MOBILE HOME PARK FOR SALE
In this episode of The MHP Broker’s Tips and Tricks podcast, Maxwell Baker, president of The Mobile Home Park Broker, interviewed Marc Henn about tax decisions that can positively influence mobile home park and RV community owners.
This and every Tips and Tricks podcast episode is brought to you by The MHP Broker’s’ proprietary Community Price Maximizer. Use this four-step system to get the highest price possible for your mobile home park or RV community when you sell it through The MHP Broker. Guaranteed. Ask Max for details.
Here Are the Show Highlights:
Want to know more about wise investments for mobile home park and RV community owners that can create tax benefits and generous revenue returns? Contact Max Baker and The Mobile Home Park Broker team at (678) 932-0200. We’ll be happy to put you in touch with Marc Henn of Harvest Advisors
Power Quotes in This Episode:
“I love the idea of strategies that when we look at investors and the biggest expense, they face…taxes…we can address that issue and keep more money in your pockets and less for the federal government. I think it’s it’s every American’s duty to do that.(Marc, 1:18)
“…our job really is to kind of design for a client a strategy to really save on taxes, have a great diversified mix, and if possible, if it’s something the client wants as well, to go outside of just those paper assets (stocks and bonds).” (Marc, 3:12)
“Those (oil and gas investment) tax write offs carry over into a Roth IRA strategy or a 1031 strategy or opportunity zone strategy as well…” (Marc,9:07)
“…when you factor in the tax benefits of a drilling program, we’re looking for a return of your capital probably in about a year, (or) between a year and a half to two years.” (Marc, 10:36)
“…you want to have a company that has enough insurance behind them as well, just to protect everything. And typically a company that’s also partnering with larger drilling companies like an Anadarko or Occidental, things like that.” (Marc, 13:40)
(Regarding the sale of mineral rights.) “So it operates and acts just like owning property above ground, and of course, that’s one of the many reasons that can qualify for that 1031 exchange.” (Mark, 20:57)
0:22 Maxwell Baker
Hey, y’all welcome to a another beautiful episode of the mobile home park brokers tips and tricks, podcast. As always, this episode is brought to you by the community price Maximizer. It is our proprietary system that will guarantee you a higher price. When you exclusively list with us 4 Step Program, give us a call, I’ll give you guys a phone number here at the very end for us, but today, we have Marc him here from Cincinnati, Ohio with harvest advisors and Marc, I’m excited to have you I met you at strategic coach, we started bonding over really just some tactics for park owners, you know, outside of just doing 1031’s. Tell us a little bit about you and and love to hear about your story how you became a specialized. I think the word for it is the five super asset classes is what you were calling them in our in our pre notes here. So yeah, I’d love to hear about it.
01:18 Marc Henn
Thanks Max!, a joy to be on here with you as well and yeah, when we were Strategic Coach back in June just kind of hanging out together and started talking about some different things and recognizing I love the idea of just strategies that when we look at investors and the biggest expense, they face taxes, how we can address that issue and keep more money in our pockets and less for the federal government. I think it’s it’s every American’s duty to do that. Right.
01:46 Maxwell Baker
Yeah
01:50 Marc Henn
So, thanks for the introduction as well and just briefly, I mean, I’ve been in the investment industry now for over 30 years and you know, starting out in the industry, really, my transformation came, you know, deal working with clients dealing in one of those super asset classes, you mentioned, just paper assets, what, what people normally think of when it comes to investing, stocks, bonds, things like that. But about 25 years ago, I had to make a shift into becoming and being able to serve more ultra high net worth clients as well, you might call it a family office or multifamily office type structure and that really kind of led us down the path of really recognizing these five different super asset classes and how they can benefit everyone. Now, I will say we the firm, have clients in over over 30 states, we have a lot of clients that, you know, just come to us that have a half a million, million, $2 million in assets, we’re primarily going to use paper assets to assist them and I think we do a great job, and we have a lot of great advisors to help that. But for those clients that are in for the family office realm, and that usually is for clients that have probably 15 to 20 million and above and specifically for those clients we call transitional clients that are transitioning from wealth management to family office.
03:12 Marc Henn
That’s an area that I find found to be very underserved. So in that kind of 4 to 5 million to $15 million range, just very underserved in this in this country, and so we went after it, we really, I guess focused on that market as well, that brings in this introduction of these five different super asset classes. So I’ll just kind of rattle them off here. The first is paper assets, as we already discussing. The second is the business environment, owning a business, there are special tax treatments that come along with that benefits their real estate, as you well know, has their own special tax benefits there also. Oil and gas, direct investment in oil and gas has tremendous tax benefits and I know we’re going to talk about that today, a fair amount. Then just other commodities, other commodities other than oil and gas. So those are the five kind of super asset classes that we look at and we want to introduce to clients for them to be able to recognize and in our job really is to kind of design for a client a strategy to really save on taxes have a great diversified mix, and if possible, if it’s something the client wants as well, to go outside of just those paper assets.
04:29 Maxwell Baker
Okay, nice. I didn’t even know there was a transition between family office and?
04:35 Marc Henn
Wealth Management
04:36 Maxwell Baker
Wealth Management. That’s new to me. So what really got me excited when we first started talking was the oil and gas because I was talking about using Roth IRAs to invest in in real estate and self directed stuff. So I naturally started asking you about it because you’ve seemed to have a lot of information about the oil and gas and I was like Man, this guy knows a lot about the tactics of oil and gas investing, and some of the tax benefits, so I was like, why don’t we do a podcast about it? Because like, I’ve never messed with it, I’ve never had anybody else do it. I’ve only done opportunity zones and conservation easements, and real estate investing, and then the and then the Roth stuff. So just would love to kind of, like, unpack kind of the, the whole world of that and just see where it leads us.
05:24 Marc Henn
Yeah, well, the exciting thing is even a lot of those strategies you just mentioned, opportunity zones, so forth, those are available in oil and gas as well and a lot of people don’t recognize that and again, it brings about how it’s structured, it brings about some special opportunities, and I think the biggest thing to recognize, and we’ll just kind of jump, we can jump right into the oil and gas. The biggest thing in that area to recognize is the fact that, you know, the government really tells you where they want you to invest your money, you know, again, think about real estate, right? They tell you, they want us to invest in real estate, they want more places for people to live, they want, you know, structures for businesses to be able to function and as well, so they get those tax benefits, you know, depreciation, things like that.
06:10 Marc Henn
Oil and gas is the same way, we got, let’s set aside you know, what side of the political aisle you might sit on, everyone recognizes in government as well that we need this energy here, just and so they want to provide these tax benefits and so, you know, in the past, when we think back to the 1980s, when we used to have, were able to take passive losses against passive against active income, in real estate, they took that away from us that they did not take that away from oil and gas. So you know, passive losses, quote, unquote, passive losses in oil and gas are willing, not passive losses, and we can take those against active income and that’s really, really, I guess, the starting point of how I think phenomenal oil and gas is and, and my family’s had a history in oil and gas probably for 100 plus years. Not that we have a lot of oil wells producing, but it has been something that’s been part of the family. So that’s why I get excited about this area as well.
07:11 Maxwell Baker
Very cool!
07:12 Mark Henn
When it comes to oil and gas, just in general, one of the ways to invest into that and is to do go into like a direct drilling program for into oil and gas and I will caution obviously, that you what you want to do is make sure you understand the risks associated associated with it, just like with any investment isn’t it is not risk free, right. So we have to you need to understand that, of course, what happened discuss that as well. But in general, as a general partner, what you obtained from that investment, is because of what’s called intangible drilling costs that go into this production, you get a substantial write off of your investment in year one in that drilling program. So especially for someone that has a lot of high income, especially high ordinary income that may be in let’s just walk through an example here.
08:04 Marc Henn
If you have a situation where let’s say you make a million dollars a year in income, and that last 100,000 is going to be taxed at 37% federal tax and of course, you have state taxes as well that you have to address as well. But we’ll just set those aside for a minute because you do get you do get a benefit there, but on that last $100,000, you will pay $37,000 in federal taxes. If that $100,000 was invested into directly into an oil and gas drilling program, your taxes, you’ll pay on that 100,000, drop approximate only 3700, you get pretty much a 90% write off on your taxes on that amount of income that you invested in that year, plus, you still get the $100,000 full investment into oil and gas and so that’s the huge benefit that comes from oil and gas. And I guess I would say that’s the initial starting point is just to understand that those big tax write offs are there, because then those tax write offs and we can talk a little bit more about this as well.
09:07 Marc Henn
Those tax write offs carry over into a Roth IRA strategy or a 1031 strategy or opportunity’s own strategy as well in terms of how that plays out. But just recognize it’s a huge benefit. So one is a diversifier to the portfolio away from just paper assets, and two huge tax benefits that you get third, as you started getting income off of it, it will be ordinary income that comes to you however, there’s something called a depletion allowance. So only 85% of the income is taxed to you not all 100% Because they know over time the mineral will deplete, and depending on the on the oil and the wealth structure and so forth, that could be you know, after 15 years, it could be after 40 years. We happen have a well on our family that’s been running for 110 years. It’s kind of crazy, but it’s still produces oil. So I’m not promising 110 years. But it’s, but that’s kind of the main structure of that is, is the program.
10:09 Maxwell Baker
I appreciate all that. So really what I understand is on that $100,000 I mean, you still are spending the $100,000 in investment.
10:20 Marc Henn
Correct.
10:20 Maxwell Baker
In that investment, what is it that, I mean, I know, it’s kind of all over the board. But if $100,000 investment, what’s considered a good deal?, and what’s considered a dead deal? when it comes to oil and gas when it comes to return.
10:36 Marc Henn
So one of the things you want to do, first of all, is when you venture into this, you definitely want to go with a large private company that’s been doing this for many decades, you want that you want that experience there, you want to stay away from, you know, when oil prices get higher, West Texas intermediate gets to $70-$80 a barrel, we start seeing, you know, experienced oil men start their own business and in trying to capitalize on that, I would totally stay away from those things, I just want to point that out. So as we go into this, what you’re looking for is a portfolio, you can get multiple wells associated with that drilling program. So it could be you know, 10,20,30,40,50 wells, maybe in that drilling program and the expectation is, and we’ve seen as historically, is not to promise returns, but when you when you’re when you’re around $70, or $75, a barrel of oil, maybe $68, even as well, we’re looking when you factor in the tax benefits and a drilling program, we’re looking for a return of your capital, probably in about a year, between a year and a half to two years.
11:46 Maxwell Baker
Wow
11:46 Marc Henn
Now a full return of that, maybe, oh, maybe a 3x to 4x return over the life of the program, then as well. Now, obviously, one of the risks is the price of a barrel of oil. If oil drops to $30 a barrel, that’s going to have a big impact on your return. So there again, there is one risk in that drilling program is the price of oil. But it’s under, you know, understanding the oil markets and what’s going on. I think, you know, without getting into a lot of details, I think we could be entering into another super-cycle into oil where, you know, unless we had some major global economic event, I would not anticipate oil dropping back to $30 and barrel. I just don’t see that happening. But that’s not you know, it’s not a promise. But it’s, but as we look at this, it looks like we’re entering into one of these super cycles, again,
12:35 Maxwell Baker
I’ve been seeing we actually have a community for sale up in West Virginia, and they’re building a pipeline through the state over there. I think America’s preparing that. It’s kind of interesting. If they raise interest rates, then the oil prices over in the Persian Gulf, typically dropped from what I read, correct me if I’m wrong, but if we lower interest rates, then the Persian Gulf starts to stop drilling to really balance out the the price for consumers here in America. And really, it’s limiting our ability to consume, and the interest rates are lower. I don’t know if they correlate one another. But I remember reading that the other day, you said something a little earlier that made me want to ask because like you said that, to find somebody that is not in the local office, or somebody has been doing it for years, to identify somebody that knows what they’re doing, how do you go out and find the people that are not the “Cowboys” , that you know, you don’t want to invest with?
13:40 Marc Henn
Sure. Well, and not that those not those people aren’t experienced. But the problem is, is they just don’t have the leverage getting the, you know, getting the drilling platforms and the drilling rigs, and it’s just they they’re just behind the eight ball all the time and there’s just a lot more costs associated with it as well. Plus, you want to have a company that has enough insurance behind them as well just to protect everything. And typically a company that’s also partnering with larger drilling companies like an Anadarko or Occidental, things like that. So really, if you you can’t, I mean, there’s a few that we use, that we talk to and get information from as well, for our clients, you know, it’s easy to go out, it’s fairly easy to go out and do a search for, you know, a private oil and gas drilling companies and then you just kind of you do have to do your own vetting, right, you do have to do some research, how long they’ve been around. You want them to have large insurance policies on on, on what they’re doing. So, you know, at least a probably a $20 million insurance policy, if not more on their operations just for protection as a general partner and or drilling program. So that’s where I would typically start that
14:51 Maxwell Baker
Going back kind of circling back to harvest advisers. That’s kind of what you specialize in. Correct.
14:56 Marc Henn
It’s one of the areas we specialize in. We specialize in a few different areas from a planning standpoint with corporate executives. And but from an investing standpoint, I don’t know a lot of firms that understand the oil and gas markets, all that well and so I think it’s our job really to, for those clients that it’s appropriate for, is to introduce that area to them and walk them through that they ultimately may decide not to do it. And that’s fine. But I think it’s our job to point that out to them. Yes.
15:23 Maxwell Baker
Okay. Now, moving on to some of these other things. You had some on your notes here in the pre notes, other commodities, we can continue to talk about oil and gas, because I obviously am interested in that, but wanted to see what other commodities that you guys specialize in?
15:40 Marc Henn
Yeah, tell me when you talk about other commodities you’re really just getting after. So we think of a structure of how to flow investments, if I could set it up, you’d have a business that maybe flows income into real estate, and that real estate flows income into oil and gas, and then the oil and gas income flows into other commodities for those individuals or families, whatever that wants to have protection from those commodities that they believe provides protection against currency fluctuations, geopolitical events, so you’re thinking about gold and silver or things like that, today typically move when you have uncertainty as well. So for those that want to have that, now, there’s a there’s a trade off those types of commodities, you know, there’s no earnings, they don’t pay any cash flow. It really is a fear based type holding. And I don’t mean that in any derogatory way. But it’s do you want to have that as a part of a portfolio, then yes, we can go do that. And I would throw cryptocurrency into there as well. I’m not a huge fan of cryptocurrency. But for those that, that like cryptocurrency and that structure that would fall into this other commodity bucket, as well.
16:48 Maxwell Baker
Yeah, I’d like to go a little further on how your the trail of income happens, and how you just kind of like, you made it seem so easy. It’s like making me do real estate, and then you do oil and gas, and then you do Oh, my, it’s kind of blown my mind here. So I wanted to see
17:05 Marc Henn
That flow of income really helps you maximize or optimize the tax benefits, right. So notice, I didn’t mention paper assets. So paper assets, I do believe needs to be a critical piece of the portfolio. And that comes up of someone’s overall assets and so that comes into play. But from an business environment, again, you think about the tax benefits you get from running a business, as well and when you have that income that will flow into an ordinary income type structure, ultimately, let’s say in most situations, there are tax structures, where part of that income could be, you know, an S corp distribution or something like that, that avoids some of the some of the FICA tax, but ultimately, it’s going to be ordinary income. and if you could ultimately put that into real estate, which I know some I know a lot of your listeners have that real estate part already and maybe the real estate isn’t business as well, you kind of cover these first two pieces. When you flow into real estate then and you invest into the real estate, then you start getting depreciation against that income, right?
18:10 Maxwell Baker
Yeah.
18:10 Marc Henn
So, as I get that an income paying out, I get to take that income against depreciation and other expenses. So there’s a lot of tax breaks on that income, well, then what if I flow that income and oil and gas and get another big tax write off on those same dollars as well, that flow into oil and gas and so now I’m getting tax breaks on this twice on the same dollar because of how I’m utilizing the different investment structures that are out there and, and the benefits that the federal government wants to give me.
18:40 Maxwell Baker
Wow
18:41 Marc Henn
So then from that oil and gas that will be most of that will be ordinary income, again, you get that depletion allowance and then from there, we have a discussion with our clients, do we? Do you want to put that into gold, silver, things like that? Or do you have a Do you want to pull that back into other real estate or other oil and gas to get more tax write offs on that income as well, ultimately, we will be paying taxes because we don’t want to just have everything in one asset class, right? We could, you can keep investing in oil and gas over and over and over to get all the tax write offs. But then your portfolio is way out of balance in oil and gas.
19:13 Marc Henn
So there is there is an art and you know, to this as well in structuring it, but that’s really the cash flow kind of that we look at for those clients that that that are in this, I guess have the assets and are in this type of structure is how we can take advantage of those different tax cash flows. If someone doesn’t want to own real estate, that’s fine. We can go directly that income somebody can go directly to oil and gas and just get the tax write offs right then. So it really we can tailor this and that’s one of the nice things about our privately managed account is that we can kind of tailor this to the client’s needs and desires and of course, as the desire changes for certain asset class, we can make an adjustment as well. So for instance, we have Um, I have clients that have real estate that are wanting to sell real estate but don’t want to go back into it right because of cap rates and things like that as well and that’s one of the things I mentioned to when we were at the at, when we met in June, is the ability to 1031 real estate and oil and gas mineral rights, which I don’t think a lot of people recognize you can do that. So
20:22 Maxwell Baker
Yeah, no idea. No, you actually took the words out of my mouth here on our pre notes. Here’s the 1031 exchanging into oil and mineral rights, like how’s that? How does that work out?
20:31 Marc Henn
Well, I think most people recognize is that when they think of real estate, they think of mainly what’s called surface rights, right? So that we come a call that real estate, so anything above ground, but real estate also covers this lesser known area, what’s called subsurface rights, and this is commonly known as mineral rights or royalty rights. Basically, it’s underground, natural resources in oil and gas. So what happens is, these oil and gas exploration companies who want to access those oil and gas reserves on someone’s land, have to pay mineral rights to the owner of those mineral rights to drill and operate the wells on that property. Now, the interesting thing is somebody as most of you probably know, this, some, you know, people can own the surface rights, and a different person can own the subsurface rights on that same property.
20:48 Maxwell Baker
That’s right.
20:57 Marc Henn
So when we look at mineral rights, mineral rights are, are considered to be real estate in every facet, or every distinction description, just like real estate above ground is as well. So the 1031 rules apply to mineral rights. Also, mineral rights is probably the safest way to invest in oil and gas, because the royalty owners don’t have to invest into equipment or field operations and the oil companies, oil companies pay all the drilling costs, things like that. The only risk typically for mineral rights is the price of the commodity. So as it goes up or down, that impacts the cash flow that comes from that. But, you know, as you invest into these mineral rights, you will get title and deed to the asset, just like you would on real estate above ground, it gets recorded at the county office, just like real estate above ground. So it operates and acts just like just like owning property above ground and of course, that’s one of the many reasons that can qualify for that 1031 exchange.
22:28 Maxwell Baker
You can’t, you can’t really buy an option or short sale that the price is going to go down on oil on this stuff. Can you I know that sounds like a dumb question, but I figured I’d ask.
22:38 Marc Henn
It’s a great question, you can always hedge against that, you just have to do it through your paper assets. Right. So that’s that combination of if I own mineral rights, or oil and gas in this super asset class, and I really, really wanted to hedge the price of oil, well, I can, we can do that through the paper asset aspect. Now, the thing about mineral rights too, is that you still get that 15% depletion allowance as well. So not all your income is going to be taxed to you one thing to understand when you do to take a 1031 exchange into mineral rights, you cannot take any debt into it. So that’s a little different than with real estate. So whatever type of 1031 exchange you’re doing, whether it’s simultaneous or reverse or an improvement, well, probably not an improvement. But any of those in anything you put in, can’t have the debt associated with it and what you keep out are the boot, you know that there’s there has to go, the debt has to go with that.
23:35 Maxwell Baker
What happens if I’m do the 1031. And then a year later, I’m like, I gotta sell this, I need this cash, how does that work out?
23:42 Marc Henn
That’s a great, you can sell the mineral rights, it may be a little more difficult to sell them than it is to get into them. Now, I we typically have not looked at mineral rights in the past, because the yields were just not fantastic, right 5%-6%-7%. So not bad, but nothing to get super excited about and there just happens to be a couple of things kind of culminating right now, where what we’re seeing is the information we’re getting is that we’re seeing mineral rights now paying about 12%, which makes it a little more exciting. There is one company that we’re going through, that actually has put together a fund to invest into mineral rights. So now all all of the operational work is taken out of have your hands and completely done by this organization, US energy and so we are we will look to them probably to do it at this point in time and one of the things when you do that fund is that an important piece of this is that you still retain the individual ownership.
24:50 Marc Henn
So it’s almost like this kind of like, opportunity is there to utilize mineral rights, if someone wanted to get into them, I will tell you the the organization that you have synergy that we’re looking at going into this fund, their goal will be to look to sell those assets in three or four years to get a gain off of them and you don’t have to sell them, you can keep the ownership. But when it comes to you selling them, the out, the easy out would be going through a situation like this, or they would look to sell them in three or four years, if you needed to get to get out in a year, it would be we’d have to work on trying to get them sold and it takes a little effort on our part to do that. So I usually really stressed the clients, if you want to do this piece of the portfolio, you know, let’s find other assets to sell if we need to sell something, and let’s keep these going to do what they’re supposed to do. So if you think you might need those assets, I would probably dissuade someone from going into that area. Just be or make sure you have enough assets outside. So we don’t have to sell those. Not that we can’t, but it can be a little more difficult to sell those in the future.
25:53 Marc Henn
So just because you’re going into a fund, it’s not pooled together. Where you lose the 1031 option in the future you still retain that because you still have the individual ownership and so along with that, so what they’re doing their anticipation is this. There’s things going on right now in the oil markets, and with how certain large endowment funds and so forth. So, large endowment funds used to invest in these mineral rights for decades. And with a changing political and social structure out there, right now, with ESG, investing, and so forth, we see these investment policy statements of these large endowments changing where they can’t own these oil and gas and mineral rights. So they’re having to sell them as well. At the same time, we’re seeing how Wall Street values and prices, oil companies, that’s all coming together to create the situation where mineral rights are paying a much higher yield right now, I don’t think that lasts forever, probably the next year or two.
26:54 Maxwell Baker
So one of the questions I had Is this, like, I’m assuming it’s not like a CD where you just buy at a certain time, and then it stays at that return for you know, six months, 12 months, three years, you know, if I invest in oil and gas, and we’re predicting 12%, you know, 12 months later, if the price of oil takes a dump, then obviously it’s not going to be paying 12% 12 months later, it’ll move the needle will move correct?
27:23 Marc Henn
It will fluctuate around on the on the price of the commodity and remember to what would happen if oil dropped substantially, or the price of gas drops substantially, the drilling companies would just stop drilling and so you would still have mineral rights on those grounds, and they would not drill, they would stop drilling in those areas, waiting for oil prices to go back up again, when they would they would start drilling again, and then you would start getting cash flow again from that. So the important thing there is yes, there may be a reduction in cash flow for a period of time if oil prices drop, but you’re not going to be stuck having to sell a bunch of oil at cheap prices. And then when oil goes back up again, now all of a sudden, you just you lost the ability to make money on it, because of the fact that it’s mineral rights.
28:08 Marc Henn
If it’s not drilled, it’s not drilled and you still own this mineral rights. So if they feel that 20 years from now, and they came back and finally hit a certain area that you owned, you would start getting income off with that. So this is a very mineral rights is a very long term type structure that we’re that we’d be looking at. But it does provide that 1031 Exchange, and of course, opportunity zones provide that option as well. I had somebody say to me, Oh, I wish I would have known about this, I sold my real estate or I had long term capital gains, you know, from from earlier, like, well, opportunity zones still exist in oil and gas. And so that’s an option as well. However, you know, the mineral mineral rights, it’s just it’s a unique opportunity right now where the the typical yields are higher than what we normally would expect for this price of a barrel of oil.
28:58 Maxwell Baker
Yeah, and the opportunity zone play is pretty exciting because I know mobile home communities sit in opportunity zones, a lot of them do, I’d say Good. Out of the ones that we sell 30% of them as a good at my gut, my guts telling me it’s about 30% of them are sitting in opportunity zones. Is it like that in oil and gas? Or is it kind of like a random like, Oh, this is nice, I can do this.
29:22 Marc Henn
It depends, again depends on how you structure it. So you need to find a company that that understands opportunity zones and can then can set up an opportunity zone fund to take advantage of that opportunity zone in oil and gas. So I think it’s what it’s like 19% of the land in this country has been marked as a as an opportunity zone area. In some of those areas you have oil and gas drilling opportunity so how an oil and gas, How it works is a little bit different from a opportunity’s own in real estate, is think of About you input, you invest into the opportunity zone with your capital gain, right. So all gains go into that opportunity zone. What the oil and gas companies want to do, the one that I that I typically work with is they will, for the first year for the first six months, you receive no cash flow from the oil and gas investment. The next six months, you’ll receive a 4% annualized cash flow tax free, ongoing after that, for the next nine years, you’re going to get 6% after tax cash flow every year off the investment. All right, and we all know that in year five, we after that, we have that the capital gains deferral ends and we go into, say 2027 now, and the capital gains taxes do, and in real estate, you typically have the situation where you’re looking at 90%, I believe of what you put in or the value of the real estate and the real estate typically doesn’t lose dramatic, dramatic value, right. It stays up there, and you have to pay your capital gains tax at that time.
31:15 Marc Henn
Do you remember I was talking about those intangible drilling costs earlier how that reduces your taxes, intangible drilling costs, also reduced the value of the investment. So you’re focused on the cash flow. So in year 2027, what happens is, the value of the investment could be substantially less than what you put in. So if you put in $200,000 of gains into a program, in normally in real estate, you’re looking at $180,000 gain. In year 2027, you have to pay capital gains tax on an oil and gas, that value may drop to 150,000 or 140,000 because of the intangible drilling costs. And in addition to that, what the oil and gas company does this private company in the year 2027, because they’re getting a lot more cash flow than just what they’re paying out to you. That’s the goal here, right and they do hedge the price of oil as well to make sure this works. Again, nothing’s infallible, but that they structure it that way. In 2027, they will pay out a special 23.8% dividend or cash flow to you based on the value of that oil and gas investment. So you have the cash to pay the capital gains tax on that investment.
32:39 Marc Henn
So 15% for the regular capital gains the additional 3.8% for the you know, known as the Obamacare tax, but they put in for that, and then an additional 5% for those that could have a high income or you pay the additional amount. So they’ll pay out a one time cash flow to cover the taxes and then after year 10, you get all tax free gains from that could be sold and with the additional cash flow they’re getting in that program. They’re reinvesting into additional oil and gas drilling all along the way as well, because the cash flow typically would be much greater than they get again, and then what’s being paid out. So they’re looking ultimately at the end game here of being able to sell a large swath of oil producing assets after your 10 and getting a full tax free gain off of that investment. So that definitely is a long term play as well, and you would not want to go into it. Unless you had that 10 year time frame setup.
32:39 Maxwell Baker
Gotcha
33:39 Maxwell Baker
Yeah, cuz a lot of park owners I talked to are like, Max, I don’t want to sell because I don’t know what to do with the money. I don’t want to pay the tax. A lot of times has been struggled. I mean, we’ve do 1031 exchanges. I have tried, but I’ve yet to find an attorney to do the deferred sales trust, that just it’s been around for a long time, but I’ve never had anybody I know, do one, and then now the oil and gas seems like I mean, it’s almost like a triple net asset. You buy it and you just forget about it and just get a check in the mail every month by or every quarter by the by the tenant, and you just have like a ground lease, and so it’s interesting because now it’s another tool in the tool belt for these park owners that have wants to get out of communities and manage it but still want to have some income coming in. So it’s a great as a great opportunity for Park coders. I mean, that was the main reason why I was really excited about having you on the on the show today.
34:39 Maxwell Baker
Well, Mark, we’re touching almost 40 minutes here. Do you have any closing thoughts here before we sign off here?
34:47 Marc Henn
You know, the recognition and I think you your comment about It’s another tool in the tool belt. I think that’s a great comment to make. It is another tool. It’s a very exciting tool. For me, it’s a very valuable tool. So as real estate, so are these other super asset classes I was talking about, I think my closing comment would be for your listeners as well. Find somebody that can assist you that understands these areas, so they can use them and build something and construct something, for your benefit. There are so many, there’s so many benefits out there that once you understand and know them, it’s like, once you see this, you can’t unsee it right. And I’ll tell you this, I have a degree in economics from Purdue, whether that’s good or bad, Purdue, they kill me and come March Madness time every year for basketball anyway, so But I still love I still love the Boilermakers, and I’m a certified financial planner practitioner as well. And I have to tell you, all of these strategies that we’re talking about, even with real estate, and depreciation, and oil, and gas, and so forth, I learned none of that, as a CFP or as getting a degree in economics, and I think that’s an underscore.
36:07 Marc Henn
That, to me is the most, I guess, disheartening thing is that I had to learn all of these areas outside of an education that I thought would provide that to me and be able to provide that to my clients as well. So if you do your due diligence to find somebody ask them, what other education do you have, how do you what do you look for? Where do you get your information from as well? What do you think about these other super asset classes?, and can they describe it and talk about how to construct them together? I think for those clients that have high income, large amounts of real estate, or in this transitional the family office type structure. Those are critical questions and a critical structure and a critical team member you need to have on your team, just like that accountant and the bookkeeper. All those are critical people to have on your team. I think having an advisor that can assist you in those areas is critical as well.
37:03 Maxwell Baker
Yeah. So I would love to pitch you on here because you do have that experience. And you do have the knowledge to do all of this. So, Mark, how do we get a hold of you?
37:13 Marc Henn
That Well, thanks, love to talk to people as well love having connections, you can reach me through our phone number, which is (513) 779-3030. Our website’s harvestadvisors.com, nd then my email address is just Mark@harvestadvisors.com You can reach you can reach me through any of those means. And look, we’d love to talk to anybody.
37:50 Maxwell Baker
Yeah. And obviously, I’ll send some park owners your way I at least hear at one once a week. Hey, Max, I don’t know what I’m going to do with my money. I don’t want to pay taxes. So no, tell you. I’d love to get a deal story of a park owner we have working with you.
38:08 Mark Henn
Yeah, that’d be great
38:09 Maxwell Baker
Mark, I appreciate your time. Thanks again for joining us. Like I said, y’all give him a call (513) 779-3030 or hit him up on the website, harvestadvisors.com That is plural. There’s an ‘S’ at the end there. So hit him up!
38:27 Maxwell Baker
As always, this episode is brought to you by the community price Maximizer. It is our proprietary system that will guarantee you a higher price when you exclusively list your mobile home community or RV community with us. And then if you have gain, or I know you will have gained because all park owners have gains reason why everybody loves mobile home parks and RV communities when they go to sell, give mark a call, and he will help you with navigating the treacherous seas of the tax environment we all live in here in beautiful America. So as always give us a call (678) 932-0200 We’ll have to chat with you about this and any of your mobile home park investing needs. We appreciate your listening and let’s keep moving forward.
Marc Henn is a Certified Financial Planner Practitioner (CFP®), and has been assisting Family Office and wealth management clients for over thirty years. Marc is a 1990 graduate of Purdue University with a Bachelor of Science in Economics. He is the founder and president of Harvest Financial Advisors, LLC, which is headquartered in Cincinnati, OH, with a second location in Naples, FL. Besides assisting his clients, he regularly speaks with various groups of all ages on investing, and has a passion for educating and planning for the next generation.
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