Wipe Out Capital Gains Taxes with Opportunity Zones, with Scott Krone

Wipe Out Capital Gains Taxes with Opportunity Zones, with Scott Krone

Opportunity Zones! Scott Krone from Coda Management joins us to discuss a new way that investors can wipe out their Capital Gains tax burden on multiple investments! Opporutunity Zones are a great way to increase your earnings by investing in quality real estate assets while simultaneously eliminating capital gains taxes. We're talking about his strategy today of investing in a variety of assets with this Opportunity Zone Fund.

Please note that this is **not** personal financial, investment, or tax advice. You should always work with appropriate licensed professionals such as your CPA to evaluate whether a particular investment or strategy is right for you.

Get in touch:

Coda Management

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Self Storage Investing Mastery with Scott Lewis

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Guest Bio:

Mr. Krone is a Chicago native whose career in architecture began in 1991 by pursuing his Masters of Architecture from the Illinois Institute of Technology.  While obtaining his degree, he also worked as a Project Manager for Optima, Inc.  During his time at Optima, Krone’s responsibilities included such notable projects as the 400 unit Cormandel in Deerfield, IL, the 40 unit HedgeRow in Winnetka, IL, and the 51 unit Optima Center Wilmette in Wilmette, IL.

In 2012, Mr. Krone founded Coda Management Group – a firm who specializes in managing real estate assets.  Since its inception, Coda has manages a wide range of real estate including single and multi-family homes, retail, commercial warehouse and self-storage and multi-use flex athletic spaces.  Currently, the platform of investments is in excess of $55 million.

In 1998, Mr. Krone founded Coda, an award winning Design + Build | Sustainability | Consulting firm.  Since its inception, Coda has won numerous design/build awards including the international Green GOOD Design Award in 2010, Best of Houzz 2014 and 2015, and Design Evanston Award.  Their work has been featured in notable publications as Dream Homes - Chicago, Midwest Luxury Homes, Crate & Barrel 2010 Best Catalogs, NBC TV Show Taste, and national ACE Hardware Commercials.

In addition, Mr. Krone has authored High Performance Homes – Navigating the Green Road to Your Dream Home, a book for homeowner’s seeking to incorporate green technology into their home.

Scott resides in Wilmette, IL, with his wife and three children.

Full Transcript

 

SUMMARY KEYWORDS

investing, capital gains, investors, opportunity, storage, pace financing, building, fund, investment, zone, people, property, kentucky, financing, terms, real estate, area, years, capital, converting

SPEAKERS

Taylor , Scott Krone

 

Taylor   00:02

This is passive wealth strategies for busy professionals. Thank you for tuning in. I'm your host Taylor load. And today our guest is Scott Krone. Today we're going to talk about self storage opportunity's own funds and things that busy professionals, high income professionals, high net worth professionals can do to reduce your capital gains, Bill, opportunity zones. And opportunity's own funds are a great way for high income professionals to reduce your tax bill and completely wipe out capital gains over time by investing in certain areas in real estate. And you can make a great return and wipe out up to 30% or so on your tax bill. I mean, depending on you know, capital gains rates and everything at the times when it happens, you know, so this is a great opportunity, and Scott's going to teach us about what he company's doing investing in self storage with an opportunity zone fun to opportunity's own funds, how they're making fantastic returns, what they're doing with PACE financing we have, we have not covered PACE financing on the show before. It's a another learning opportunity for me. So we're going to talk about that. So if you're someone out there with a big capital gains bill you're looking at, and you want to get rid of it. Listen to this episode, and learn about opportunity zones. For those of you who don't know, I'm your host Taylor load. I'm a real estate syndicator real estate investor and I love talking about growing our wealth passively by investing in real estate. Without any further ado, here we go with Scott Krone. Scott, thank you for joining us today.

 

Scott Krone  01:50

My pleasure. Thanks for having us. We look forward to the opportunity to talk with you.

 

Taylor   01:54

Happy to talk with you as well. For those out there who do not know about Scott Krone Tell us about yourself a little bit, if you would,

 

Scott Krone  02:03

who wouldn't surprise me if you didn't, but I from the Chicagoland area I grew up in this in, in here and went away to college in Ohio, and then came back to get my master's degree in architecture from the Illinois Institute of Technology. And that's where I got involved with real estate, I was fortunate enough that I had a professor who owned a real estate development company, he was an architect and contractor. And so being that I was always still with an undergraduate degree in non architecture, he had me focusing more on the development side, while my peers were more focusing on the architecture while we were working in the office. But my master's degree was a project that we actually got to do. And it was a 400 unit 100 million dollar project. And so it was a great learning experience that I'd have to go on very early, and I worked there for six years before starting my own firm and we've been doing real estate development architecture. In construction, the design bill since that period of time.

 

Taylor   03:05

Wow, wow. So you have an extensive amount of experience and you've just been living in real estate. So what are you doing now where we are in this current market cycle?

 

Scott Krone  03:17

Well, we have two we have two companies coded design build is our retail division, if you will. So people hire us to do things, we'll do it for them. We just finished building a $2 million home and we just converted a church back into a church and now we're looking at doing a medical office building. Those are all our clients hire us to help them with, you know, land acquisition, financing, entitlements, the design and then the build. And then on our investment side, we've liquidated our multifamily we've stopped developing single family and we are focusing specifically on self storage converting old Urban buildings that are being underutilized or vacant and revitalize them and bring them back to life. So self control and self storage view units,

 

Taylor   04:10

facilities. Cool where what part of the country focusing on self storage and?

 

Scott Krone  04:15

Well, we, right now we this past week where we just expanded so we're in Wisconsin, Illinois, Ohio and now Kentucky. Wow.

 

Taylor   04:25

Wow. Okay. So you know, are you using any particular strategies to acquire the Self Storage properties? I mean, you mentioned sounds like you're revitalizing old properties. So you have some, some folks are buying up, you know, kind of older retail spaces, large big, big box stores and converting those into self storage. What type of properties are you going after to convert into Self Storage?

 

Scott Krone  04:54

predominantly, we're looking for buildings that are in the urban center where there's a lot of new growth within the multifamily development area. And so we're looking, it doesn't necessarily have to be a big box in one story, but it could be multiple stories, but you know, 80 to 110,000 square foot building that is really demographic driven. So we're looking at opportunities are underserved in the marketplace, and just converting those. So the one in Wisconsin was a storage facility, but it was historic. So we actually got historic tax credits for that one. The one in Chicago, you see the original Lincoln long factory. And then the two in Ohio one was storage were converted into self storage and the other one's been empty for 40 years. And so the one in Kentucky it will be it has like different businesses already in it, but it's too large. So we're gonna reconfigure the building so that we have storage of one half and then commercial in retail and the other half, and so on. would be a dual purpose bully.

 

06:02

Nice, nice Well, part of Kentucky.

 

Scott Krone  06:05

little too early to say that.

 

Taylor   06:08

Fair enough. Fair enough. Okay. And so I wanted to talk with you about talk about with you today was opportunity funds and opportunity zones. And we haven't covered that on the show yet. I've gotten the rundown, you know, from a few Opportunity Fund people, but it's definitely something that I think is worth discussing on the show that, you know, is not it's a relatively new concept, and it's no secret that it was not well utilized, at least initially, if Congress wasn't thrilled with at least I think it was called Congress with the amount that it was being used. But it seems now it's kind of picking up steam a bit. Can you explain, you know, what an opportunity zone fund is, and you know, how we can use it and, you know, let's run through the run through this strategy.

 

Scott Krone  06:57

Sure. Well, the opportunity's own fund is simply a fund that invests in an opportunities own property or properties. And the only requirement is that 90% of the funds have to be invested in qualified properties. And so what is a qualified property is not every property. The federal government left it up to each local municipality and state to determine what areas they want to encourage economic growth. So a lot of people assume opportunity zone means bad neighborhood. Well, it doesn't mean that I mean, there's there's opportunity zones in Hollywood. The ones that we've done in Toledo and Dayton, are both the opportunity zones and they're both in the downtown markets, and they're both in your booming vibrant areas. And the one we're doing in Kentucky is also going to be in an opportunity it is in an opportunity zone, I shouldn't say will be, the property is already in an opportunity zone. So what we're looking for specifically properties that are in the opportunity zones and then states that are qualified for PACE financing. So the opportunity zone is a tax shelter from any capital gains. And so in real estate, it used to be the 1031. If you had a capital gain, you could roll it into the next property. Well, they want to encourage and spur growth. So the federal government passed, and it was the most bipartisan legislation that's been approved that would probably last 30 or 40 years. Where if you take any capital gains, and it doesn't matter if it's from stock, it's from, you know, you selling something, it could be selling art, you'd be selling real estate, no matter where you have the capital gains if you put it into the fund, and it stays in it for the duration. Not only is that tax free, the original investment, but the growth in the fund is also tax free. So the people who developed it described as most powerful tool, the tax code, and so I think that's why there may feel that it was a little underutilized at first, but it's not entirely the investors fault because it took a while for It was going to be administered in one of the regulations and how it's going to be implemented. That took some time. So it was a little slow getting going. But now it's it's picking up pace.

 

Taylor   09:11

Nice. So that is actually that is an enormous opportunity to wipe out the capital gain on what you're selling, and wiping out the capital gain on what you're investing in. That is huge. I mean, that is a really big opportunity that people don't seem to be talking about enough that you know, our taxes are the biggest bill that most busy professionals pay period. And if we can wipe that out, at least on the capital gains standpoint, then that is a great opportunity for us. So it is it was interesting that it didn't get it didn't pick up steam for a couple of years. But what you're saying makes sense that it took some time for for the investors and probably a government to figure out how is this all really gonna work?

 

Scott Krone  09:58

You know, it was passed in December. 17 that was the the tax bill that Trump passed and 17. It was actually created in the Obama administration, but it didn't get any traction. And so it went into law with Trump. And so in 2018, the rules and regs didn't come out until very far into the year it was almost 2019 when the clarification even came out. Wow. So when we did our first fund in 2018, we were, I had to literally be on the phone with agents from the IRS trying to get an understanding of how it was going to be administered. They're like, well, this is what we're thinking, This is what the direction we're trying to go. So if you do it in this way, you should be safe. And so we just tried to make it as simple as possible, especially for our first fund. And we did it specifically for our investors, we we knew that our property was in the opportunity zone. And at first we had no idea what that meant. And so I had to literally Call them and then they call me back. And I didn't recognize the phone number. So went into voicemail and I'm like, Oh, my gosh, I missed it. So I called him back had to leave another message and they called me back and I was in another meeting. I'm like, I saw the same phone number, probably, I got it. And so um, you know, we just sat on the phone talking with this irate IRS agent for like, two hours. And the bottom line is that they're treating it like a self directed IRA in terms of what are qualified or disqualified investors. They want to make sure it's not you're not investing in your own stuff, but it's, you know, arm's length transactions and those sorts of things. But the so we specifically set it up for our investors, and we went to them and said, we have this ability to save you at least 30% who would want to have their investment in an opportunity zone fund versus a regular investment and we had three people raise their hands, so we established the fund for them and you know, they're question was, well how much you're going to charge us, we're like, we're not going to charge you anything. Because you're, you're already investing with us. And so we're just going to create this tax company for you. And all of the expenses are going to be built to the property. And so that way, you know, because we appreciate what you're doing, we're not looking at as a revenue generator for us. And so, we did that in December. And then at Christmas, we had our party and our holiday party and they came to us and said, What are you gonna open up your next one, we want to invest more money. So that's how we got the second fund going.

 

Taylor   12:35

Interesting. Okay. So you must have a few investors by now. I mean, so what do you what do you see is like the ideal profile for someone who is investing in these types of funds from just statistically who's most interested, who does it seem to benefit the most? You know, that's because it is a 30% is an enormous savings just to take like right off the top.

 

Scott Krone  13:03

Your time on specifically the opportunity funds.

 

Taylor   13:06

Yeah, yeah. who seems to be most interested in it from your experience like a profile?

 

Scott Krone  13:11

Yeah, the profile would be, I would say between 40 and 5055 years old. And the reason why I say that is not to say that someone below 40 doesn't have capital gains, but the people that are doing it with us are old enough that they'd have substantial capital gains. You know, a lot of them have come from the San Francisco Bay Area in terms of like, you know, investing in stocks, and they felt the Sox were at the peak. And so they wanted to, you know, alter their investment strategy or other people had sold off real estate. We have one who's just sold off his self storage facilities who loves self storage, and so he wanted to roll it into it. And so people who have significant capital gains but not too old, that they're approaching returns Were there, you know, because there is a time frame, you have to leave the money in for a long period of time in order to utilize the full extent. And so people that are patient, and so, you know, they're not looking, you know, they're 65 and they want to retire at 70. You know, it's not a five year play.

 

Taylor   14:17

Okay, okay. Yeah. So you do have to leave your money in the fund for a long time. How long? Is it seven years? 10 years?

 

Scott Krone  14:24

Yeah, well, there's a progression. So there's the five 710 years, you know, sec, you know, you get different benefits. I mean, if you invest it for two years, you you're basically using it as a tax deferring mechanism versus a tax shelter. So you're, you've deferred it for that two year period of time, and then if you pull it out, then you have to pay taxes at that point in time. So the idea was to leave it in as long as possible. So that way, you know, the investment stays in the areas that they want to develop and stuff like that.

 

Taylor   14:58

Okay, okay. You mentioned another thing that you're going after is PACE financing. And that's something I, I'm not aware of at all. So can you educate us on that? Like, what is it? What's the upside and why are you going after PACE financing,

 

Scott Krone  15:14

PACE financing is a Department of Energy Program. So the opportunity zones in the Treasury with the IRS, but PACE financing is in the Department of Energy. And again, they left each state to implement it on their own. And so not every state has adopted pace. And so if you go on to, you know, if you do a search for pace, which is Property Assessed Clean Energy Act, and they, the idea of it is if you have a building and you're looking to improve the economic performance of it in terms of making it more sustainable or green, the money that is required to do that can be the financing instrument can be applied to your real estate taxes with a special assessment. As opposed to a debt instrument and so from a capital staff perspective, banks view it as equity versus debt because it's above the line item because it falls into your property taxes. So therefore it doesn't show up as a lien as a debt position. So if we're investing like a million dollars, so PACE financing, that is amortize over the lifespan of the improvements, let's call it 20 years and then that is then broken up and applied is a special assessment. So we make two payments with the for the interest

 

Taylor   16:34

Okay, so what does that mean to the to the investor? I don't know if I'm a little thick skull I don't know if I'm fully grokking it you know, so let's go through you know, the capital stack or the or the benefit to the investor. What does that mean in terms of, you know, return.

 

Scott Krone  16:50

So let's say we have to have 70% debt, you know, for most banks require for commercial 70% debt in terms of the total capital stack with that So if we have to fill that remaining 30%, if we have 15% of it is paced financing and 15% of it as cash is equity, then in essence, they're the ambassadors are getting the benefit, because that 15% is filling the entire 30% Capital stack. So in essence that doubles their rate of return.

 

Taylor   17:20

Interesting. Okay, so that what rate does the PACE financing come after? And what's the what's the cost of that financing?

 

Scott Krone  17:30

It's basically like on financing, it's, it's, you know, incredibly low interest rates. So five 6%.

 

Taylor   17:38

Wow, so the investors are so that's, that pays financing is probably fixed, right? It's probably are they going to get paid before the investors but the invest investors have much more potential upside like how does the

 

Scott Krone  17:53

right so they're in the property taxes. So when you you know, when the bill comes out, you make your payment as part of your operating expenses. And so if we let's just say we're making $100,000. And we had $30,000 invested, you take the hundred divided by the 30. But in essence, you're taking 100 divided by the 15. Because now in essence we have $15,000 invested.

 

18:18

Interesting.

 

18:19

Okay.

 

Taylor   18:21

That is, that is interesting. So how do you how do you explain that to investors from from your end? Because it's a fairly, you know, we have to as investors, we have to get savvy on these things so we can make an educated decision. You know, have you found that they're mostly satisfied with that or that explanation or are you Is it more of a relationship thing? I'm just wondering, like, what's your, your pitch, if you will?

 

Scott Krone  18:50

Well, I mean, the first and foremost is it's about our investors. It's about our relationship with them. And so they know that we're looking for any advantage. We can give them. So you know, we've we've sold off cell towers we've sold, we've done historic tax credits that go back to them. We, you know, with the opportunity zone, we did that specifically for their interest not it doesn't benefit us, but it benefits them. And so we're always looking for how we can benefit them within the capital set. So the first part is they recognize that that is what we're trying to do for them is how we can protect and enhance their investment. So we don't a lot of people go in and just buy a property because it's an opportunity zone. We don't do that we it first has to make good economic sense the deal on its own. And then if we can enhance it with these other things, then it's just in our mind gravy. So the first thing is our investors understand that that's the perspective that we're coming from that we're putting them first. The second thing is we did have to spend a good a good deal of time explaining to them Where are the payments coming from? And how do they fit into the typical modeling. And so, you know, here in Illinois property taxes are high. So, you know, we did a lot of our modeling with high property taxes across all of our buildings. But you know, when we went into Ohio, the property taxes are like $16,000 for 100,000 square foot building. I mean, they're pretty low. But when we put in the PACE financing, it's almost equal to what we paid property taxes here in Chicago. And so if our revenue supports it, then we don't really have to worry about those extra payments. And so that's what we show them is how it fits into the cash flow. And then from there, we have to pay in debt servicing after that.

 

Taylor   20:43

Hmm, okay. Okay. Interesting. Yeah. For me, from my perspective, I mean, obviously, yeah, as you mentioned, that the relationship is very important. But as I think about this, you know, if I was making an investment decision on it, I would need to really get a better understanding of that. cash flow and how that's all going to impact the return. And then they the potential risks here. Because as you, as you said, it's treated as a property tax. So, you know, you're, it sounds like you're kind of running potentially another another risk that you have another tax man to be paid on this property. But, you know, you're probably buying with such a margin that it's not a big deal. So, you know, is that right? Am I understanding that right, and how are you mitigating that potential risk?

 

Scott Krone  21:35

Well, the first thing we're doing is always on the acquisition. So the last two buildings that we bought, we bought in at 11 and $12 per square foot. So we can't build, you know, we can't build new for that price. So we're about buying well below replacement costs. The one we went to contract in Kentucky with is it $17. So I mean, again, we're buying it well, by Low replacement costs. So that's the first part is that when we, when we go into it, even with our improvements, we're still at 65% compared to new construction of our competitors. And so that's what that's the first step was like to have a competitive advantage in terms of the acquisition and the redevelopment. The second part is, we model it in, you know, the one of the beauties of self storage is it is very predictable. And so we can model in what are all the expenses and what are the projected revenues, and then making sure that our capital stack and our payments, do matching with our capital, so our cash flow, so we looked at, initially a two year cash flow analysis, and then after that, then its model off or simply between years three and seven.

 

Taylor   22:45

Okay, okay. So you build in some kind of assumptions, some assumptions in there, too.

 

22:51

If

 

Taylor   22:53

I'm sure if the market turns and what's your breakeven occupancy, if you will? Yeah, that's my multifamily concept you're doing the Self Storage. But how much margin do you have in case there are occupancy issues? Or or if there is another property built nearby, there's more competition that comes online. Yeah, you're not running thin.

 

Scott Krone  23:16

In this, we're we're looking at the Saturation levels in terms of what how much competition there is. And so for instance, the one in Dayton, we were around two square feet of lockers per capita, which is, you know, the national average is seven. So we were well below what the standards were. And I think within five miles, it was three, three and a half, so we're well below it. But there's also a resistance for adding self storage in these markets. So the last two that were actually even the one we're currently under, you know, working on the contract right now. It's, they're all currently zoned for self storage. So we didn't have to change the zoning we went in as of right

 

Taylor   24:00

So you're saying that the zoning boards or whoever's in charge in that area is not allowing more self storage? zoning. So there's a lot of resistance, and it'll be very difficult for somebody to come in and build new self storage product.

 

24:16

Yeah, exactly.

 

Taylor   24:17

Okay. And as far as looking at the saturation, you know, are you looking do you look at distance rings, you look at travel times, like, what's your algorithm for, you know, picking your radio or figuring out, you know, what kind of competition you you have or where you close competition is?

 

Scott Krone  24:36

Well, we do both. I mean, obviously, the first easy metric is the radius room, just to get a sense, but obviously, if there's natural barriers, whether it be interstates or things along those lines, we take those things into consideration. And then we also look at what's happening in the urban development. So the one that we're going into and Kentucky we're really excited about because it's a it's a really fast growing urban market. Right there, and we've already partnering are looking to partner with existing local businesses that want to grow. And we've met with them and said, Hey, this is what we want to do with this building. And so they have interest in partnering with us to, to come in and fill the non Self Storage side. And so, you know, we looked for those sorts of relationships in terms of making sure that we're, we're going in this direction. So that building will be a little bit different for us in the sense that we will have existing cash flow in the building from day one versus our other developments, which know are dark in terms of revenue, you know, for nine months to a year while we're going through the permits and building it. And then, you know, when we first opened up, I don't have any revenue for, you know, positive cash flow in terms of covering our expenses until a year into the project.

 

Taylor   25:48

Wow. Wow. So yeah, you gotta be really confident on your beard numbers. You mentioned when we first got started talking that you've exited all the Your multifamily properties and now you're fully into self storage. How many Self Storage deals Have you done before you got into the Opportunity Fund strategy?

 

26:12

Um,

 

Scott Krone  26:16

it was our fifth one fifth and sixth one.

 

Taylor   26:20

Interesting, okay. And it sounds like correct me if I'm wrong, but it kind of sounds like the Opportunity Fund strategy encourages encourages investment in more distressed assets. would you would you agree or disagree with that?

 

Scott Krone  26:40

Um, well, I wanted Toledo I wouldn't call it distressed. It was a it was a functioning business. And we saw greater potential than what they were getting. And so you know, the the owner was happy with the price that we gave them and so obviously, because we he sold it to us, and so we saw that there was more potential for the property. The one in Dayton was 100% distressed and been vacant for like 40 years. But within a quarter mile there, they've added like 600 residential apartments in Wow. townhomes within a quarter mile. So we were very ecstatic when we saw all the development that's going on around it.

 

Taylor   27:18

Interesting. Okay, so it sounds like in, in, in essence, the opportunity zone hasn't necessarily impacted the quality of asset that you you go after it doesn't make any particular investment look more attractive. If I'm understanding that right.

 

Scott Krone  27:39

Well, the building has to work on itself first and foremost. So if the building doesn't meet it, then we won't do it. As I said, that's, that's the first criteria. So we see the opportunity zone is just a benefit for the people that want to participate in it. And we you know, we have blended buildings if you will, and when I say blended Not all of the investment is opportunity's own funding money. It is also traditional, you know, standard investor cash, if you will. So the building in in Kentucky, again, it's, I would call that one more of emerging neighborhood versus the other two. And the reason what we're really got it's three blocks from the downtown area. But over Christmas, they set up an ice skating rink near there. And everybody was flocking to this and it was packed. And so, you know, it's it's a, it's an area that they're seeing urban growth and development towards. And that's the type of thing that we look for your work. So

 

Taylor   28:39

that's cool. That's cool. So you, you mentioned a traditional investor capital and Opportunity Fund, capital invested, are they? How does that structure work? And you know, why? Why do you set it up that way? And what does that all mean? as the first I've heard that? The two can be commingled, if you will.

 

Scott Krone  28:59

Yeah, one Yeah, so let's just say that you're investing as a as a non opportunity's own investor. So we have our opportunity's own investment fund over here. So let's say I'm doing that, if I invest in that I'm investing in the fund, and then the fund invest in our LLC. Okay, yes. And you would just be directly investing in the LLC. So if you look at our opera, great operating agreements, tailor, you know, X amount of money and then it would say, called Opportunity Fund, you know, whatever number we're on now, and it would it would show them on the properties LLC as that investor and they would have that dollar amount associated.

 

Taylor   29:44

Okay, so why would a particular investor choose to invest in you know, the taxable strategy, rather than invest in the fund if they're investing in the same asset sounds like a fun has, you know, they've been obviously as much greater tax instead.

 

Scott Krone  30:01

So they might not have capital gains, so they might just have no ordinary income that they're taking in investing versus capital. Good. Hmm.

 

30:09

Interesting. Okay.

 

Taylor   30:12

But they don't, they're, they're kind of for growing me, because it's capital gains, wipes out the capital gains on what you sell to get into the fun and wipes out the capital gains within the fund as well. Right. So the person who's investing just traditionally, you know, outside of the fund, they might have capital gains on what they're investing, but they're still not getting that tax advantage from actually investing with the fund.

 

Scott Krone  30:42

I get that right. They're not getting that extra bonus. Right. But they are getting the other advantages of real estate in the sense that we're doing cost segregation, which is you know, forcing the depreciation rate at a higher level. Obviously, during this, they're in the lease up period. They're getting the loss Because of the fact that it's non performing for, you know, to two years per se, and so they're getting those added benefits of a tax shelter that are typically found within real estate.

 

Taylor   31:11

Interesting. Okay. And does one have to be is a question that comes up all the time in the syndication world, you know, is can I invest in syndications? If I'm not accredited? The answer is yes. You just have to go through some extra steps. Is that something that that comes up in here? Where do you have to be accredited to invest in opportunity's own funds in general? And and is that an opportunity for non accredited investors? Or how does that kind of play in here?

 

Scott Krone  31:38

That's a very interesting question. And I've actually spoken to the person who actually wrote the His name is Steve Blackman, he came up with the whole concept of the opportunities so well, so we were presenting an opportunity zone conference at the same time in Las Vegas, and we were on different panels, but there's nothing in the code that says about accredited versus non accredited investors. From the opportunity zones, it's just anybody who has capital gains. So it's no different than a 1031. investor. And so that that is a unique loophole that I'm not sure that if people thought about or didn't take into consideration, or just assume that if you have, you know, 50 100,200, or half a million dollars of capital gains that you would buy, by nature, or by default, be an accredited investor. You know, I don't know what the logic was behind it. But there's, there's nothing written specifically about it. We go through the same process, you know, we have our investors felt the same paperwork, so they have no subscription agreement, they have their own operating agreement, and all those sorts of things. And we treat it the same way. But there's nothing in the code that specifically says or at least that I'm not familiar with, that says about a creditor versus non credit.

 

Taylor   32:51

Interesting. That's good to know. But yeah, you make a good point, if you're going to have really substantial capital gains on the order of half a million or whatever. That your your odds of being accredited are fairly high because you might have a net worth over a million dollars or meet some of the other requirements. So the people who have good reason to invest in opportunity's own funds and are not accredited, probably kind of few and far between.

 

Scott Krone  33:19

Right. I mean, our smallest investment on the, the opportunity's own fund was was $50,000. And so you know, that that's, you know, where we see it as they've been people below $50,000 having a process so, you know, but again, our typical investors investing well over $50,000, but they have, in this case, they have $50,000, a gate and they said we want to put it all into the fund.

 

Taylor   33:46

Cool. All right. So we're gonna take a quick break for our sponsor. Scott, I've got three questions I asked every guest on the show.

 

Scott Krone  33:56

Are you ready? I am ready looking forward to this.

 

Taylor   33:58

Great for What What is the best investment you ever made? Other than in your education?

 

Scott Krone  34:05

My children, I, we've had the philosophy of really encouraging them to develop and grow the skills or the talents that they want it is it's been so awesome to see them move from being teenagers into young adults and really pursuing the things that drive them. And so the time and the effort that we invested in them, I think they're my my best investment.

 

Taylor   34:29

Nice. On the other side of that, what is the worst investment you ever made?

 

Scott Krone  34:36

At the crash, we thought we thought we could get into notes in being initiating notes. And, you know, at that point in time, it was harder to risk to analyze the risk and the volatility of the situation. And so I don't think I had a good enough handle now looking back on it, on how to assess the volatility of the marketplace within those notes. So for us, even though we did well in it, I think it wasn't our, you know, if we didn't do as well as we had hoped. And so it, it became a lot more time management for us than what I anticipated. And we actually had to take some of those notes and complete the work. And so it did not go as smoothly as we wanted. But that was probably one of the worst ones that we've done. Interesting, interesting.

 

Taylor   35:23

I would not have expected that. My favorite question here at the end of the show is what is the most important lesson that you've learned in investing?

 

Scott Krone  35:32

trust with verify, you know, I've had some relationships relationship with a business partner that wasn't so good. And, you know, it began with trust, but in a lot of things need to be verified. And so now we really focus on that. And now it's things that we apply throughout all of our lives, though, like even with our kids, like we trust you, but we're still going to check it and make sure that you are where you're stuffy. But, you know, now that you know my oldest is You know, almost graduated from college, we don't have to do it as much. But you know, having that foundation, it creates a lot more trust going forward in the future. So everything in our business now because of that last relationship, there's checks and balances to make sure that we're, you know, every department that we work in every department that we have has that that trust to verify.

 

Taylor   36:22

Nice, nice, I like that. So it's got a Thanks for everything today. I'm a big fan of self storage, investing and, you know, my self storage investments are doing fantastic. And the opportunity's own fund i think is a good opportunity for high income high net worth investors to really multiply their gains and invest in areas that are distressed so everybody wins. if folks want to learn more about what you do more about your business, your funding, everything like that, where can they get in touch with you?

 

Scott Krone  36:54

Our website is Kota co da, Amazon management G is in group.com so that's Kota mg calm in if you want to email us at info at Kota, mg calm.

 

Taylor   37:08

Nice, well, longtime listeners of the show and friends will know that Led Zeppelin is my favorite band ever in the world. You could have picked a better Led Zeppelin album to name your company after just a thought. But

 

Scott Krone  37:20

we get we get that question quite a bit. It's occurring less and less now the fewer the millennials listen to Led Zeppelin, but yes, it was not it was not named after let's up, but we do get that question quite a bit.

 

Taylor   37:33

That is true. The coda did come out almost 40 years ago. So it is a bit dated. And it was probably our worst albums. So

 

Scott Krone  37:42

I see why. Which still makes it a good album.

 

Taylor   37:44

siesta. Yes. In comparison to what in comparison to what

 

37:48

you can fit. Yeah.

 

Taylor   37:50

Yeah. All right. Well, thanks once again, to everybody out there. If you're enjoying the show, please leave us a rating on Apple podcasts if you know anyone out there who could use a little bit more Passive wealth in their lives. Please share the show with them and bring them into the fold. Thank you for tuning in and have a great rest of your day.

 

This episode is brought to you by Roofstock, the world’s largest residential real estate investing marketplace. Open an account for free and start browsing turnkey investment properties today.

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About Taylor

I am a real estate investor, syndicator, and host of the Passive Wealth Strategies for Busy Professionals Podcast.

I started the show because I realized that the typical “skip that $3 latte once a week” financial advice does not produce the life of abundance that so many Busy Professionals desire.

We’re here to learn how to live at a higher level.

Don’t forget to follow on Instagram @passive_wealth_strategies

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