication, it could actually be passive capital gains. And if you have passive losses from something else, you can actually offset it, which nobody understands, which if you understand just that one little piece, if you’re into syndications, all of a sudden you’re saving yourself massive amount of taxes because you can tell your accountant, “Hey, stop that.”
It maintains its character. If it’s passive to me, well, I’m an investor. When I exit it, it’s passive income. And passive income can only be offset by, or excuse me, passive losses can only be used against passive income. So, if we can recharacterize some of our income as passive and we have passive losses like you do a cost seg on a property or you’re in a syndication that’s kicking down losses, yeah, I could save some money. I can save some serious money if I understand that little nuance. But for investors, this is where it really gets exciting. When you have passive losses like for real estate, which is really easy to create passive losses, every type of real estate you just mentioned, especially like manufactured housing, holy cow, where right now in some situations, it’s 80% in the first year. It’s just a ton of the value of that improvement that you’re able to write off. And if you understand, “Hey, I could go looking for investments that create passive income,” like, hey your uncle comes up and says, “I want to do a pizza shop.” Maybe I want to be a silent owner in the pizza shop. Maybe I don’t want to be actively participating. Why not? Because now I have passive income from the pizza shop that I can use my passive losses from my real estate. So, I pay no tax and I could be receiving a nice cash flow that’s tax-free and that’s ultimately our favorite type of income is the type of income that we don’t pay tax on.
Josh Cantwell: Yeah. And so, what I’ve heard some people suggest I had a guy on the show just maybe a month ago and he mentioned, “Hey, if you’re a W-2, you have a big income and you’re not a real estate professional,” there’s the rules around becoming a real estate professional. One of the suggestions he made was buying a property for the specific purpose of making it an Airbnb that would require and would check the box for the definition of you’re into it for a certain amount of time. You’re the majority operator. You have to be in it more than anybody else. And so, I just would love to hear your take on that idea, is that if you are a W-2 earner, you’ve got some passive income coming in and you want to create some losses or maybe it’s the reverse. Maybe you have losses coming in from syndication because that’s syndication at a cost seg but you can’t use it because you have no active income against that. He was suggesting, “Hey, let’s go buy some Airbnbs, let’s go buy some rentals from an Airbnb, do a little bit more management, become a real estate professional,” and then you can take your losses against that active Airbnb income. That was one of the strategies that I was proposing. I don’t personally do that. So, just interested to hear your take on it.
Toby Mathis: I can break it down for you. So, there’s a lot of difference. So, there’s two things. If I am an investor, then my passive losses, I mean, my losses are passive unless under 469(c)(7), which is the code provision, I qualify as a real estate professional, which means if you’re married, one spouse has to be primarily making they’re spending their time in a real estate profession. It can be development, construction, real estate agent, whatever, their 750 hours are more than 50% of their time. And then you have to materially participate on your rental real estate. And now the losses are treated as non-passive. So, there’s that side. Number two is Airbnbs if it’s seven days or less is not a rental activity. Even though you say I’m renting it, it is not. It actually goes into the active role. So, remember we have our active income. Now, it’s just trade or business income and the only question is, are you materially participating? Because if it’s trade or business income, then it’s either passive. Remember, I said I invested in my uncle’s pizza shop but I didn’t participate. So, I have passive income. Well, if I have Airbnb, I’m a pizza shop. If seven days or less, it is a pizza shop. Now, the only question is am I materially participating? Because if I am, then the loss is active ordinary loss.
Josh Cantwell: Right.
Toby Mathis: So, it’s not real estate. You just have to divorce yourself from the idea that it’s rental real estate. It’s not. It’s a pizza shop and my Airbnb becomes something that I can immediately write off a big chunk of the personal property, which that’s what cost seg is, is breaking a piece of property. I have a structure. How much of it is carpeting? That’s five-year property. How much of it is appliances? Five-year property. How much of it is cabinets? Maybe seven-year property. How much of it is land improvement, a driveway, and a deck, and some fencing? That’s 15-year property and then accelerating that. And so, you get this big tax deduction and then what do I do with it? So, a lot of people, especially in syndications, they do that cost seg and they end up with this big passive loss and then your only option is to become a real estate professional. But when you’re sitting there doing the Airbnb, you could choose in first year, “Hey, you know what? I’m going to make it an Airbnb. I’m going to make it a pizza shop. I’m going to write off all of the personal property in that first year in 2023, it’s limited to 80%. But I’m going to write off this huge chunk of income and I’m going to materially participate.”
And there are seven tests for material participation. The easiest one is, “Hey, if you run the Airbnb yourself and nobody else provides any substantial activities, you’re good.” Otherwise, then you get into 100 hours, the 500-hour test. But if you do that, it’s ordinary active loss. It can wipe out your W-2 income. And I’ve had clients do this. I’ve had doctor clients that they have one spouse whose job is to go out and find the Airbnb, run it for the year. Once the year’s over…
Josh Cantwell: Multiple spouses, the way you said that it was like they have one spouse out of their four and it’s like they select that one. I’m just joking. It just came across in my weird brain that way. Sorry.
Toby Mathis: Hey, I don’t judge.
Josh Cantwell: No judgment.
Toby Mathis: But that’s what they’re doing. They’re literally saying because I’ll give you a real-life example. So, I had a couple. The wife was a surgeon, husband was a real estate investor, and I introduced him to the concept. I said, “Well, chances are the husband’s going to qualify as a real estate professional.” Then all we need to do is look for we have an appetite, tax appetite now for taking a huge deduction because she was making close to $1,000,000 a year as a surgeon. Every dollar that they can write off in accelerated depreciation is $0.37. They were in Washington state, so they didn’t have a state income tax but it was quite a bit of money. The first year that we did a cost seg and qualified him as a real estate professional, their tax savings was 183,000. So, that’s just more powder for them to go out and buy more properties, which then they cost seg and continue. It becomes a cycle. And that’s why you see folks when they really understand it, the old adage was, “If you’re paying taxes, it’s because you don’t own enough real estate.” That’s why that is true. And then all you have to do to never pay tax on this stuff is die and your basis steps up, your heirs will pay zero tax if they sold the whole thing or they can re-depreciate it.
So, the tax code is literally saying, “Hey, Josh, I’m going to let you buy something. You get to write it off, and then when you die, your kids are going to write it off again but at the new value. And then when they die, their kids are going to write it off.” The tax code is telling us what to do.
Josh Cantwell: Yeah. It’s a tax code based on this discussion, which is fantastic. Really, really fun discussion is that active income, that W-2 income is the worst type, right? And so, you get punched in the face and they’re also telling us buy their real estate, defer, defer, defer.
Toby Mathis: Your great kids.
Josh Cantwell: Yeah.
Toby Mathis: It’s like the nun comes up and says, “Josh, you’re such an angel,” and you’re like, “Ahh.” You know you’re doing that. So happy.
Josh Cantwell: Yeah, I love it. And if you are going to sell something in the interim because you just feel like it’s run its useful life and then you do the 1031 exchange and then you defer into another property and then you defer that, defer, defer, defer, defer, die and then get the step up good basis for your kids. Phenomenal discussion. Toby, I love this stuff. Listen, as we kind of wrap up here, obviously, you being an investor in over 300 properties and running your firm, you’ve been on your own kind of entrepreneurial journey, not just as an advisor and as an investor but as an entrepreneur, building a company and then having your expenses and your staff and dealing with your team and growing that business. What do you think are maybe two or three traits that you have to have to be an elite entrepreneur? What are two or three things maybe that you’ve done or that other investors or other entrepreneurs that you’ve noticed, what are some traits that you think you have to have to go from not just becoming an entrepreneur but to becoming an elite entrepreneur and really operating at a super high level? If there’s a couple of things that jump out to you, what do you think those are?
Toby Mathis: Yeah. I would say it’s your belief system, so it’s always the check-up from the neck up. There’s an old adage that it’s not my drink and it’s got me stinking and it’s my stinking thinking that’s got me drinking. I got to fix this first. Otherwise, everything else is for naught because you’ll be swayed all over the place. So, everybody is going to tell you that you suck. They’re going to tell you that you’re going to fail. They’re going to tell you that you’re going to lose your money. You’re going to go out there. And if you want to be an elite entrepreneur, you’re taking some risks. So, you got to make sure that your mind is right and your mind has to be, I see this over and over again. There’s actually really good studies called Locus of Control. It’s the belief that you can control your outcomes and that you can do it basically. So, it’s like in your ear, you should be whispering, “I can do it, I can do it, I can do it,” because everybody’s going to be telling you all the stuff that’s going to screw you up. Your family is going to not understand you. I’m buying real estate. My dad’s like, “Oh, that’s risky.” I still remember those conversations as like, “Okay. All the rich folks are doing it.”
All the people I know that are independent that don’t have to work, they’re doing it, right? So, you’re going to have to have that belief where you’re able to take those torpedoes and also, I mean, you’re going to work your ass off. There are no free lunches. I just believe that you’re going to have to really put your head down and work hard and believe that you can control that outcome, which is going to allow you to work that much harder and you’re going to transition from the active world to the passive world. That’s the ultimate goal, is, “Hey, they’re hitting us,” and you’re going to get hit. As you’re developing as an entrepreneur, you’re going to make active income quite often. And the trick is to go from that entrepreneur over to the passive investor and that passive investor is where you can kind of sit back. And then I’ll give you the last trait, and this is one from Warren Buffett. I’m going to paraphrase it. You take your right hand and you stick it underneath your right butt cheek and you take your left hand and sit it underneath your left butt cheek and don’t do stuff. Plant seeds. Let them grow. If you’re going to be an investor, you’re in it forever.
Yeah, I wrote a book called Infinity Investing. The whole idea of it is your holding period is forever. You’re creating something that you’re not going to sell. We’re not in it for the short term. You’re buying something because it’s going to be around in 200 years and it narrows your investments down quite a bit. Now, if you’re doing syndications, I get it. The syndicator is saying, “Hey, we’re going to take this apartment building. We’re going to buy it. We’re going to fix it up. We’re going to increase its net operating income, which was naturally going to increase its value. We’re going to sell it. We’re going to take that money.” Okay, I get that. But you need to be planting those investment seeds that are paying you. And part of it is just being patient and allowing those to come to fruition because I never would have thought that we’d be sitting on the real estate portfolio that we’re sitting on. The only reason we are is because we said, “Hey, let’s buy one a year. One property a year, we’ll add it to our portfolio. You get there. That was easy. Let’s do two. Let’s do three. Let’s do one a month. And then eventually, 20 years later, you’re sitting on this big portfolio and you’re like, “That was easy.”
Josh Cantwell: A ton of work over 20 years. But look, no, I love that. Like, plant the seeds and let them grow, particularly because so many people are using real estate for short-term income and they think they’re a real estate investor but all they really done is become super transactional and all it really does is create short-term active income. Then all of a sudden you’re getting slammed with Social Security tax, which is at or equal to or above your federal income tax. And they did it all wrong. And instead of being patient, maybe taking not as many chips off the table at the beginning and holding those assets for the next 10 or 20 years, that’s the way that ultimately you get rich. It’s not get rich overnight. It’s get rich, period, during your lifetime so that you can leave behind those dollars and those assets for the next generation and beyond that and also pay very little tax along the way. And I would tell our listeners, like if you’re not actively asking yourself and your advisors and your accountants, like, “How do I pay no tax this year?” that should be an active question that you’re asking every year is, “How do I just pay no tax this year?” It should literally be a goal.
You don’t get a medal for paying the government money like nobody’s going to give you a medal, especially when the tax code is written for landowners. It’s all the politicians, all the elites. They all own land. They all own businesses. That’s what it was written for. So, if you’re like, “Well, yeah, I made a big income, I paid a huge tax,” you’re doing it all wrong. you need a guy like Toby to help you out.
Toby Mathis: They all own foundations too. They all own charities. You’ll never see a rich guy without having some sort of philanthropic endeavor hitting and sitting by. It’s like when Elon was selling off Tesla, we knew what he was doing. We knew there was going to be a big charitable component that he was giving away shares because you can write off. You don’t have to sell a stock and get a deduction when you give it. You can give the stock to charity and you write off its fair market value as long as you hold it over a year. So, he has all these shares that he’s got like no basis in and he’s giving it away and everybody’s saying, “Wow, that was a big charitable deduction.” Yeah. He was just offsetting the sale from the shares of Tesla. So, it’s like he’s smart. That’s what they all do. And so why fight it? Like, the tax code is written for all of us. There’s rules. It’s kind of like if you were playing football and you had four downs but you decided you only had three, so you always punted on third down. It’s like you self-imposed that rule. The rule says you got four downs.
Josh Cantwell: Yeah.
Toby Mathis: You’re acting crazy, right? And that’s what we do. It’s like the rules are there. Choose to use them to your advantage and do that.
Josh Cantwell: Awesome stuff, Toby. Listen, Andersen Legal Business and Tax Advisors, that’s his company that he founded. He’s got all these investments. Helps lots and lots of entrepreneurs, just like all of you, our listeners. So, Toby, I’m sure a lot of our listeners will want to engage with you and figure out how they can not only be a better entrepreneur and a better investor but then also slash the taxes along the way. How can they get a hold of you?
Toby Mathis: The easiest way actually is just type my name into the internet and go to my YouTube channel. I could give you links, I could do all this fun stuff but realistically, just type in Toby Mathis. Go to my YouTube channel. I put this stuff out three videos a week where we’re always trying to help. Like, we literally are just a big community of investors. We’re just trying to help each other out so that we can all do better. And here’s my belief, very simple belief, you’re better with your money than the government with your money. So, keep it in your pocket and do good things with it.
Josh Cantwell: Fantastic stuff. Toby, listen, thanks so much for joining us today on Accelerated Investor.
Toby Mathis: Thanks.
Josh Cantwell: Well, there you go, guys. There you have it. Hope you enjoyed that discussion. I enjoyed it so much that I’m actually going to invite Toby to speak to my mastermind group, my Forever Passive Income Maverick Mastermind members. Again, very intermediate to advanced group of investors who are partnering, doing deals both multifamily, self-storage versus residential assisted living, and on and on and on. So, I’m going to have Toby come and specifically help that group. If you’re interested in becoming a member of that group, we are taking applications as by application only. That mastermind and partnering group, you can find at JoshCantwellCoaching.com. Also, not quite ready yet for the mastermind but you want to learn more about commercial multifamily investing and apartment syndications, go grab a ticket for our next live event at ForeverPassiveIncome.com. We’ll see you next time. Take care. Don’t forget to like, subscribe, rate, and review. I’ll see you next time. Take care.