Toby Mathis - Advice From Preparing 100,000 Real Estate Investor Tax Returns
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When you have 25 years experience as a tax attorney and founded a company doing over 100,000 real estate investor's tax returns, and you have invested in over 200 real estate projects yourself, you know how to make the most of the intersection between real estate and taxes to help build wealth. He's the author of "Tax-Wise Business Ownership" and "Infinity Investing: How The Rich Get Richer and How You Can Do The Same". He's focused on helping investors preserve their wealth and create amazing legacies for future generations. If you're looking to get started, check out all the free resources on his Youtube channel, which has over 190k subscribers!
In this episode, hosted by Mike Swenson, we discussed:
- Real estate is the most lucrative type of investing and it gives you a unique opportunity to help others.
- If you're going to work with investors you need to do what they're doing, which is why Toby invests himself.
- Continue to buy assets and as time pass by they will do all the work.
- Assets were designed to accumulate money for you.
- With a Real Estate Investor designation, you aren't subject to payroll taxes, social security and Medicare.
- If you're going to start in real estate industry you need to learn how to house hack, wholesale and do arbitrage.
- Put together the time, money and expertise.
- You’re not going to get fulfillment if you are just going to look at the numbers.
- The human element of real estate investing is that you can provide good quality housing, be responsible, and a responsive property manager.
- If you want to be wealthy, be a giver.
- Utilize the gifts that were given and maximize it.
- A good mentor is a cheerleader that gets more interested in your success and enjoys to see you succeed.
- Your belief changes your behavior.
- You can make a direct impact based on your own outcome.
- The two tax worlds: when you pay and when you don’t.
Timestamps
0:00 - Intro to Toby’s Career
2:30 - Real Estate Portfolio
3:44 – Investing Journey
5:48 - Taking Risks
11:53 - Single Family
18:11- Human Impact
21:39 - Identify Correct Information
24:51 - Advice
28:30 - Market Shifts
30:16 - Importance of Mentors
37: 17 - How to Encourage
37:37- How to Find Toby
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Full transcript here:
Mike Swenson
Welcome to The REL Freedom Podcast where we inspire you to pursue your passion to gain time and financial freedom through opportunities in real estate. I'm your host, Mike Swenson, let's get some real freedom together.
Mike Swenson
Welcome everybody to another episode of The REL Freedom Podcast where we talk about building wealth and gaining time and financial freedom through opportunities in real estate. So today, I am so excited. We're kind of nearing the end of the year, we're going to talk about everybody's favorite topic taxes. And so we have an expert here, Toby Mathis. And we're going to talk about not only his personal portfolio that he's built, we're going to talk about tax strategies, we're going to talk about what he has seen in the market, kind of the the BS that's out there that maybe you shouldn't be listening to, you know, what, what you should be focusing on to help build wealth.
Mike Swenson
And so just a little bit about Toby, he's worked on with his firm, about 10,000 returns per year, over 100,000, investor tax returns. And so obviously, you know what you're talking about, you've seen it, you've experienced it. So just a ton of wisdom there works for Anderson legal business and tax advisers invested in over 200 real estate projects, 400 properties, books, tax wise business ownership and infinity investing how the rich get richer, and how you can do the same. And so you continue to help investors and business owners preserve their wealth, and protect it and create amazing legacies for future generations. And I will also add 191,000 YouTube subscribers to your YouTube channel. And so that's amazing to see that you've got a lot of great information there on YouTube. So already plugging that to come watch, but you just got a lot of great content out there for people to listen to, and to help piece it all together. So welcome, told me that was a long introduction, but excited to have you on the show.
Toby Mathis
Hey, Mike, it's absolutely better than he's a lawyer and he sucks. That sucks. I'll take whatever I could get. At that point. No, I really appreciate what you're doing. And I just give you the kudos of going out there and spreading good information. There's a lot of people out there that spread bad information. And, you know, if you look at the cable TV, you're gonna hear stuff like the markets crashing and oh, you know, we're gonna be in this recession. What does that mean? Even, you know, in all this doom and gloom, and they just love to give you clickbait. And unfortunately, it takes a lot of people for a ride.
Mike Swenson
Yep. Why don't we start just kind of share a little bit about your journey of how you got with within your your tax business to where you are today. And then we can kind of go from there and talk a little bit about your your real estate portfolio portfolio too, and how that grew a little bit and how you got to be where you are.
Toby Mathis
At, yeah, 25 years practicing law, I've been doing small business and investor advising for that entire period of time, I'll just be real straight up with you. I really feel badly for people who have professionals that don't invest. I think that if you're going to be working with investors, you need to be doing what they're doing. So you understand the nuances. Because there are two tax worlds out there. There's the way that you pay. And there's the way that you don't pay. And just like simple things like this, like people think that you're supposed to depreciate your property over 27 and a half years, if it's residential, or 39 years, if it's non residential, and that's absolutely bunk. That's actually a non permissible method that they let you do because it costs you so much more. The method that you're supposed to use actually saves you considerably more. But you have to take a step in I bet you that 99% of the accountants out there automatically default to the higher the higher cost or the taxpayer way.
Mike Swenson
Yeah. Talk about your kind of your investing journey here, practicing what you're preaching, being able to be in the world to help others. How did you get started in investing? And how did that grow?
Toby Mathis
The I got really lucky. In 1988, I met a guy named Boyd Watkins out of beer in Washington to a friend. And Boyd probably wouldn't remember me, I was a snot nosed kid that came over with a mentor of mine and, and he showed me a list of properties that he had in Seattle and in Denver, and was talking about this real estate portfolio and how important it was to accumulate real estate. It didn't hit me at that time. But years later, kind of hit me like a lead brick in the head that I was looking at the value of the house is not the cash flow. And I realized that the cash flow was actually where it was at. He had a cash machine that was generating cash, I don't even know how much it is now. No clue. I just I'm sure he's phenomenally successful.
Toby Mathis
But it was one of those dot matrix, if you remember what that is how they used to have the printer and we have all these sheets and you'd open up this big old spreadsheet. And he had hundreds of properties. And that just tripped me out. You know, so fast forward 30 Some years and I have the you know, something similar. And I just want to share that with people to say look, anybody can do this. It doesn't require a rocket Scientists degree or anything like that, if you just methodically accumulate your your your cash flow assets and just real simple and asset feeds your liability bleeds you stay away from the liabilities by the by the assets and continue to buy them. And just over time, they will do all the work, you don't have to do anything except let let those assets do what they were designed to do, which is accumulate money for you.
Toby Mathis
And just keep buying them up. And you'll be shocked at where you're at in 1020 years, it's just absolutely mind bending when you realize that you're making more off real estate than you'd ever. Like in a month, we make more in real estate than we were making as a as a professionally degreed professional working full time, I make more now in one month, just off the cash flow of our real estate than I did in a full year when I started, in my practice, I would say
Mike Swenson
Most people probably listening to the podcast, maybe haven't invested yet in real estate and want to get started. So part of the deal is just get over the hump, you got to take the risk, you got to get into it. So for you getting started, like what was it for you that kind of got you over the hump to get started? And then kind of tactfully, how did that look, you I know, we had talked offline a little bit about what you have for kind of assets there. But single family, that sort of thing. We'd love to hear kind of that starting journey to help people out because that's a barrier for so many.
Toby Mathis
Yeah, if anybody thinks they're just going to buy passive assets, and they're just magically going to go out there and get handed on, it's not going to happen. So all these folks that are out there peddling, you know, the, I don't want to say the No Money Down thing doesn't work, I'm just gonna say that usually you have to work your ass off to generate some income, and then put it into the investments, it's kind of like I got to work hard and put it into the investment and stoke it. It doesn't require much, you know, they did a study of over 10,000 millionaires. And the top three categories were engineers, accountants and teachers. And I'm going to emphasize the teachers because the average salary in the United States for teachers less than $70,000 a year, and here they are picking up one of the top three spots for millionaires. And they generate that by systematically continuing to accumulate assets while doing something that they love.
Toby Mathis
And I think we all looked at that and said, hey, the job is something that I should really enjoy doing that generate some active income is the worst tax treatment that you could put, like, if you worked in McDonald's, you're getting taxed more than then than a real estate investor, you know, period, because real estate's never subject to payroll taxes, social security, or Medicare. But once you kind of make that click, and you realize, Hey, I just got to do something that I like to do, and then systematically invest in things that'll keep paying me, then you'll get over that hump. And then it's just taking the dive like jumping in. And here's what I'll tell people that if you started off with nothing, because I had nothing, I had less than nothing I got out of law school, like going through school, I paid my way through school, had a little bit of debt, but I had no money.
Toby Mathis
And this was before they would give you a bunch of credit, like your credit card, they still checked your poles back then to make sure you could pay it back. So I didn't have a credit card. And it was a struggle, I lived in a 400 square foot apartment, and I worked my tush off with the idea that I still I'd put some into the investment. I understand that it's very easy to stand on my side and say, Hey, once you've developed and all this, all you have to do, no, it's not that easy.
Toby Mathis
You got to work your butt off, you got to be smart. And you got to take your dollars and put them into service for you. And what I would suggest is if you're just getting started, do something in the real estate industry. I don't mean like go be a real estate agent, but wholesale, learn to house hack, do an arbitrage like rent a property and use Airbnb, but get immersed into it, even if it doesn't require much out of pocket. Like some of those things don't require hard like wholesaling, you can learn to do and it's just elbow grease, like you could do that, in your spare time with almost no investment. It's just it's just time and energy or flip mobile homes.Like right now people are looking for mobile homes all over the place. If you just get on to some of the marketplaces, Facebook or whatever, in start finding some of these, you might be able to put two and two together, make a few grand, then invest that. invest that in set a goal of like, hey, one property a year, something that you can hit,
Toby Mathis
and it doesn't have to be a $500,000 property lose that thought right now that if you're looking in your local area, you're probably going to find lack of success. If you're on one of the coasts. If you're in the middle of the United States, you're probably going to be okay. But a typical rental property right now that cash flows I'd say is gonna be less than 150,000. It's gonna be right in that range. That's your bread and butter. That's where you want to get started. And there's no replacing, doing like you got to get your hands dirty. You gotta just do it even if it kicks you in the tail. It's to wish Shin, just make sure that while you're doing it that you're following sound principles. I know, Mike, that you refer people to these spreadsheets and you have the calculations and you're plugging in the numbers.
Toby Mathis
That is a great hedge to minimize the pain that may come along with some of your investments. It's just risk, mitigate mitigation. But if you do it long enough, you will absolutely have success. I live out here in Las Vegas where the casinos know this, they may lose to a whale periodically, but they know that if they have 1000 people come into their casinos, they're going to make a certain dollar amount, per person per day. And that's what they build their billion dollar casinos out of real estate's no different, it's about averages. And it's about getting your hands dirty, and just doing it and telling all the naysayers to go to Heck,
Mike Swenson
yeah, one of the things we've talked about in the past is, you know, there's, there's kind of three things, time, money and expertise. And you're trying to put together a team that can have those things. And if you're somebody that doesn't have the money, right now, you may have the time. And if you don't have the expertise, you can take your time to go get some expertise to go partner with people that have money, or you put your time into building up your income to be able to use that money. And so if you can figure out what which one of those pieces of the triangle you have, and figure out ways to either leverage with partnership, or find other people because, yeah, I mean, you know, busy professionals that maybe don't want to learn about real estate, don't have the expertise, maybe you don't have the time, but they have the money. And that's where you find a an expert in real estate that can help you complete that triangle. So it's kind of that mentality,
Toby Mathis
I'm so good to steal that by the way, my time, money expertise is perfect. And it's a great way to equate it. So always attributed to you. Maybe
Mike Swenson
Real quick then just to kind of talk about. So you said single family is where most of your investments are.
Toby Mathis
We have a lot in single family, we have apartment buildings, we have storage, we have office buildings, we've had warehouse, we just sold off a big warehouse. So I have to say we used to have I think we may still have one or two here. But I tend to hold forever. Say that right after that I sold something but it was you know, it's one of those things you just some offers you don't walk away from you're like, Okay, I could, I could use that money someplace else and get more out of it. I like to single family, and it's not for the reasons you're probably thinking about I like it because I can affect live.
Toby Mathis
So if I have disabled veterans, I can give them a break. If I have single moms, I can give them a break. If I have somebody's Grandma, I can give them a break. And the reason I say that is I think that you're going through this life, you got to have some purpose. And if you are just raw looking at numbers, you're not going to get a lot of fulfillment. So you got to do good out there. And it's really hard to do good. If you're Blackstone or BlackRock, because you have a fiduciary responsibility to shareholders to maximize their return.
Toby Mathis
As an individual, I can do good. And I can do what I want to do. And I'll share one little unrelated story was a gentleman in Seattle that had a bunch of they were minute loops at the time. I think they're Quaker State now and he had subway franchises. Jean Thompson super guy. I had lunch with him. And I was just again a young schmuck and I would talk to these really smart business guys. And he told me the his favorite thing about owning a business and being successful is that when he had a manager, he didn't have to think about it and ask permission. He could say, take your spouse out for dinner.
Toby Mathis
It's on us. And to me, that was just like the coolest thing. I come from humble beginnings. So going out for dinner. It's like if we went to the steakhouse, like sizzler, you I don't know if you remember sizzler, that was like a night out that was like we're going out. That has an impact on somebody.
Toby Mathis
And you can't really put $1 figure or you know how kind of fulfillment is, I love that I love that and and I think that if we need people out there to be successful so that they can be human beings so that they can help others. Black Rock, Black Stone, those guys can't do it. We as individual investors certainly can, and need to be more present in the marketplace because there's a dire need for housing, we're probably 5 million units shy in this country, we're completely under Bill. Home starts are down significantly this year.
Toby Mathis
And with the Fed raising interest rates, they're going to continue to get pounded. This is going to exacerbate the problem. And in three or four years, we're gonna see even more pain amongst those folks that are that are looking for housing. And I'll tell you that the big firms and big chunks of private equity are looking to suck in there and take them and we as individual investors need to do our part and battle and and be human beings to our neighbors.
Mike Swenson
That's awesome. And I think having a purpose behind what You're doing, I've shared about this with with other people in the past on episodes where they are human beings. And I think sometimes people see real estate investors, as you said, it's $1 Grab, it's I'm building wealth and you hear people talking about it. But it's also impacting lives. And, you know, I love a story. I had a townhouse where I had the same people for seven years. And they were fantastic. I didn't really have to do much because it was a townhouse. And it had you know, most of the maintenance was taken care of by the association. Once a year, there'd be an issue with a garbage disposal oven, one time the furnace went out. And they would call me and I would respond quickly, and try to take care of it.
Mike Swenson
Because I wanted to, you know, no heat in Minnesota in the winter is a big deal, right? So I brought over space heaters that we had to help them before the person could come out and fix it. And they were so grateful for me like, Oh, thank you so much, you're so responsive, I just love it. And I didn't think I was doing that much. I was just responding to the call trying to help them. And they moved on, they had an opportunity to move out of state. And they they gave me a thank you card after they had left, they left it on the counter. And they said, Thank you so much for taking a chance on us. And I was like, I don't think it really took a chance. Like based on the people that had applied they were they were a great, great couple. And I didn't do much to help them. But I obviously made an impact on them.
Mike Swenson
And so that's the human element of real estate investing is that you can provide good quality housing for people, you can be responsible, or have a responsive property manager. And that makes a big impact on their life. And so let's not gloss over the human impact element of being a solid investor in a responsible investor,
Toby Mathis
I would tell you that it's even more important. If you want to be wealthy, you need to be a giver. I can say that by looking at returns, I think the IRS would back that up the the IRS code is about 20% how to pay taxes and 80% how to avoid them. And they tell you what to invest in and real estate's probably by far the best investment.
Toby Mathis
If I go buy a bunch of stock, I can't write it off, I can't take any deductions against that stock I have, it's all stuck in my bases in real estate, I could immediately depreciate about 20 to 30% of that property. And take a massive deduction if I'm a real estate professional and can even offset my my active income I get eliminate my tax if I want to. The tax code is literally telling us what to do. But I sit there and I look at these returns day in and day out. And I can tell you the people that are the most successful are voracious givers and I don't just mean money. I mean that they are people that it starts to take a It's not this work life balance nonsense that that somebody's pitching out there. Your work in your life shouldn't mesh. They're one in the same. Don't pretend like when you go to work, you're a different human being. Combine them guys combine them, you can absolutely do it have a massive amount of success and get fulfillment.
Toby Mathis
And, Mike, I'll just ask you a question. If you don't mind, I'll turn the interview around. What made a bigger impact from for you, out of all the people that you have as tenants and I don't know how many properties you have that letter from those folks or the checks that you received?
Mike Swenson
Yeah, the the the letter may makes a big difference. And it's funny because it was about a year ago, when when they moved out. And I was actually going through my garage and cleaning some stuff out. And that's where I found the letter just just this past week, I think I was probably getting the snowblower ready, and I was going in my my toolbox or something and ran across that letter. But I saved that. Because Because that did make an impact on me. And so yeah, I love that. And I love being able to help people through through what we're doing.
Toby Mathis
Now I'll say I had a minister that once came up to me, he gave me again, I steal good ideas. I don't have an original idea in my head, I just steal everybody else's. So he said you can't fill up somebody's glass from an empty picture. It rang true because you hear a lot, especially in some of the fundamentalist Christian communities, and I'm making no judgment on it. But it's almost like money is evil. Like, oh, the love of money is evil. And money is the root of all evil and all these different sayings. And I say no, if you have gifts, you owe it to society to maximize them. And some people are really good at making money. And it was all to Andrew Carnegie who is the richest man in the world at one point and he said that millionaires are trustees of the poor, it elevates society.
Toby Mathis
So if you're good at making money, put your ears back and make more of it. And then you can do more for society because there's some people that are just unable. They're physically unable to do it for themselves and make money. They might have health issues. They might have age, it might be any number of issues. It just might be situational, and they don't have the ability to go out and do it. If you have that ability, utilize the gifts you've been given and maximize it. And there's nothing wrong with going out there and being super successful as long as the owner, schmuck, because I've met so many rich people that tend to be cut a turd, it's like I watched this, I watched the world kind of take it away from. And then I see people that are successful.
Toby Mathis
And I have clients that have worked with for one in particular, I just pops right into my head, I've been working with him since 1998, I believe it is. And he and his wife would give more than the Adjusted Gross Income allowance like we are constantly in a battle because they would give more than they were allowed to two of the most wealthy people that I know. And it's not just like they were they were rewarded financially, because they were really, really cool people. And I just think that it goes hand in hand. So I know that's not the purpose of your show. I will say that, if you're in real estate, it gives you a unique opportunity to help others. But it also is the most lucrative type of investing you could do. I think stock market being a stock market landlord and being a real estate landlord are two of the best things that you could do. And by hands down the tax code is telling you to real estate
Mike Swenson
Let's dig into a little bit of the meat here. We're quite a ways in and we haven't gotten into some of your your expertise stuff here. And yet we've covered really good stuff. So. So as you think about messaging out there around real estate investing, you know, you talked about early on, you know, there's a lot of misinformation out there. So what some of the stuff that people should be on the lookout for how do I how do I know if I'm getting fed correct information or wrong information? And you know, how can you help?
Toby Mathis
Yeah, I would say that you have to learn a little bit of yourself. And you've already mentioned the YouTube channel, that's an easy way to go get educated, it's free. And then every two weeks we do a free tax event called Tax Tuesday, you can come in and ask any question you want. Like there's, there's resources out there to figure it out. But you want to work with somebody who does what you do. So if you work with an accountant, make sure that they're invested in real estate or that they work exclusively with real estate. Because if they're a one off, they're not going to know the nuances. And let me just give you an example, when I walk in, or better yet, let's have your listeners visualize something, they get a single family, let's just visualize a single family, let's say it's a duplex.
Toby Mathis
And just put in your mind's eye what you would think of as a normal duplex. And maybe you're walking up the driveway to it and you look in the front yard, you look in the backyard and you see a nice little fence and you see some grass and you see some trees and maybe there's some new flowers in the front, you walk up, you open the one of the doors and into one of the units and there's some new carpeting and we put somebody put in some new cabinets and you could smell some fresh paint and like okay, this is a great rental. This is exciting. I'm gonna get some tenants in here. From an accounting standpoint, when I walk into that same situation and look at the driveway, and I think that's 15 year property. I look at the fence, I think that's 15 year property, I look at the the shrubs, and I go that's 15 year property, I look at the carpet and I go that five year property and look at the cabinets and think that's five year property.
Toby Mathis
We should be depreciating these things much faster than most accountants are going to do. They're going to put it all as 27 and a half year property. But you can break it out and you can depreciate those things much faster, which means you'll pay less tax on the income that you earn. The old adage in the accounting world is if you're paying tax, it's because you don't own enough real estate. Real estate will supercharge and especially if you're leveraging it will supercharge your deductions and you can actually start buying real estate when I see wealthy people investing in real estate. And especially when they're doing syndications. And they have their own portfolios. A lot of times they're buying because they're tax motivated. They're saying for every dollar that I can deduct, it's saving me X number of dollars.
Toby Mathis
So if I can, let's say that I can deduct $100 It's gonna save me 40 bucks, because of my state tax and my federal income tax and all this other stuff. Everything becomes on sale. If I walked up and said it 40% off that property. You'd be like going what? Yep, here's the price. Here's the price you're willing to pay, take 40% off it, you'd be looking at me like Yeah, can I get 10 more? That's real estate guys, that actually exists just depends on your scenario. And if it's not your scenario, there's lots of people out there in that scenario that you could go find properties for and reap the rewards of being a wholesaler or just being a finder or doing syndications on your own and bringing those opportunities to people. There's so much benefit in the Internal Revenue Code for real estate investors and a lot of times the accountants are completely oblivious because it's not what they do.
Mike Swenson
So you know, I work with real estate investors full time we help them you know, buy properties in this market, interest rates have gone up, what I'm hearing from investors is I'm going to wait, I can't make the numbers work as the same as I could 12 months ago, the cash flow is less, my rates are higher, my payments are higher. What would you say to those investors that are kind of feeling like, I just want to sit on my hands right now? Because the rates are higher, and I can't make the numbers work. But obviously, like you said, it's a totally different mindset. So what would you say?
Toby Mathis
The numbers work somewhere, that's what I would say is if they don't work in your backyard, go find the jurisdictions that do work, because there's plenty of them that do. And it might not be something that's convenient. in your backyard, you might have to work with a team or go find, like, right now, I could say that storage is going nuts, right? Massive amounts of tax write offs when you're doing when you're building storage, and there's a continuous need for it, we are severely under Bill, which means people are living at home and they're storing a lot of their stuff. There's just there's plenty of opportunity out there. When I look at the interest rates, I think, Okay, we're back to where it kind of normally is. They're not that high.
Toby Mathis
They're just high in comparison to two years ago, but they're not high. Anybody who bought property in the 80s. And 90s knows that this is not high. In fact, this is still pretty darn low. Like when you look at the whole history of things in the last 30 years, we're not we're not at a peak, though, there's plenty of opportunities is that as the as the money is free flowing, no. But everybody's in that situation. And I'd say that there's two drivers of growth of the of the real estate market, you're gonna see rental prices, year over year continue to increase. You might see some short term pullback. But even if the market corrected what it did in 22,008, nine and 10, like it pulled back about 26%, I think was the total, we would be at 2020 pricing. Like people don't realize just how massive the run up was over the last couple of years and how little this, any downturn is going to actually impact the long term health of the real estate.
Toby Mathis
And it's for the simple fact that we are not building as fast as the need is. So the demand is continuing to accumulate. Somebody was like, well, if all you had was Lamborghinis, and there was 10 people that needed a car, you still wouldn't have a market because nobody could afford the Lamborghini. And I'm like, but we don't have a market with just Lamborghinis. Right? Yeah, you have a whole bunch of high end homes because all the big builders were building more expensive houses. In fact, the square footage keeps creeping up, because they can't make money building 500 square foot units, because it's just materials are costly. The demand is there though.
Toby Mathis
People need a place to live and need affordable places to live. Guess who that works great for manufactured housing, bread and butter, single families, duplexes, house hacking, doing pad split and splitting up your house and renting out five different rooms. Guests who can't do that, BlackRock, Blackstone, all these big firms. They're not designed for that they have to make this huge margin so they're gonna keep building the higher end stuff. Guys like us can be fleet of foot and there's tons of opportunity lies I'm when I say tons, like there are absolutely opportunities galore for you to find cash flow real estate in this country, there's no stop to it.
Mike Swenson
And I heard on a podcast in the last couple of months just talking about when a market shifts like this, it benefits the little guy because the little guy can be more creative, they can be more nimble, they can have some of those specific conversations versus here's my my Buy Box. And we're just going to buy properties in that buy box, you get to have those personal things talking about seller financing contract for deed, negotiating on terms, really having kind of those person to person belly to belly conversations that the larger corporations just aren't set up to do.
Toby Mathis
Mike 100%, I agree with you. And that's, that's our competitive advantage. And that's why I say we need more people doing and listening to what you're teaching, getting out there.
Toby Mathis
And investing in real estate as a tax guy could tell you hands down. There's ways to make sure that you don't pay tax on it, you know, you let your real estate accumulate and grow, you can borrow against it. When you die, your basis steps up, your heirs don't even pay tax if they sell the real estate and you get to keep all the money that you borrowed against it. Like from a tax standpoint, it's a no brainer. But from a human standpoint, it's essential. It's not even a no brainer, but it's absolutely the essence is that you guys need to become real estate investors so that we don't let all these big firms do it.
Toby Mathis
And we're not just building apartment buildings, and that we're being innovative. Like we need smart people figuring out ways like you when you see the tiny houses and you see people using 3d printers to build and you see manufactured housing getting the cost per square foot even less. And you see creative people doing things like I mentioned pads Split, where they're saying, hey, you know, let's bring back houses where you have your own room and your you know, you have kind of more like the boarding house model, instead of just doing apartments. You see innovation done, and it's not in the big, it's not in the big firms. It's in the little guys like us. And that's what we need more of.
Mike Swenson
So you had mentioned before, when you got started, you had a mentor that worked with you? Why is it valuable? to partner with mentors, or to find mentors to help you grow, a lot of people feel like, you know, if I'm going to be successful, I'm going to do it on my own. And I'm going to forge my own path and run into the wind my entire life. But there's a lot of value there in mentorship and in finding those people. So talk about that a little bit in how you've seen that help people.
Toby Mathis
Yeah, I always look at it. It's like the hot burner. You could be one of those people where somebody says, hey, the burners hot, and then you don't believe them? And you go up and put your hand right on it. And then you believe I'm after you touch it right? Or do you have somebody that you trust, and they say, Hey, don't touch that, that could burn you. The problem that we have is nine out of 10 people are telling you to touch the burner out there, when you when you turn on a TV, you're getting crap from their cable, you read a book, and I'm some guru telling you the flip six houses and all this stuff. And then you nuke yourself. They're all telling you to touch the hot burner.
Toby Mathis
You need somebody that you trust that can kind of say, you know, I've done that, see, here's my scars, there's Yeah, don't do that. Okay, you still may want to go touch the border, maybe take one finger and touch the burden. But you need somebody who has that experience so that they can tell you kind of what to avoid. Because otherwise you will do it. You're gonna have to pay that tuition no matter what, like you're gonna have to make mistakes to learn. But you can have somebody there that's already paid for their mistakes or had a mentor that that that shared their mistakes, so that it minimizes the amount that you have to do yourself. And I'll say that the other thing is society is full of crabby people.
Toby Mathis
And by crabby people. I mean like if you've ever gone crabbing, you know that if you put crabs in a bucket, you don't have to put a lid on it because they will not let each other out of the bucket, they will literally pull each other back in as soon as they're like freedom and they'll yank him right back into the bucket. That's what people do is they like being in their little, their golden cage or their their servitude, and they can't stand the idea of anybody else getting out. Even if they say, good job, your family is trying to tear you down. What do you mean, you're gonna be a real estate investor, you're gonna lose everything I heard the markets about to crash, don't you remember 2007 Oh my god, so and so you hear all that nonsense that's going to keep you from doing things.
Toby Mathis
You need somebody that you trust, that you can bounce ideas off of that's going to be straight with you, who's also going to encourage you. Because there's nobody out there that that lived an extraordinary life who didn't take some risk, you got to do it. And you just got to have some people along the way that you trust. And it helps to have a cheerleader and helps to have somebody that's done it where you could say, that's what I want to emulate. So I had a, you know, I had a mentor was important to me, this kid and I went to school, he had a lot of impact in his community, he had an impact on me, I saw him take a lot of people that nobody would give a chance to, and give them a chance and assist them.
Toby Mathis
And then they did great things. And I look at that. And I say that's somebody who's much more important to me than that talking head, like Cramer on the TV, who's spouting out a bunch of nonsense, you know, a lot of it is just to get people to watch, right? And so it helps to have those ventures we've all have them. Whether you realize it or not. There's people that you that you respect, that if if you had a problem, you'd be able to go up and you'd feel like they give you the straight answer. You just need someone with the skill set in your area that you want to be an expert in. And then learn to find those folks. And it may not be like, hey, it's a mentor to mentee relationship. It may be peers, it may be somebody else is doing the exact same thing that you're doing. It's just somebody who can relate to what you're going through. Who's going to encourage you to stick on the path even when it gets tough.
Mike Swenson
Yeah, you know, I love even the words that you use, you talked about tuition, right, like treating that as a tuition because I feel I hear some people say, you know, it costs x amount of money, like sometimes you have to pay to get into the right room. Now the key is, is you got to make sure it's the right room and you're not just paying to somebody who's in the wrong room because there's a lot of people out there, but at the same time I've also heard it called idiot tax, right? Like either I'm gonna figure it out on my own and it's going to be idiot tax or I'll pay somebody to mentor me or pay to get into this mastermind group to learn from those people.
Mike Swenson
But but that's valuable and I feel like the further along I've gone I've realized those those relationships and you have to remember to from their perspective, they're successful, their time is valuable and you Yeah, it's reasonable to expect they're not going to give away their time for free to meet with somebody. The other thing too is you want to show that you're listening to what they're actually talking about. And following that, because a lot of times, somebody you know, might give an assignment or go check out this or go watch this or go learn this. And then they asked you later, did you watch that? No, well, then why am I gonna give you my time, if you're not going to execute on the things that I've seen that are valuable, because I am further ahead of you.
Toby Mathis
So yeah, I agree with you that if somebody is getting something for nothing, they may not appreciate it, I get that. But what I will say this is that good mentors, tend to be more interested in your success than even you are. Good mentors tend to be more than just a cheerleader that they're actually enjoying the process of watching you reach, receive success. Beware of those people that are encouraging you to fail. Beware of the people that are constantly telling you all the bad things that are going to happen and try to ignore it. There's no guarantees in this world. But except, you know, if you don't try, you probably won't succeed. Though it's just get out there and work hard. And there's lots of folks that'll encourage you along the way.
Toby Mathis
Sometimes it's just finding, like you said, the right room, there's a lot of rooms in there where they don't want you to leave the room, and they want to close the door, and they want to turn the lights out. Right, and they just everybody wants to do nothing. Get out of that room, get into the room with the people that are looking to innovate and change the world a little bit, not in an altruistic way.
Toby Mathis
But like if you're in real estate, get in the room with people that love to do real estate, and are passionate about it. If you're one of those people that feels like, Hey, I'm a doctor, and I want to make a good return. Work with good syndicators, people that are passionate about what they do that are going to give you a great return. If that's not you, but if you're somebody who wants to learn and is a passionate person, then get get involved in it, because you'll absolutely it pays that it will more than exceed your expectations, the more you get into it.
Mike Swenson
Mindset is really important. So if I'm where I'm at today, and I want to be where you're at, I know there's a lot of things I gotta do along the way. Or I've been in a period where I just have a ton of debt. I can't get out of this hole, I'm struggling, how can you encourage people from a mindset perspective to kind of go from where they're at to somebody in your shoes? Yeah, so
Toby Mathis
I just talked to a guy named Brandon Copeland, he's a foreigner, former NFL player, he went to the Wharton School of Business at University of Penn and a fantastic guy, really, really smart guy. Brutal linebacker, but but a really, really great guy, we are talking about this exact issue. Because we both come from, he grew up in much more extreme circumstances than I never did. But he was talking about those people's like, hey, you know, you can't tell somebody to live off of half of what they make when they are living half hand a mouth, period. The biggest thing, like the thing that we agreed on, we talked about the most was this idea of Locus of Control belief that you have control over your out outcome. In this country in the United States, we have the ability to change our situation.
Toby Mathis
And when I know for certain, having done this, the studies and looked at it 90% of those folks out there that are that are millionaires are self made. And when I say self made, it means that they didn't inherit it, somebody did not hand it to them, they work their ass off and build it themselves. And so can you anybody can it starts with the belief, it's so important, this little thing up here, your noggin that mindset, change your belief in your belief changes your behavior. And if you don't do that checkup from the neck up, if you don't do that change in your calibration and put that belief in there, it's really gonna, it's gonna be very, very tough for you to be successful.
Toby Mathis
And it's gonna be self limiting beliefs, because that's what alters your behavior, getting using the analogy of the stove, the stove, once you think it's hot, it changes your behavior, your belief is that that's going to burn me the problem is is people are telling you that their stoves all around you and that real estate is a stove right and it's a burner and it's gonna burn you and we're investing in the stock market is going to burn you are being in your own business is going to burn you are doing and they're convincing you that you're surrounded by stuff and you're afraid to move. That's what you got to avoid. No, you're in control. You can make a direct impact on your own outcome. I don't care how much money you have.
Toby Mathis
Again, I was living paycheck I didn't have a paycheck I was I was literally diving into my couch sometimes to find money to go by Joe Joe's as a as a as a starving business and as a as a student going through I was working three jobs going through law school and there was people there that had their ways paid and uh you know, there's a little bit of resentment are you looking at and going Gosh, I wish I had somebody that was paying my way that'd be much easier. But I would never change that not not for all the money in the world because it and solidifies your belief because now I can look anybody in the eye and say, Look, anybody can do it. 100%. And I see it over and over again, with my clients, really great people, humble beginnings, overcome extreme situations, they still see success, because we live in a country that enables us to get that success, people are dying to get over here. Because of that opportunity, we have people sitting on their hands, not even taking advantage of it.
Mike Swenson
You know, I don't think I've ever mentioned this to a tax professional. But thinking about mindset, one of the ones that drives me nuts is, you know, you see it in Facebook, or, you know, friends or family are posting it is, you know, just kind of this idea of, when I make more money, than my taxes are higher, like I've seen, some people say, I don't want to make more money, because that means Uncle Sam is going to take it all. And I suppose it drives me nuts. I can't imagine like what your thoughts are on, like, there's so many layers of things to unpack there in a statement like that, because that's what you've been fed, either from your family, how you were raised, growing up the books that you've read, growing up.
Mike Swenson
And so there's, you have such control over your future based on what you're feeding your mind. And that's something where you're just in this vicious cycle, you're never going to be able to get out of it. If you always think the more money I make means the more taxes I have to pay and and you've obviously, you know, shown us you don't have to live in that mindset. So just curious, what do you think about just a statement like that, and how you can help people overcome that bad man mindset?
Toby Mathis
Yeah, I would say that it that that is created by ignorance. What they don't realize, and I would say this, that if you stay in the room, that's the employee room, it's true. The more you make, the more they take, if you only make a paycheck. And you make a million bucks, you're gonna be giving away more than 40% of it to the to the government, which stinks right there. Your silent partner, whether you want to acknowledge them or not, they're there. But on the same token, there's exempt organizations that pay zero tax. A lot of folks don't realize like I could use a great example the NFL, one of our attorneys worked with the NFL when they when they went from nonprofit to for profit status, they were exempt. They didn't pay tax Major League Baseball doesn't pay taxes, National Hockey League doesn't pay tax. IKEA is a charity.
Toby Mathis
Gotta be flipping kidding me. Right there. Charity, they pay very, very little tax, right, if real estate investors, Trump made what $90 million, paid zero tax. They looked at Elon Musk, hey, he didn't pay tax, Warren Buffett, he didn't pay tax. That's because they went from the employee realm, and they jumped over to the investor realm where the tax rate is zero, I could make a million dollars off of one of my real estate properties, I could pull it out tomorrow and pay zero tax on it. But if I made a million dollars as an employee, I'm gonna pay Oh, ADSI old age disability survivors insurance, Medicare, I'm going to be paying all these different taxes on it plus my federal income tax plus my state plus my state's limited to $10,000. is far as the deduction.
Toby Mathis
Yes, I'm getting beat up as an employee, which should immediately say, I don't want to keep doing that. That sucks that's touching the burner, I've turned to the burner my fingers are on fire will then take your hand off the burner quit being an employee moved to the investor side where you don't burn. Okay. But a lot of folks don't understand that there's other realms Rich Dad, Poor Dad put it really well. You had your employee quadrant, you had your self employed quadrant, you had your business quadrant and your investor quadrant, the employee quadrant, they pay 40% in tax on about average, the self employed is probably closer to 50%. Because that's where a lot of your successful people and they're paying the the Social Security taxes and they're paying federal and state businesses pay around 20%.
Toby Mathis
Like the biggest businesses in the world make a trillion dollars, they may pay less than 20%. And then investors pay zero. You want to be an investor you want to be like a Warren Buffett, you're gonna you can accumulate a ton of money. Quite often it's in a tax deferred account or tax free account or you just don't have to pay money on unrealized gains. And you can borrow against your stock portfolio, or your real estate portfolio and you pay zero. Like, it's just figuring that game out and then saying, I want to be in that quadrant. Okay, great. Here's how you get there.
Mike Swenson
It unlocks a ton of opportunity for people so awesome. Well, thank you so much for coming on and sharing. There's so much we can talk about. I feel like we didn't even get into a ton of the meat there. But yet, there's so many nuggets of wisdom of what you shared. So if people want to learn more about you guys, what you're doing, how you're helping people I mentioned, you know, YouTube's a great place to start because you just have a ton of information on there. But how else can people find you gain more information to continue this journey?
Toby Mathis
Really easy. Just google my name Toby Mathis, you'll find me I'm all over the place and Then there's a lot of free resources. I'll make it simple.
Mike Swenson
Well, thank you so much. I just appreciate you taking the time to give back to people in a in a venue like this to be able to share your wisdom. And yeah, obviously reach out to Toby and learn more and get further ahead and figure out how you can build your wealth through through real estate investing and tax strategies and ways to help you get there. So thank you so much for coming on. I really appreciate it.
Toby Mathis
My pleasure, Mike, keep doing what you're doing. You're the type of person that's needed out there. So keep it up.
