1031 Exchange Alternatives: Tax Strategies for Real Estate Investors | KC Chohan

Kc Chohan (00:00)
Well, using a 1031 for, for example, is a big mistake because that doesn’t really do much for you. It often ties you up into a bigger property. It still reduces your cash flow because now you’ve got a bigger loan. You’ve got to find a better deal, which often is very hard with the time restrictions and identify that deal. So a better alternative to that is something called the strategic giving partnership, where you can donate up to 50% of an interest in a limited partnership, you stay on as the general partner and have full control, but you only own 1%.

Issa Hanna (02:11)
Welcome back to another episode of The Real Estate Pros Show. Today I have Kc Chohan with us to discuss tax strategy and real estate. Kc, welcome.

Kc Chohan (02:19)
Thank you so much for having me.

Issa Hanna (02:21)
Man, I appreciate having you. I looked you up like we were talking about earlier. You’re very, very accomplished in the tax advisory services. You also invest into real estate for yourself. So for people at home that are kind of intrigued already, can you kind of just run down what you’re doing day to day today or these days?

Kc Chohan (02:38)
Yeah, it’s focusing on adding value and saving money on taxes, right? People’s biggest pet peeve every quarter is cutting that check to Uncle Sam because we know it’s not really bettering our lives. You look around in the world, there’s so much chaos and turmoil going on, everything’s so expensive, yet you still have to cut a big portion of your profits over to Uncle Sam. So my main focus is helping people create a longer, better legacy for themselves by saving anywhere from 30 to 50 percent on taxes.

Issa Hanna (03:10)
I I love that. And when you have a good tax guy, somebody who is so knowledgeable like Kc, he can get you, like you said, 30 to 50 percent on taxes. And a lot of investors in our world, in the real estate world, they’re flipping houses, they’re paying capital gains, they’re, you know, they’re not writing stuff that they could write off as far as rental properties, depreciation, that factors into financing. So having a good guy like Kc is super important in our in our business. So I also wanted to ask you about what kind of investing are you doing into real estate?

Kc Chohan (03:43)
Yeah, my personal favorite is self-storage. I I love the fact that it’s very easy, hands-off, and it can kind of run itself without needing a huge labor-intensive team. And I’ve recently started learning about buying land, getting it entitled, and then selling that on to builders as well. So that’s kind of gonna be my next project.

Issa Hanna (04:04)
I love that. I love that. So you’re you’re vertically growing, you’re expanding, and you have the tax knowledge right now, which is giving you such a leap ahead of of other investors because you’re gonna know how to maneuver those, you know, those gains and and keep that money in your pocket. So I love that. Now I see a lot of people getting into the storage unit business. Are you buying the land, building the units, renting them out, running the business? Are you just building it out, selling it to the people? What’s—

Kc Chohan (04:32)
No, no, I’m not doing that yet. I think the the turnaround time in construction and permitting is too long. So I look for value add. Usually out-of-state ownership that’s kinda just distressed and it’s not at full capacity. So we can come in day one, add value, fence it off, paint it, grade it, whatever we need to do to make it pretty, and then increase the rents and then obviously market the hell out of it and get it full and then either use it as a cash cow or flip it and move on to the next one.

Issa Hanna (05:03)
Definitely, definitely a very smart idea. You’re identifying a little facet in the real estate industry that’s often overlooked. So, you know, I I I don’t doubt that you’re gonna do very, very well in this endeavor and and your future endeavors in real estate. I wanna shift back to the tax advisory because I really wanna pick your brain. What are some common mistakes you see real estate real estate investors making on their taxes, if you can give us a couple of examples?

Kc Chohan (06:18)
Well, using a 1031 for for example is a big mistake because that doesn’t really do much for you. It often ties you up into a bigger property. It still reduces your cash flow because now you’ve got a bigger loan. You’ve got to find a better deal, which often is very hard with the time restrictions and identify that deal. So a better alternative to that is something called the strategic giving partnership, where you can donate up to 50% of an interest in a limited partnership, you stay on as the general partner and have full control, but you only own 1%.

So it’s getting your head around the difference between ownership and control. And that does two things. One, it reduces your tax liability by a 50% donation deduction, but then also creates this environment of less than a 1% tax rate that you can grow those assets in.

So it’s a double whammy and it’s real great legacy play for I would say someone who who wants to go from being rich to being wealthy and keep more of that passive income.

Issa Hanna (07:26)
Definitely. And you know, a lot of investors, including myself, thought it couldn’t get better than a 1031. So you just gave me I I literally took a note while you said that for myself. So I I love it. We’re already we’re already getting a bunch of advice. I want to ask you though, we all start off somewhere, right? So it’s a long, bumpy road to get to the top or or, you know, to get to where we are in the professional world. So where did a young Kc get started? How how’d you get started in all this?

Kc Chohan (07:54)
Born and raised in England, as you can probably tell from the accent or guess, right? Did all my university schooling, all out there. And then I went to work for a big Fortune 500 company, but right at the bottom, straight out of university. I was the guy making cups of tea and coffee for all the big bosses, and quickly rised through the ranks, right? So you gotta pay pay your dues, you cut your teeth, you learn your trade, and it’s the same in real estate, right?

When you’re doing your first deal, you’re not just gonna go out on your own and go close a $10 million deal. Normally, what happens is you’ll come in, you’ll earn some sweat equity, or you’ll put some money in, you’ll shadow someone, and you’ll learn the ropes. So I did that in the corporate side of the world. So it’s a big engineering company, did about four billion dollars a year in revenue that global, and I worked my way up the ranks. I did four years on the European side.

And then I transferred from the European side to the North America side, which is how I’m based in LA, because for the mercy of God, the the office that I was allocated was in LA. So it doesn’t get much better than that. And did another four years here in LA before I started my first business.

Issa Hanna (09:02)
I love that. And and you said it’s it’s so it’s been ten years since you started your business and it flew by in a heartbeat. So where’d you get the ideas like, you know what? I’m done with the corporate world, I’m going into business for myself. How’d you get that idea?

Kc Chohan (09:49)
That was that was the biggest biggest transformation in life where it’s going from a really comfortable corporate salary and then backing yourself to actually go compete with everybody out there and and go make some money on your own. And in America is the best place in the world to do that because the mindset of the people here is very cooperative and very helping. But a lot of personal development is the answer. How did I know I wanted to do it? I just couldn’t handle the corporate environment anymore. So I’d had enough. And it’s like eight years in with the same company, an international move. I’d already moved within England as well. So it was just time for me to kind of figure out what my next step was. So we started well, I started Together CFO at the time back in 2016. And we were doing fractional CFO services. I didn’t really know how to market it, how to sell it. I didn’t know anything on the sales side because as an accountant, right? I’m a finance guy. Give me numbers, give me spreadsheets. I can explain what these numbers mean to non-financial people. And that was really my expertise. So it made sense to do that for smaller business owners as well, who don’t have a full CFO team or a controller or an accounting department, even. Maybe they just have a bookkeeper, right? So to come into that type of company and help them understand the numbers and then develop and scale.

But what I ended up finding was there was a big education gap because a CFO can do so much, right? On one side you can have a CFO that’s gonna IPO a company, on the other side you can have a fundraise of a VC type deal, and then you can have the day-to-day accounting function as well. And it’s a really broad spectrum depending on the size of the industry and kind of the intent of the company. So it was really difficult to figure that out because I had no sales or marketing experience at that point. And I was like, this is tough. Thankfully, what ended up happening was with one of our first clients, we helped him scale pretty quickly. He went from five million a year in revenue to 120 million a year in revenue. And that created a huge taxable problem for him. And then he put us to work to go fix that tax problem and kind of mitigate that tax.

Which is how we then specialized in tax structuring rather than the traditional loopholes, because at that level the loopholes run out, right? Back then we didn’t have bonus depreciation or accelerated depreciation, none of that stuff. So it was like, what can we do to kind of reduce this down? And that’s where we came up with the structural tax savings by using better structures rather than loopholes. Because loopholes are great.

And there’s over 151 loopholes that we give away for free that everybody should at least read and see which ones apply to them. But that maybe helps you for the first million dollars you make. After you start making multiple millions of dollars, the loopholes run out pretty quickly. Yes, you can hire your kids, but that’s what, 20 grand a year. You can do a 401(k), a couple of grand, like another 20 grand. There’s not much you can put into all of these different loopholes.

The real estate guys get a little bit more leeway in that. Whereas, you know, you can do cost segregation, hub zones, there’s a lot more you can work with. But still, if you’re like a multi-seven, multi-eight figure earner, you have to do a lot of them, right? Or you have to buy a lot of real estate to get that depreciation, or buy a car, or buy a yacht, or a jet. A lot of the times you’re making decisions just to save money on taxes rather than making decisions to grow your business, right? So we don’t ever want to get to that state and that’s really what we focus on with Structural Tax Advisors is creating the right structures and with those right structures you get a double benefit. One is a 50%, 30 to 50% tax reduction on the donation. And then the second part is controlling that and growing it in a less than 1% tax environment. So it’s it’s not what I planned. Like you said, it’s ebbs and flows along the way and kind of figuring things out is a lot of it, which I didn’t have much of it figured out other than I know how to interpret numbers on a spreadsheet and explain them to non-financial people. That’s kind of my initial superpower. And then you just gotta figure the rest out.

Issa Hanna (14:53)
Hundred percent. And and all successful business guys, they have very similar stories. They’re working somewhere, they say, you know, I’m gonna go into business for myself. Light bulbs start going out. You kind of find your lane. You get really good at what you do, and you go there and you and you saved your client so much money, and the way that how knowledgeable you are with the numbers, I guarantee you impress them with a saving them millions of dollars, and b with your knowledge that just through sheer word of mouth, it probably he probably helped grow your business by just referring people to you. So man, I I I wanna applaud you on that because it takes guts when you’re going from a from a high paying job where you worked your way up in the corporate world to just saying, you know what, I’m doing it on my own. So, you know, it takes real guts. And I know you’re from England, but that sounds like the American dream. That sounds like what the American dream—

Kc Chohan (15:45)
You can come from anywhere in the world, right? So some of the clients after that, we had one Korean guy who didn’t speak a word of English when he moved here to LA. And he had a couple of bucks in his pocket, super smart guy, and now he runs twenty million plus dollar company and got a beautiful family and he’s a granddad now. And it’s like that is the American dream as well, is that he came, he worked really hard, he got these patents and then amazing things happen because he’s got that drive and that work ethic, which is really hard. You can’t teach that to people. You either have that or you don’t. And a lot of immigrants tend to have that nature in terms of hustling extra hard because they’ve seen hard times.

Issa Hanna (16:31)
I can definitely attest to that one. Very hardworking people because just like you said, they’ve seen hard times and they didn’t leave their home and thousands of miles away for nothing, right? So they’re gonna come here, they’re gonna do good, and they’re gonna build good businesses. So so I love that. And you could have stayed in England. I mean, England was it, you know, it’s a good economy, but you came here.

And you’re helping us here in the United States. So in my opinion, you’re a really good asset to have here in our country. I want to kind of shift gears and ask you about your public speaking and you’re also a featured writer for Forbes. You’ve been on major syndications, so can you kind of tell our viewers a little bit about that?

Kc Chohan (17:15)
Yeah, so it all came about by an old website back in the day called Help a Reporter Out. I don’t even know if it’s still around right now, but I was constantly helping be a featured specialist in whatever they were looking for. And then one day one of them popped up and said, You know, we’re looking for some writers, why don’t you throw your hat in? And they just started the the Finance Council. So I applied for that and and I got accepted and then I’ve been writing articles pretty much just about what I do day to day, and then making it into a little bit more of a story, so it’s not as dry and boring as just accounting and numbers, but that you can then use those tips in your real actual day-to-day business and life, right? So, what we do for our clients, I try and break it down, keep it simple, and and help people that don’t have the ability to have a call with us, right? Because we don’t work with everyone, unfortunately. So it’s only for people that are a higher net worth or paying over 500,000 a year in taxes, is really where we specialize and we add most value to those people. So if you’re not at that level, don’t worry, we’ve still got 151 loopholes you can have completely for free, or you can join our Skool community as well.

Where we just give away a lot of value upfront because, you know, it’s very readily available on the internet, but people still don’t want to read. So if we’ve got videos and we’ve got checklists that you can just send off to your CPA and say, Hey, can you tell me why we are not using all of these? Or tell me which ones we are using and which ones we aren’t using. And then you can gauge how good they are because nobody really checks to test how good their team is, and specifically finance team and the CPA, because you just assume that they’re doing the best that they can. But I would say nine times out of ten when clients come in or leads come in, we show them new strategies or not even new strategies, but additional strategies to what they have in place. And they were like, Well, why didn’t my CPA tell me that? And it’s like, I’m sorry, I can’t speak on behalf of somebody else, but I can just talk about what we what we do and how we do it. But I think if more people checked and kind of tested how good their team is, they would end up upgrading their team a lot quicker and a lot sooner than than they end up doing.

Issa Hanna (19:43)
Definitely. And I I see that everywhere in the professional world. You know, us as professionals, you know, I’m a real estate professional. We take it for granted. We think people know things that we know just off the top of our heads, but they don’t. Not their fault. They they never have to know it. And in their field, they’re experts the same way we’re not. So we just assume, hey, he’s a he’s a CPA or or he’s a realtor, they’re they’re the same. They do the same job. They definitely don’t. Knowledge, integrity, the way somebody does business can really affect your personal life or business. So I love the points that you’re bringing up, Kc. You’re sharing so much knowledge with the viewers. I’m I’m loving this right now. And I want to ask you now about kind of a double-edged sword we talked about, the AI revolution. Said it can be an opportunity and it can be a threat. So can you share your thoughts on that with the viewers?

Kc Chohan (20:35)
Yeah, we can just look at history, right? We can look at websites and the internet and everyone thought that was just a big bubble that was gonna pop. I think we’re a little bit more educated now. We know it’s not going anywhere. The same thing with the internet as is happening with AI, right? So AI is now the next revolution that’s gone from, you know, manufacturing, industrial age to services to now the agentic AI and the singularity when we get to that stage. But if you’re not using it, you will be left behind. And if you are using it and you optimize it, it’s a great opportunity to grow. So when we were talking off camera there, the great opportunity would be to replace headcount or expand headcount. It doesn’t have to be a replacement of your current team. If they’re doing a good job and you like what they’re doing, you could just add to them, right? So you could take your best employee, clone them, and have two of your best employees effectively going out, or if you’ve got a sales team.

Or a a research team, let’s use real estate, right? Door knocking used to be a big thing back in the day. Hey, do you own this home? Are you interested in selling? Now you can scan databases that say, hey, this is an owner-occupied home and do the comps all online really easily with an agent. So now you can present something to that person and identify them really easily. And you could go down your checklist and maybe add value. Hey, we notice houses in this neighborhood sell for approximately this much. Would you be interested in selling if we could get you somewhere in that ballpark? Now they know you’ve done some research, you’ve given them a document with some comps on there, so you’re not just pulling numbers out of thin air. And it’s like, this guy’s actually taking the time, energy, and effort and being prepared. And you could go one step further, you could have the AI make that call, set the appointment for the team to either go meet in person or a more detailed appointment after you get a yes. So all these different levels of efficiency from checking your emails, filtering out the spam and just forwarding the ones that need your attention to booking those appointments on the outbound side as well. There’s no limit to it. The limit is really how big can you think and thinking in systems and processes. And then the flip side of that is if you don’t do anything, if you just stay in your bubble, if you bury your head in the sand, if you’re if you’re an ostrich, and it’s like, what am I gonna do here? Well, you’re gonna be taken over. The person who’s starting a business tomorrow will outdo you because they’re using all this efficiency, and that one person can now act like a ten-person team or a hundred-person team very quickly. And if you don’t adopt them, you’re gonna get left behind. So both an opportunity and a threat, and it’s get on board as quickly as you can and optimize.

Issa Hanna (23:24)
100% because, you know, you you can’t practice real estate without the internet right now. I don’t know one investor that isn’t on on the real estate website sending their agents the link just straight from the website, you know. So it’s the same way with AI and probably even more revolutionary. We have to embrace it in our world. So to all you guys, “I don’t like tech” or all this stuff, if you’re in the real estate game, if you’re in any type of any type of profession, we need to embrace AI, not tomorrow, today, right now. Man, you I’m telling you, Kc, one of the most knowledgeable guys we’ve had on the show. I’ve been picking your brain on such a broad spectrum of things. I want to ask you now, five years down the line, where do we see you at?

Kc Chohan (24:09)
Hopefully playing golf and drinking wine and smoking cigars on a beach somewhere tropical. Yeah, I think I’ll just I love the whole environment. It’s changing so quickly. So there’ll always be something else that comes up. And I’ll give you a great example. So everything that we do is all in the accounting and finance space, right? So whether it’s CFO, bookkeeping, tax filing, tax strategy. It’s all in the accounting box, let’s call it. So we created a software before all this AI hype just to help optimize our own business, right? So the software is called Financial Fusion and it’s a monthly performance reporting tool. So it plugs into QuickBooks and it gives you a quick snapshot of your monthly performance in simple English, beautiful color-coordinated pictures as well, red, yellow, green.

Green is good, yellow is stable, red is bad, as you would imagine, right? And it’s for non-finance people. So that was our way to help our clients rather than have to book a call with us every month and then pay for that, because that’s time, right? We simplified that process. So what we would do on a month-end call with our clients to explain their performance, we put into this report. So now with a click of a button, schedule an email, every every month it just comes in your inbox. You just read it, right? So we created that tool. So we used it internally and then clients loved it. And we thought, okay, maybe external clients or potential clients would love this, right? So we spun it up into an external tool. And then when AI came along, we then integrated it with AI because now we have all of the numbers and the history. And now with AI, we can add in the CFO piece where we can now look at the future stuff as well as the historic stuff. So if your travel expenses went up last month for some reason, and you don’t want to go and run a GL report in QuickBooks because you don’t know how to do that, or that’s just too much hassle. Doesn’t make sense, right? Then you can just say to the AI CFO, hey, why is my travel up? And it’ll go and check and it’ll say, Well, you booked flights, you had extra hotels, you had extra meals, all because you probably had a trip of some sort, right? Or a couple of trips. You didn’t have that last month, you did have this the month before, that’s why there’s a difference, right? So it can do that. And then it can future pace as well. It can look at the trends in your business. Is it seasonal? How long have you been around, and create budgets and forecasts for you. But then if you ask it better questions, you’re gonna get better answers. And you can say, Hey, give me a variance analysis. Why is my budget a thousand? The actual is two thousand. What happened? And you know now where you’re over budget, below budget.

And then you can fix your forecast accordingly. And effectively you can create a financial planning team and a CFO team with this one software for a couple hundred bucks a month.

Issa Hanna (27:10)
Amazing. I mean, how revolutionary. It’s just you can talk to the financial team right then and there just like you talk to ChatGPT. And it’s definitely a lot stronger and more specialized than ChatGPT would be, so—

Kc Chohan (27:22)
Well, you don’t want to give these GPTs your financial information. Same way your bank statements in there. So we’ve created a a silo private environment for you to do that in. But I think in five years’ time, what we’ll see is a lot of software. So right now we’re selling this software to the public, it’s available. It’s mainly for CFOs and fractional CFOs to help their clients, but it is available if anybody wants it.

Issa Hanna (27:26)
Yeah, it works.

Kc Chohan (27:48)
Where will it go in the future? I think software will kind of the value of it will decrease considerably because AI can do a lot of these things natively. So as an example, one of the things that we’re looking at is giving that software away for free to give more value upfront and build a quicker, deeper relationship with a client. And then once we have that client, nurture them, keep them happy and kind of support them.

So that’s kind of a loss leader, whereas before a loss leader would be some kind of value add report on a valuation of a business or a building, let’s say, right? Now I think software will become that new value add loss leader for a lot of people where they want to differentiate from everyone else. If I’m giving you a software that’s five hundred dollars a month for free, that’s six grand a year in real value that you’re using or you should be using, right?

That’s gonna make you like me a little bit more than the guy that’s just giving you a PDF to read that you’re never gonna read anyway, right? Or a webinar to go watch and do nothing with because you’re bored after five minutes. So I think software becomes—or at least good software, right?—becomes useful and it becomes real value add in a world that’s moving so fast.

Issa Hanna (29:05)
Definitely. Yeah. I mean, you hand somebody a tool that’s gonna make their life more simple and you’re giving it to them for free, they’re gonna love you. They’re gonna fall in love with you and they’re gonna be your client. So, yeah.

Kc Chohan (29:14)
Yeah, it’s it’s really simple. You’re gonna do one of two things. You either gotta make them more money or you gotta save them money. That’s it. It’s as simple as that.

Issa Hanna (29:23)
And when you make people money, they love you. So great, great plan. And then now I kinda wanna give you the floor. If if if we do have some high level earners, we do have many of that are members here at Investor Fuel and they want to get a hold of you, where could they reach you at?

Kc Chohan (29:37)
Yeah, I’m on all the social media platforms. You can reach out at Together CFO is the accounting firm. And if there’s tax for the high net worth tax earners that are paying over half a million in taxes, structuraltax.com. But either one you can get through to us, you can speak to our team and they’ll point you in the right direction.

Issa Hanna (29:56)
I love it. One of the most knowledgeable tax strategy people I’ve had on this show, you guys. Make sure you check him out. Check his websites out. He’s got tons of free knowledge on there for you just just to read. So make sure to check Kc out. A great, great guy, very personable, holds himself with the utmost integrity and cares about his clients. Kc, I’d like to thank you so much for coming on the show. You really brought so much different knowledge that, you know, we usually don’t get a lot of tax advisory guys on the show and also a lot of guys that are investing in in the facet of real estate you’re in. So I love that you came on and brought that perspective to us. So thank you.

Kc Chohan (30:33)
Nah, thanks for having me. It’s always always happy to share.

Issa Hanna (30:36)
Definitely was a pleasure. And to our viewers at home, if you guys enjoyed my conversation with Kc and want to see more just like it, make sure to hit like and subscribe. I talk to people every day that can bring us different knowledge on every aspect of the financial world. Until next time, the pros are out.