How Real Estate Helped Him Defer Massive Taxes and Build a $53M Portfolio

Eliot (00:00)
And she introduced me to him and he explained to me the game.

Of cost segregation and buying real estate for depreciation purposes, and then accelerating it into the first year to solve real tax problems. And, started doing that, putting my toe in the water, probably 20, 2017 ish. I sold one of my businesses in 2021 and I had a big tax problem and, they paid me out with no earn outs and just dropped a big wad of cash into my, into my lap in August with just a few months left in that year to solve those problems.

And we had a real, we actually were able to defer all of those taxes and, and now I’m in the real estate game.

Cody Crabb (02:12)
Welcome back to the Real Estate Pros podcast. I’m your host, Cody Crabb. And today I’m joined by Eliot Vancil a serial entrepreneur who built and exited companies, then used real estate to solve a massive tax problem. And he’s got some hard earned lessons on what actually works once real estate stops being a theory. Eliot, thanks so much for joining us today.

Eliot (02:31)
Hey, thanks for having me, Cody.

Cody Crabb (02:34)
To start off, we had a pretty nice little chat. I was just lamenting that we didn’t include that in the podcast because it was really good. But just to ⁓ give a little bit of information about your story, you’re maybe not our typical ⁓ guest here because you wouldn’t call your main gig, so to speak, a real estate investor. Is that right?

Eliot (02:57)
Yeah, probably not traditionally, but, it’s quickly becoming ⁓ a serious, ⁓ time suck every day. So it’s getting more and more serious the more I do it.

Cody Crabb (03:06)
Yeah.

For sure, yeah. Well, so we’d love to hear a little bit about the story about the way that taxes got you into real estate and kind of how things have been since you got started.

Eliot (03:21)
Yeah. Yeah. So quick snapshot of me. I started my first business in about 1998. It was a little company called network logic. And, that company, was a company that just generated income tax and just taxes that I was liable for paying every year. And I’ll never forget that I met a guy. was my neighbor’s friend and it was an old guy and owned 99 rent houses. And it blew my mind at that time. I was probably 27, 28 years old.

And it blew me away that he owned 99 rent houses first and foremost. And then his kids went to school on a Pell grant. And so I was like, well, how does that work? And I took it back to my CPA. said, Hey, this rich guy is doing real estate for a reason. I don’t understand it. Turns out my CPA didn’t either. He told me, don’t get into it. It’s going to create headaches and it’s just going to be taxable income anyway.

Cody Crabb (04:11)
Man,

I just think about think about what houses bought in 1999 what Yeah, sorry, that’s that’s the worst possible way to do this Yeah, exactly

Eliot (04:16)
my gosh, dude, the deals that could have been had, you know, I try not to, I try not to try not to go down that path. then,

so my CPA steered me away from real estate at that point in time. And I just kept writing my checks to the IRS, like a good little soldier. And then a few years later, I met a guy in Broken Bowl, Oklahoma, which those that don’t know that’s like a Branson, Missouri, kind of a little mini version of Branson and the old guy that had

built this place up and kind of owned a lot of real estate there. He made another comment to me that kind of struck a chord. he said, it’s not about not paying your taxes. It’s about deferring it until you die. Went back to my CPA again, and he didn’t know what that guy meant. Just marked it up as crazy. And I went another few years, but I finally had a business partner. His wife was a big time realtor and she had a great CPA that understood real estate.

And she introduced me to him and he explained to me the game.

Of cost segregation and buying real estate for depreciation purposes, and then accelerating it into the first year to solve real tax problems. And, started doing that, putting my toe in the water, probably 20, 2017 ish. I sold one of my businesses in 2021 and I had a big tax problem and, they paid me out with no earn outs and just dropped a big wad of cash into my, into my lap in August with just a few months left in that year to solve those problems.

And we had a real, we actually were able to defer all of those taxes and, and now I’m in the real estate game.

so, today, yeah, yeah. And today we bought up, we bought a bunch of, I’ve been doing it, I mean, fast and feverishly since, 2021. And today we own roughly about 350 doors. and I started off just, you know, doing a little FHA loans buying.

Cody Crabb (05:52)
I would be do it, yeah.

Eliot (06:11)
buying a one house, two houses, three houses. And I’ve been able to kind of pour gas and lean on that over the years. And, you know, the purchase price of all that real estate was about 38 million. And today, you know, since 2021, we’re somewhere in the, you know, 52, $53 million value range. so, yeah, and so that’s really kind of helped me with that appreciation for sure.

Cody Crabb (06:30)
Wow.

Yeah, no kidding. Yeah, I’m sure that would that’s just taking a look at that. I’m sure I like that you kind of it’s kind of like as soon as I discovered real estate, it’s like I’m a real estate guy now. This is the best. This is awesome. So you also kind of mentioned that it hasn’t been completely smooth sailing ⁓ and and there’s.

Eliot (07:31)
Yeah.

No, I’ve learned a lot of lessons.

Cody Crabb (07:39)
Yeah, can you give it a can you think of an example that maybe is a good a good a good illustration of that?

Eliot (07:46)
Yeah. So I always start by firing bullets before cannonballs is like what I like to say. And so where I started was in single family. ⁓ because if you stub your toe in single family, you know, it’s a few thousand dollars mistake, not if you stub your toe and multifamily or a big commercial deal, you know, it financially financially ruin you. And so I started in, in the best times really probably, I mean, the interest rates were low.

You were still able to buy, was buying, you know, houses were probably here in Texas. You know, there were 250,000 ish now, you know, today they’re, you know, 300, 350 or something. But so I was buying in a good time that allowed me to make some mistakes and still have a little bit of a, a cushion there. if you will, I think that the biggest mistakes, you know, the single family, I factored in, I didn’t factor in enough, probably. it’s been real hard to make those things cashflow.

Cody Crabb (08:23)
Yeah.

Eliot (08:43)
but we hadn’t lost money on them. And so really where we’ve made our money in the single family stuff is the principal pay down. So they’re paying down my mortgages every month. And then the appreciation is kind of where, you know, where I’ve made most of my money in the, in the single family. I think where I’ve really stubbed my toe, have active businesses that take a lot of my time, right? My,

So that I can be a real estate professional. My wife has a real estate license and does real estate, ⁓ so that we can do this, ⁓ as real estate professional. Cause that’s one of the things you have to have to be able to, to write off active income, with passive income or passive losses, I guess. And, where I made huge mistakes is, is, underwriting your deals is probably the biggest, hardest lesson that I learned. You can’t trust.

Cody Crabb (09:15)
Mm.

Eliot (09:36)
the person you’re buying from, can’t trust their underwriting. You can’t trust their financials. You have to question everything. And then you have to also step back and look at it. Where are we at? Right? A lot of my short-term rentals that I own today, probably a third of my portfolios in short-term rentals, which are ⁓ hotels and cabins and things of this nature, they were bought in COVID times. And a lot of my real estate is in

Broken Bow, Oklahoma, which is about two and a half, three hours from Dallas. It’s where Dallas goes. their backyard for a quick trip. Well, everybody went there during COVID because you couldn’t fly. You couldn’t do things of this nature. so, you know, I bought it at an all time income high. I learned real quickly about cap rates and net operating. And, and so we just bought it.

We paid too much for a lot of that real estate and then the Airbnb stuff just fell off the cliff ⁓ in that area. And we spent the last three or four years trying to get creative and solve those problems.

Cody Crabb (10:37)
Yeah.

Gotcha. Well, yeah, and I think as I was saying before as well, can’t, you you don’t know what you don’t know. And so it’s hard to it’s hard to get into something new and just do everything perfectly. It sounds like you did everything right. I mean, you maybe just didn’t have enough. There was no I mean, Covid was pretty like no one knew what was going to happen. Yeah. But no one knew really what was going to happen. I mean, it could have been anything.

Eliot (11:24)
That’s right.

It was pretty brutal. Yeah, it was brutal.

buying a business. mean, you’re running a business. And so you really have to consider, if you’re not doing real estate full time, there’s a lot of effort that goes into it. It’s not necessarily passive income. You’re managing cleaners, you’re reviews and all kinds of stuff.

Cody Crabb (12:02)
Yeah, and I think there are certain types of people that that’s perfect for. it gives you, there’s certain types of flexibility it gives you and stuff. But like you said, I don’t think, a lot of people when they think of passive income, they think check comes in the mail and that’s it. I can maybe check up on it if I want to, but I don’t even have to do that. So yeah, passive income is one of those things I always say. When you say passive, what do you mean? Because that’s probably, that could mean something totally different.

Eliot (12:07)
Yo, yo.

Yeah.

Yeah, yeah.

Cody Crabb (12:31)
This has been really interesting so far. I’d also love to know how you’ve tried to balance the kind of, I mean, it’s not exactly like day job and side hustle, but I mean, just for the sake of saying it that way, you’ve got a lot of responsibilities with your current companies and stuff. How have you been able to manage the portfolio on the side of that? Have you built a team? What kind of things have you done to help do that?

Eliot (13:01)
Yeah, I do have a team and luckily I was able to, you know, the kids are out of the house. I had to stay at home mom, when we started this. And so I had to drag her kicking and screaming, into the real estate world. And, but it’s been good for her. And so she, she helps a lot, in that world. But I’ve also got a, I’ve got a guy that when we, when our real estate holdings really started to grow, you know, beyond what I could manage.

I’ve got a guy that, that, his name is Tommy. And then I have another lady, I have a bookkeeper and have another lady that kind of manages the collections of rents and things of, of that nature. But I’ve got a team of probably three people that helped me, helped me run that, that business.

Cody Crabb (13:44)
What other things have you done to kind of to make that balance work? mean, besides just handing stuff off, I there’s certain things that you can hand off and there’s kind of some things that you can’t really. So just I’m just kind of curious to know, because it seems like you’re a really busy guy. So I’d love to know like people that we have a lot of people that are kind of like, I don’t know, lawyers or doctors, like they have like these high, big demanding jobs and they try to buy something on the side. How do you kind of manage it? Maybe you can’t afford a team yet. So what would be some things that you would suggest?

Eliot (14:03)
Yeah.

Yeah.

Yeah. And when you’re,

when you’re underwriting a deal, you know, my CPA always tells me do not buy a bad deal, for tax reasons. So every deal needs to be underwritten to cashflow. And, I think you got to take it very seriously in, and put enough in there for, I have management companies on all my short-term rentals. and I have a management company on my, my single family residents, residences as well.

And that’s helped a lot because now we’re just checking in weekly, holding them accountable, making sure that, you know, that we’re dealing with vacancies well and, you know, all of that kind of stuff. if you know, attorneys and, and, doctors and things of that nature, you just have to underwrite, you have to make sure you put enough in there to have a management company. If it doesn’t work without a management company, don’t buy the deal. because you’re going to have to have a management company for it to.

Cody Crabb (15:01)
Mm.

Eliot (15:46)
to feel even a little bit passive if you’re, if you’re dealing in residential or, or short-term rentals. Now, triple net, you know, I’ve done a lot of triple net type properties, which are, you know, I own a lot of, they call them garden offices around here, but lots of doctors and attorneys and insurance offices are in, they look like houses almost and kind of clustered. And, and so it’s not your big, it’s not the office space that got hit hard during COVID. because a lot of.

You know, lot of that space is dead in downtown Dallas and where I live in those areas, but in the suburb areas in these little offices that are a thousand square feet, 2000 square feet, those are triple net and triple net. If you write your contracts, right. mean, they’re, they’re pretty sweet deals. It’s almost collect checks, you know, three or four years until you have to renegotiate the contract. You are just writing the check, but, but there’s ways to get burned in that as well.

And I can talk about that if you want to hear about it.

Cody Crabb (16:46)
Yeah, I’d

love to hear that. And so just to kind of just to kind of explain what you’re talking about. So you said that around your area, they’re called kind of this garden offices. Is that what you said? Yeah. So I’m picturing like I’m picturing like it almost looks like a small condo complex. Like I think I’ve seen these around where I live. Yeah. And it’s like maybe a dentist or like a like a pet, like a little vet office or something or like, yeah. Yeah.

Eliot (16:55)
Garden offices, yeah. Yeah, they look like houses. Yeah.

That’s right. That’s right. Yeah.

Yeah.

Yeah. Yeah. Your Edward Jones insurance offices and state farms

Cody Crabb (17:13)
Yeah, when you said that I was like, I don’t know what he’s talking about. And then I started to be like, ⁓ actually, they’re everywhere. Like now that I’m thinking about it, they’re all over the place. So

Eliot (17:14)
and, yeah. Yeah. Yeah.

Cody Crabb (17:21)
tell us a little bit about those and kind of how they and maybe kind of give us a little definition of triple net. Totally, totally not for me because I know stuff just for the audience. I totally know everything you’re about to say. Definitely.

Eliot (17:28)
Yeah, yeah.

Yeah.

Yeah. Yeah. Triple net is, is, is just literally the cut. The client pays for everything. think the purest form of a triple net is like Chick-fil-A. Like they don’t own their properties. They lease their properties, but they pay for everything. If the AC goes out, they, they handle that. They handle all the maintenance. They handle everything inside of that, inside of that property during the term of that lease. so, and so.

It’s the closest thing in real estate that I found to literally mailbox money where you’re just picking up, picking up a check. the things you have to be careful of there, like in my experience in the garden offices, I bought them in shell, which means that the, the exterior was completely finished. but the interior was studs. And so it’s just, it’s just a blank slate. And I bought, you know, probably my first ones, I bought like five of these buildings and they were 4,000 feet and they were.

They were designed to where you could be a, you know, four, 1000 foot units, or you could make a 2000 or given all four. But the thing there that you have to be careful of is the finish out. You know, if you’re going to buy a property in that there’s, there’s a big upside. made a lot of money on those buildings because I bought them in shell. finished them out. put national credit tenants in those spaces with five year leases.

which created a lot of value there for the banks because you’re shifting gears from residential real estate to commercial. Residential, your value is based off comparables, Like comps and what your neighbor’s house sold for is what your house is worth, right? Per square foot. Whereas in commercial, it’s all based on that income and that you’re generating out of that property as well as the credit of the tenant.

That’s in that property. so, you know, I, before I knew, understood that I let a broker put a, CrossFit gym, in, one of my units will cross fit gyms are notorious for being out of business in three years. And so I’d spent all this money on finish out. paid a broker. He signed a five year lease. but it was just a guy, you know what I mean? That was, had a CrossFit gym. learned a hard lesson. I paid that broker five years worth of his commission. So he had.

He had no cares whenever that guy went out of business three months later. And so I lost all that commission. spent all that money on his build out. And then I had to turn around and lease it to someone else and go through the build out again and go through the, and so it’s important to understand, you know, you don’t want to put a tenant, you know, and spend a lot of upfront money. You want to consider that, you know I mean? Before you spend all that money, you know, so, you know, what good looks like me to me today is somebody who’s got national credit.

You know, these, these are your all state state farms, know, Edward Jones or somebody who’s got multi-location history, lot of history in business. because you’re extending a lot of credit to these people whenever you finish their building out to their spec and, and put a lot of this risk at place. And so, but the big upside is, they call it like value ed in real estate. so when a house, you buy a rundown house, you fix it up.

Cody Crabb (20:46)
Yeah.

Eliot (20:51)
You know, and you, and you turn around and flip it. You can do any number of things with it, but in commercial real estate, you buy something, you can do that same process, but you can also buy something in shell, which is just means a shell of the property. And then you can lease it all up and create all of this income and then either take it to the market. Because it’s worth so much more money now that you’ve created all that income, or you can take it to the bank and refinance it from the bank and they’ll give you a bigger.

a bigger number. And so I’ve done them both ways in commercial real estate, but triple net is where I’m probably triple net and multifamily is where I’m spending most of my time today. And a few years ago, you couldn’t buy any, hardly anything, you know, we had all kinds of problems, but, today, you know, there’s a lot of multi, I think it’s the best time to buy, to buy real estate, certainly multifamily and some commercial stuff.

Cody Crabb (21:48)
Wow.

Eliot (21:50)
I don’t know if residential, at least here in Texas, residential hadn’t quite reset yet. it, it, you know, they’re still expensive and it’s hard to make residential cashflow right now. But, but, yeah, that’s been my experience there.

Cody Crabb (22:04)
Yeah, and I think that’s so many good lessons in there. think I mean, just one of those being like I also I always hear people say like, do you want to deal with like some guy that broke your stove or do you want to just like have some national business? Just, you know, I think it’s yeah, it’s obviously like it depending on how much work you want to do. That certainly is a much better choice for a lot of people. So this has been really awesome. Thank you so much for all that you’ve shared. ⁓

Eliot (22:20)
Yeah.

Yeah.

Yeah, absolutely.

Cody Crabb (22:31)
This has been really insightful, think. And I think like, I especially appreciate you going into the garden office assets. When people have specific assets like that, I always think like, it’s so good that we talk about stuff like that. Because some people just have, it hasn’t even crossed their mind. Like I drive past those every single day and I’ve just never even thought about it. always something to keep front of mind. when there’s tons of options out there, it just depends on where you live and what your market is and what you’re trying to do with it.

Eliot (22:47)
Yeah. Yeah.

Cody Crabb (23:00)
Thanks so much for sharing that. And thank you audience for joining us too. If you like what you heard today, go ahead and give us a quick like, subscribe, comment, all the things and make sure to follow us so that you don’t miss an awesome conversation like this one. It’s been a true pleasure, Eliot. Thank you so much for talking to me today.

Eliot (23:00)
That’s right. Yeah.

Thank