Don't Sell Your Stock, Borrow Against It: A Founder's Tax-Free Strategy

Sean Weisbrot: Welcome back to another episode of the We Live to Build podcast. Today I spoke with Stephen Keighery, an Australian entrepreneur who started, grew, and IPO’d, a company on the Australian Stock Exchange, and now he's based in Louisiana buying houses and flipping them and holding onto them. The reason why all of this is relevant is because his strategy is extremely important. You've heard this before, diversify, diversify, diversify. When you're running a company, there's a chance that it might exist today, but doesn't exist tomorrow. And if you ask Warren Buffet how to make billions of dollars, he'll say to start as early as possible. So if you understand this concept of compounding your wealth over time, and you couple that with owning a company, there's a lot of ways in which you can grow your wealth and diversify during the process of running and growing a company, and do it in a way that if your company should ever die, you walk away with something of value.

Sean Weisbrot: And if your company doesn't die. You still walk away with something of value. So my conversation with Steve was really interesting because he not only talked about specific legal loopholes you can use to maximize your profit and minimize your taxes through the process of diversification from your company and purchasing property, but we also got to hear his story.

Sean Weisbrot: What did you do that put you in the position to be doing this now?

Stephen Keighery: Thanks for having me, Sean. Yeah, so I left university, you know, back in 2002 and you know, sort of set out on an entrepreneurial path, did a marketing consultancy and I sort of merge that business into something that focused on natural health. And then I merged in with some other partners into a, uh, online directory at the time. So, uh, we ran like the natural therapy pages and home improvement pages, which were like essentially better Yellow Pages at that time. You know, we're sort of talking like mid two thousands.

Stephen Keighery: So, that was the extent of it. As we grew, we grew to be. An on demand service for tradespeople was our biggest size. The home improvement space, it's very similar to, for the American audience, very similar to home advisor, basically the same business model. So we are connecting consumers with contractors and we're doing it through apps and technology and, you know, making that as seamless as possible.

Stephen Keighery: So look, we grew that iPod on the Australian Stock Exchange in November last year, and then we had a market capitalization of $315 million. So that was obviously very exciting for myself. I left operational duties about two and a bit years before that, but still maintained a stake in the company, so I enjoyed that IPO, but I went through different stages of like investing in the company and then starting to diversify from the company to diversify my portfolio.

Sean Weisbrot: All right, great. Thanks for the intro. I loved your story because. When you first approached me, you're like, Hey, I buy houses in Louisiana. And I'm like, ah. You know, like I don't normally respond so much to people that are doing that, but then I got into your story and I was like, oh, actually, like this guy was in tech.

Sean Weisbrot: He's built something and like this is how he's decided to retire and, and enjoy the next phase of his life. So, yeah. Fair enough. Let's see what you're about. This has been a passion of yours for a while and it resonated with me because. A lot of people end up building their company for five, 10 years and at the end of it, they may get nothing.

Sean Weisbrot: Or if they get something, they don't understand how to use it. And so I thought it was relevant for us to talk about how to determine the best course of action to build equity, but then also cash out. Something as you go so that you can protect yourself and the time and energy you've put into the business over that period of time.

Sean Weisbrot: I'd love to know what gave you this idea that you should be focusing on what comes next while still focusing on the thing that gives you that money?

Stephen Keighery: Probably like most businesses and most journeys, I sort of like, I started to develop thoughts as I, as I went. So, you know, it wasn't, I did always have this basic concept of rich people build businesses.

Stephen Keighery: Buy property, so, so I always had this idea, I love business, I love tech. Like I love what I built in Australia. I'm from Australia originally, and we had the BRW Rich list, you know, sort of like the Forbes list. And if you look at that, most people made their money through property or held their money in property.

Stephen Keighery: So I always had that idea of property, but I was very much into the tech world and very much into the company we're building. And I think I went through different stages. So if I were to lay it out, I think I had like the early, early stage where, you know, I was broke as hell. You know, my wife, uh, well my now wife, she was my girlfriend at the time was supporting us.

Stephen Keighery: You know, she was making the money, you know, we had no money. So, you know, in that building phase and, and that went for a while and then you start to get to like an early stage, you know, and we sort of paid a bit of a salary, but it's not very much. We're investing in our profit. Back into going to business, you know, you start to get employees that are paid much more than you at some point.

Stephen Keighery: And at that point, I was really focused on the value in the business. We started to raise some seed rounds of money and in those points I wanted to hold as much equity as possible. So I often scraped together money and you know, invested in those rounds as well, just so I could stop some of that dilution.

Stephen Keighery: And we had a couple rounds that had really good turns to the investors. You know, I could only really stomach that by putting in myself. I think I went through the stage where like I'm just pouring, pouring, pouring into the business. You know, we had sort of had five partners, right? And it was our business for a while.

Stephen Keighery: But as you start to get more investors and then non-executive people in the business, they're not working. So, you know, if you are just putting on a profit back into the business and not taking anything yourself, well you are also an employee as well as a owner, right? So I think those points, I started to think more about, well, I need to diversify.

Stephen Keighery: And as we started raise more money, I started to look for opportunities to take secondaries. And that was always hard because I believed in the business. I, I still have shares. It's, it's still gonna grow. And so I have a real belief I was thinking, but I wanna sell some because I need to diversify. It was a hard decision.

Stephen Keighery: Because I believe the shares would go up. How I made the decision to start selling some was it's the old device. I don't know who said it, but you know, you never go broke taking a profit, you can't hurt taking a bit of profit. And then I think what really made me realize was I was like, I bet you I'm gonna sell some of these shares and they're gonna be worth so much more in the future, and I'm gonna kick myself.

Stephen Keighery: But then I thought about it, I'm like. I'm gonna kick myself, but also the fact that gone up, I'm not gonna care as much. Right. So, so I think that's how I made my decisions. Yeah, I'm gonna kick myself, but when I do, like, I've also got all these other shares, so like, I'm also gonna be laughing and I, I think I took, you know, taking a secondary, sort of like an insurance policy, like you don't wanna cash out your insurance policy, you pay it because you should have it.

Stephen Keighery: You don't want to use it. And for me, selling some of the shares just meant that if things went bad, at least. I had some funds for myself. And then I think probably just to add on top of that, like as my salary started to go up, I started to actually get a decent salary. So, you know, like, yeah, as a shareholder, but like I had a job and a good job, so I started to be able to like get bank financing.

Stephen Keighery: And for me being into property, I'm like, well, now I can leverage and I can take some profit. I can buy properties, I can leverage those properties with bank financing and I can start to build a portfolio. When I started to do that.

Sean Weisbrot: Did your co-founders or your investors try to guilt you for wanting to cash something out earlier on?

Stephen Keighery: Investors are coming in and they're putting good money in. You can't be pulling out too big a chunk of your equity because they want that skin in the game. So I don't think they ever guilted us, but we, we needed to have a story, so we always had a story and it, we didn't do it in our first rounds, like, you know, it wasn't our seed rounds like we often put in in those rounds.

Stephen Keighery: So we'll show in our belief in the business and when we first took it out, we just cut it off. And we told our investors, Hey, it's been a while. You know, we, like the founders, you know, haven't really bought a house or they haven't, so we, we sort of prefaced it just to cut off that objection. And we didn't really get the objection, but we were mindful of it and we spoke to it before we just said, Hey, we're taking money out.

Sean Weisbrot: You did this like in the A round you said

Stephen Keighery: three is didn't have as sophisticated, I think investment things as, as, as the us So like we didn't do rounds in a traditional way. We just sort of raised some money when we got it. We were probably lucky that Australia just didn't have a real angel ecosystem.

Stephen Keighery: You know, our first round, one of my partners knew old successful people with gray hairs who'd done their own businesses and they invested their own money in us. So you could probably break it down to a different round, but we didn't really do it that way at different points in time, we were like, Hey, we're growing at this good level and we can keep growing and this is what our growth path will look like over the next couple years.

Stephen Keighery: But hey, if we could just hire all these people tomorrow, we'll bring all that growth forward. And when we had that, we just went out and raised the money. So I don't think we sort of took it the traditional way. So I don't really know what round we're at, to be honest.

Sean Weisbrot: We were saying before that you couldn't take too much at a time.

Sean Weisbrot: So how did you come to a decision about what was the right amount? To take. And was it like all five of you agreed on taking the same amount at the same time? Or did one person take more because of a need? Like let's say you were having a kid but the co-founders didn't have any kids yet, so you needed more.

Sean Weisbrot: So like how did you manage that process?

Stephen Keighery: It did vary. And the first consideration was really what was the, you know, appetite for the round. So obviously you need to be oversubscribed. Generally when we're raising money, we, we never raised money just to have money. There was always a business need and we were making a case to grow the business.

Stephen Keighery: So, so first off, you need to get that money right And you know, if you're lucky enough, and we were happen to be in a bunch of cases, if you are oversubscribed and there's more people that wanna invest, well then you sort of wanna bring those investors on. A couple of times it was even like, Hey, who wants to sell?

Stephen Keighery: Sometimes there's a little bit of that. So, um, I think every round it was just that consideration. Do we have the money? We do. We're oversubscribed. Okay, who wants to sell more shares? You know, there's always a bit of discussion, so it wasn't always equal and there was different things going on. I think we just had that conversation.

Stephen Keighery: You need to agree. I would never do anything where my partners weren't happy. You know, to some level, like you have a discussion, you need to compromise somewhere, so, so you definitely need to have those conversations. You don't want anyone to feel like you're abandoning the business and you are definitely starting to diversify.

Stephen Keighery: But I was focused on the business.

Sean Weisbrot: I have put my own money into the company. I haven't taken a salary yet. Although I'm planning on taking some of the money from the A round to cover my back pay, it's been three years. By the time we get to the A round, it'll be four years where I've had no income, which I would like to get paid back for that time.

Sean Weisbrot: Obviously everyone would, but I was also thinking about, I. Selling some of the equity and taking cash from that. But I'm not sure there's enough money in the A round to get my back pay and that, so I probably am gonna have to wait until like a B round to try and sell hopefully what amounts to a few million dollars at that point.

Stephen Keighery: I think that's probably consistent with most journeys. You know, I think it's, I think, I think it is hard to take out in a round, like, you know, you want, people wanna see that skin. It's, it's still too early, but I do agree that once. Like you have other investors coming on board, like you do need to have a salary because yes, you have shares, but these investors also have shares.

Stephen Keighery: So, you know, you are both gonna go on that same journey of growing that share value. But you are also going on, on a journey of you're working in the business, you know, probably very hard and probably very long hours, and you should start to be compensated for that.

Sean Weisbrot: Well, so what I'm doing is we, I have five investors right now, but it's not enough.

Sean Weisbrot: To get us to the A round, so I need to raise some more starting in the next few weeks.

Stephen Keighery: Mm-hmm.

Sean Weisbrot: If I were to raise everything we need, we'd be at a million for the seed round.

Stephen Keighery: Yes.

Sean Weisbrot: But even then, I'd rather put all of the money back into the team and give them salaries.

Stephen Keighery: Yes.

Sean Weisbrot: Because again, I'm okay to wait another 7, 8, 9 months to do an A round and then get the salary then.

Sean Weisbrot: 'cause for me, whether I take the salary now or later doesn't mean anything to me. But it means the difference in maybe an extra 50 or $60,000 to hire other people.

Stephen Keighery: Uh, and I think that's right. And that's why I was talking about the stages. There is a stage when it's time to start diversifying. I think at this point you wanna put as much money into the business as possible.

Stephen Keighery: It's like a baby, you know, it needs most nutrients. You need to like feed it. Like, and, and that's the main priority. You know, when you have a baby, you're probably not sleeping much. You are, you're making lots of sacrifices for that baby. And I think that's like, I always think if a business as a baby, you know, you, you need to give it that, um, nourishment and care.

Stephen Keighery: And as it starts to grow up, well hey, you know, it becomes a child and becomes more self-sustainable and then becomes an adult and he can look after you. I think you're in that baby stage and that probably makes sense. But as that baby starts to grow, I think he can start to look after you more.

Sean Weisbrot: I'm definitely looking forward to that in 2022.

Stephen Keighery: Yes, for sure. I often reflect on this. Never had a full-time job. I was hell Ben, on being entrepreneurial, you know, from the start. So I left university and started a business and I was very confident, but it was a naive, confident, like, trust me, like I like, like I had no reason to be confident, but there was a belief, but I thought it would come soon.

Stephen Keighery: I, I never. I doubted that I'd be really successful, but I also like thought it would happen faster and easier. I think there's that old saying where you so many people overestimate what they can do in the short term, but they underestimate what they can do in the long term. And I think that's really true.

Stephen Keighery: And I think that was my journey. I thought it'd be easier, I thought would I. Make lots of money sooner. And we had disappointments at times when we thought we'll have buyers or investors and they've fallen through and you know, we, we've sort of been on that rollercoaster of emotions and, you know, I remember my wife who was so supporty, but at times she was like, man, like come on, like you meant to be making money by now.

Stephen Keighery: Like, you know, and it took me longer than I thought, where I sit and where I'm looking forward. Like, I think where I can go is like beyond where I always thought

Sean Weisbrot: when I started my company three years ago, I thought we would be in a very different place than we are now. Here we are getting ready to finally launch the product in the next two months or so.

Sean Weisbrot: And I was like, I thought we would've been there two years ago. Exactly.

Stephen Keighery: Exactly. You need that little bit of naivety to push yourself and be confident and just keep going. 'cause then once you start moving though, you're like, well, I'm like, I'm like. It took a bit longer. I thought it'd be further, but like, but I'm on the journey, you know?

Stephen Keighery: And, and now I'm gonna keep going. It sort of comes in handy.

Sean Weisbrot: Yeah. I remember when I talked to my parents about it in the beginning, they're like, are you sure you wanna do this? And I was like, yeah. Like, this is what I need to do to challenge myself. I'm, I was like 31 at the time. This is the time I have to do this crazy, wild thing.

Sean Weisbrot: If I'm lucky, then when I'm 40, like I'll see the fruits of that, but it'll have been worth, you know, my thirties.

Stephen Keighery: Colonel Sanders started when he was like 60 something. It's never too late, but it's definitely easier the earlier it's. Because you have less responsibilities. So I was probably pretty lucky that, you know, my risk was pretty low when I left University.

Stephen Keighery: Didn't get a job. My then girlfriend, my now wife was supporting me, but I didn't have a lot of bills, didn't have a lot of commitments, you know, so think as you get older and you know, you're starting to get them, but it's still not all the way there. And so the sooner the better. You're more free to fail.

Stephen Keighery: And I think as an entrepreneur you need to fail. You're gonna have heaps of failures. That's what like, that's what it's about. You know? You gotta keep failing, fail forward, fail fast, and keep moving. So the young here you are, the easier it generally is.

Sean Weisbrot: When you were thinking about how to diversify, did you have a strategy like, I need to have a million dollars in cash before I can start to think about.

Sean Weisbrot: Buying a house or did you say, I've got 50,000 from the company, I'm gonna go buy a house and I'll be broke for six months. Who cares? But like, let's just do this. What was that strategy like?

Stephen Keighery: You know, you definitely don't need a million dollars. Property's a really good asset for a few reasons. Uh, leverage is a big one of those reasons.

Stephen Keighery: You series A for the business, that's hard to do. Whereas getting money for a house, it's a very easy thing to do. There's a few boxes gotta tick, but it's like, it's well established. So I think it's a really good way to leverage and, you know, you can easily take a small amount and you can control a large amount.

Stephen Keighery: If you're buying properties that are paying for themselves, well, it's not really costing you anything, and in the US it's a lot better than Australia. Australia. My properties basically sort of broke even. They were bought in really good areas and they had great capital growth. That's actually really good.

Stephen Keighery: Investment in Australia, in the US is a whole different story. It's why, I mean, I came here on a holiday and I never left. The market, like it's so easy to have cash flow properties. It's actually really easy. I think you can use money and leverage and as you start to get a salary, particularly now, you're like, well, I can use my salary, you know, as this employer hat, and I can now go get loans, leverage, buy them well, uh, and I, I just wanted to acquire, I believe in assets.

Stephen Keighery: You know, for me, wealthy isn't a number. Wealth is measured in time. How long can you live without having to work? If you have really big expenses, you might get tens of millions of dollars and it might buy you five years. For me, I like to buy assets that make cash flow. 'cause that cashflow page, your expenses, and that's the game.

Stephen Keighery: If you can get enough assets that your cashflow is covering your expenses, well now your time is infinite. You're at the VAT race, you know, and you can build more and more. So for me, the business is a great way to really grow exponentially. You know, you won't get that same exponential growth through property, but if you, if you're sort of going for the exponential growth, but at the same time just building that cash flow underneath, it's a pretty safe bet.

Stephen Keighery: And then if you make it big and you. Business. Well then you can really accelerate that cash flow with the cash you generate from your business.

Sean Weisbrot: Everyone that I've ever talked to says that passive income is their dream. There was like this guy who's like 23 or 24 in America where I think he got a loan or one of his family members gave him enough money to like start with a house and now he's got like a thousand of them.

Sean Weisbrot: After like five years,

Stephen Keighery: I make other investments. But if you can just add that safety of some property into it as well. My, my best tip, anyone that's like, you know, if you are a young entrepreneur building a business, buy a duplex or a fourplex. With an FHA loan live in one of the sides, rent out the others.

Stephen Keighery: If you do that right, you can generally live rent free. You basically eliminate your rent, you know, your FHA loan. You need 3.5% down. You have the house. You know, if it's a duplex to live one side, you rent out the other. With the way the interest rates are right now, that tenant's probably paying for your house.

Stephen Keighery: So now you're living rent free. You reduce your expenses. That tenant's paying the rent, which is paying down your note. So you're amortizing. You're starting to own equity in that property. And if you're entrepreneurial, you're probably motivated. So you can figure out that after one year, you can get another FHA loan.

Stephen Keighery: So you just move outta the duplex by the next one. Living that side, rent out the old place, increase your cash flow and then live free in this one. And, and that's actually a really simple formula, which I didn't know when I was younger. I probably would've done that. But I think that's a really simple way to start to like, just get on that property ladder while you're hustling.

Stephen Keighery: Why are you building that business? Just have another iron in the fire. So

Sean Weisbrot: what's an FHA loan?

Stephen Keighery: Basically, it's subsidized by the government. So it's a cheap loan. You only need to put down 3.5% of the deposit. So the government backs it 'cause they want people to own properties. It basically means that you need to make a low deposit.

Stephen Keighery: You're gonna get fixed interest. You can get less than three, but three, three and a half percent fixed for 30 years. I mean, that is solid. Your rent will be more than that. Trust me. That's solid. If you then want add one layer, if you want me to get a little bit of my theories in there, but like if you look as well, like the government's printing massive amounts of money, right?

Stephen Keighery: So if you can get a fixed 30 year interest loan. What will happen is I believe in 10, 15 years, you know you're gonna see some amount of inflation. So even if the property doesn't go up, like it'll go up just due to inflation. But if you've got a 30 year fixed note, you're basically paying off your note in today's money and like in 10, 15 years in the future's money, and you're paying off the money in today's money.

Stephen Keighery: And that's a really solid bet from my perspective.

Sean Weisbrot: I think inflation's gonna happen a lot faster than that. We see this, the consumer price index is already being affected, although the, the CPI, in fact, is actually not really showing all of the things that people are buying because it's a small basket. I, I think it's like a hundred or 200 items.

Sean Weisbrot: I could be wrong, it could be a little bit more, but economists are lying through their teeth right now saying, oh, we didn't know it was gonna. Be like this, like yeah, you knew it was gonna be like this when the government's printing trillions of dollars. I think they printed what, 10% of the entire GDP last year in order to handle the stimulus.

Stephen Keighery: Absolutely. And look, I agree. CPI is manipulated. I'm just trying to be conservative. I'm saying yes, there'll be inflation in 10, 15 years. Like I think it could be like, I think it will be faster and more, but I'm just saying on a conservative case that works. But definitely the government is printing this money and.

Stephen Keighery: They want inflation. They've had trouble generating it because technology is a deflationary thing, and there is deflationary forces as well as inflationary forces. But the government wants inflation because it's doing all this debt, right? So how do you make the debt less? You create inflation, which is just, like I said, like the government's trying to do the same thing as me, right?

Stephen Keighery: Like I know what the government's doing. They're racking up this debt. If they get inflation, the debt becomes cheaper. They can actually afford to pay it off. So I'm not gonna comment on whether it's a good or bad policy, even though it's bad. But what I'm gonna do is I'm gonna position myself. For that policy.

Stephen Keighery: So I see what they're doing, so I'm just gonna do the same thing. I'm lucky I have cash, you know, from I, we iPod a company. I sold a bunch of my shares and I've been turning cash. Into property and I buy them really well. So I get discounted properties, but then what I'm doing is I buy it cash or I get that discount, and then what I do is I refinance.

Stephen Keighery: I add 30 year debt on it. So I'm positioned that like the debt is well and truly covered by the rent. I'm making a cashflow. A house is an inflation hedge. The debt is a bet. 'cause you're gonna accelerate that. So bring on inflation. I would love it. To come.

Sean Weisbrot: Let's say someone were to get an FHA loan but not live in the actual house.

Sean Weisbrot: Is that acceptable or do you have to live in it?

Stephen Keighery: The reason I say the FHA is it's an easy way. It's like you said, do I wait till I have a million dollars or do I invest? What I'm saying is, within an FHA loan, you know, 3.5% deposit, it's obviously, it's not very prohibitive. You don't need that much money to be able to do it, but you do need to live in it.

Stephen Keighery: If you don't live in it, you're gonna need to come out more like 20% deposit. So it's just gonna change that for you. So I just think as a younger person, how do they know you're not living in it? I mean, they look at things like, you know, you've got electricity in your name, you've got these things in your name.

Stephen Keighery: I mean, I guess you could be in Vietnam and not live in it like very often, but as long as that is your principal pace of residence.

Sean Weisbrot: Well, I don't wanna live in America, so that's one of the reasons why I've avoided buying property.

Stephen Keighery: That makes it easier though, actually. 'cause yeah, you could have it as your residence, but you may maybe only visit.

Stephen Keighery: Occasionally, but it's still your residence, so you probably couldn't rent out that side. You could rent out the one side and you're really saving that big deposit. And then after one year you just rent it out one after one year, you're, you're safe. So, so you basically would have to keep one side vacant for a year if you wanna sort of stay I.

Stephen Keighery: In, in the law properly. I, I, well, let me share one mistake I think I made, we iPod November last year and I sold a bunch of shares and I kept a bunch, I got smacked on tax. I just paid my tax bill. It was very large check. And I, I do want to take some more liquidity out to keep diversifying. I definitely want to, I, I really like our company.

Stephen Keighery: Like it's growing. I think it's gonna be like, you know, it's, it's valued at 315 million. I think it'll be a billion dollar company at some point. So, so I want to go for the ride, but I do want some liquidity too to keep diversifying. So my next thought is I'm not gonna sell more shares, but I am gonna get a margin loan because a loan, it's not a taxable event.

Stephen Keighery: You know, instead of selling the shares, I'm just gonna get a margin loan on the shares, use the loan as cash to buy the properties, then pull out the money as debt. 'cause I'm buying them like distressed and fixing them. I basically pull out all my money as 30 year fixed. I'm buying under market value and I pull out the money so I, I get all my money back, but I have a note for that amount.

Stephen Keighery: Obviously fixed for 30 years, but I have a tenant too, so gonna use the debt. Which, and, and that's real. That's a real property trick. And that's why I thought of it because that's how property people do it. They don't sell the properties, they pull out the equity 'cause it's not a taxable event. So I'm gonna do that with my shares.

Stephen Keighery: So I can take a margin loan, so therefore I don't lose all that interest and I want to be in the company too. So I also get the upside of the company. Obviously, it could go down and there's margin calls, so you need to be strategic in how much you take, and you don't wanna be on the line of getting a big margin call, so, so don't make that decision lightly.

Stephen Keighery: That's how I'm gonna handle the next round. I think that's gonna be so much better and I should have done it the first time. What's a margin loan? Exactly? It's a loan on shares. I like property 'cause it's easy to get loans. With a margin loan. You go to a brokerage, say got a million dollars worth of shares, they're gonna hold those shares as collateral, like a bank, hold a house as collateral.

Stephen Keighery: So I. I've got those million dollars worth of shares and they'll have different criteria. Maybe they'll lend you up to 50% of the value. So they might give you 500,000 loan for that million dollars worth of shares, and then you'll pay them interest. And that's not taxable. That 500,000 they lend you. It's a loan.

Stephen Keighery: You need to pay it back. It's not a taxable event. Now just we need to be careful, right? If they lend 50% of the value and you take out all 500,000, 'cause it's worth a million if your share price drops. To 800,000, they're gonna do what's called a margin call. They're gonna say you can only have 400,000 now, so you gotta put a hundred thousand back.

Stephen Keighery: You know, and if you don't put that money in, they sell you shares. So they have that shares as collateral. So you need be careful. So if they'll lend you 50%, don't take 50%, take like 25%, have a threshold so you're not forced to sell the shares. But yeah, for me that's just a really tax efficient way to do it's real property strategy.

Stephen Keighery: It's why Trump pays no tax. Uses debt, he uses depreciation. As I'm doing more property, I'm like, well, I need to treat my shares like the property guy. Why am I paying tax? The property guy don't pay tax, like, I'm gonna do that.

Sean Weisbrot: Well, I think he runs his businesses purposely at a loss.

Stephen Keighery: Primarily Donald Trump pays no taxes because he, he buys massive buildings with debt.

Stephen Keighery: Depreciates them. So, and is accelerated depreciation. So when he buys a massive building, that building has an asset value and you can depreciate it. You basically say, well, that val, that building goes down in value every year. And that is a phantom tax claim. You claim that depreciation in the. Value of the building adds a tax deduction.

Stephen Keighery: And now there's new laws where you can accelerate that. So you can accelerate all of it. So if you want to keep not paying taxes, you gotta keep buying buildings. It's totally legitimate. I laugh at everyone who's like, they get angry that like, people like Trump don't pay tax. And it's like, don't get angry.

Stephen Keighery: Ask them how they're not cheating. They're not doing anything wrong. It's incentives. The tax code is. Incentives that the government puts in place to get people to do what they want them to do. One of those things is they don't want to have to like provide housing for everyone. That's why they provide incentives for people to invest in property.

Stephen Keighery: They do that 'cause they want the capital to flow into buildings, apartments. Like that's what it's there for one thing, they are talking about changing and I think, I think this government will change it. Is thing called a 10 31 exchange. And a 10 31 exchange basically means that you can sell a property and you can defer the capital gain, and Trump will do a lot of this.

Stephen Keighery: So if I, if I buy property for a hundred thousand, and let's say it's worth a million dollars and I sell it, obviously my basis is a hundred thousand, what I put into it and 1 million was what I sold it for. So there's a capital gains tax of 900,000. Now with a 10 31 exchange, what you do is you exchange into a new property.

Stephen Keighery: So you sell that property for a million dollars and you buy another property, it costs you a million dollars. So now the tax basis comes with you so that a hundred thousand tax basis comes onto this new property, but you don't pay the tax now. You're just deferring it eventually when you sell. If you don't buy a new building, you will need to pay that tax.

Stephen Keighery: And that's one thing that Trump does. That's what I'm saying, like he's depreciating, he's. He's deferring the taxes. The only way you don't pay is you keep buying more and more buildings, and that's what the government wants. Like there's a lot of activity underneath that, not paying taxes. But the Biden administration has indicated that they're gonna stop that.

Stephen Keighery: Not legislated yet, but it's probably gonna happen. That will cause some problems for people. 'cause if they sell, they're not gonna be able to do that. So what you're probably gonna find is less people selling their properties. That creates money for like real estate people. So it's sort of, it will hurt the economy to some level.

Stephen Keighery: You know, you will find, you can sell creatively, we can sell on like as a installment sale, and that's the way to defer the taxes. You know, I sometimes buy properties like that, so, so if I have someone who's owned a property for a long time. When they sell, they're gonna get a big capital gains tax and they can't, 10 31 it, but they don't want to manage that property anymore.

Stephen Keighery: I can actually buy it for them on an installment sale, so it spreads the tax out and it means that they're still getting a return instead of just losing all that money up front and then getting a return on the money they have. They're basically getting a return for a long period of time. So that's an opportunity for me.

Stephen Keighery: I'll try to buy more properties. By installment sale.

Sean Weisbrot: I didn't realize that all this was so complicated, but I, I had heard of the 10 31 exchange, but I didn't know it by the name. I just knew that, that you could defer taxes by buying something bigger over time. It seems like a way to pass assets through generations without an estate tax applied to it.

Stephen Keighery: You can't, 10 31 to your child, but, uh, I mean, currently when you die, there's a step up in basis. But that's probably gonna change. So, so, so I know a lot of property people freaking out about that and they're trying to do living trust and plan around that because currently if I died and passed my property on to my kids, when they get it, the basis is the current value, not what I bought it for.

Stephen Keighery: So actually passing it on was actually a good way to get a new basis, but that is very likely to change as well under this administration. But I mean, to bring it back to like business and investment. So like, that's why hard assets I believe are valuable. And what you don't want is a pile cash. So if you are.

Stephen Keighery: Like, you wanna turn your cash into assets, you wanna turn 'em into something that's doing something for you. And for me, that's the main thing. And that's what I've been trying to do. And I'm doing, you know, property's definitely my favorite vehicle. But yeah, I'm, I invest in startups, you know, uh, still hold shares in my company back home in Australia.

Stephen Keighery: And, you know, I'm, I am looking to diversify continually.

Sean Weisbrot: Yeah, that's always good. I was looking at gold a few years back and crypto and all that.

Stephen Keighery: I, I haven't really gone to crypto. I like the idea 'cause I don't like fi currency. You can probably tell I do have some gold and silver, but I think crypto is enabling a bunch of, you know, new entrepreneurs because those early adopters are all techy young people, right.

Stephen Keighery: And they've built wealth so they can start companies, they can do things. And I, I think that's really good for society.

Sean Weisbrot: The five investors I have are all crypto guys.

Stephen Keighery: Yeah, that's case in point. It's beautiful. The world has changed a lot and I mean the internet changed out obviously, but back in the day everything was very capital intensive.

Stephen Keighery: It was very hard to start a business. You need to have a lot of money, a lot of connections. You know, I think the internet changed out initially and like, you know, it became much easier to start a business as pla. Forms, things you can plug into, you don't need the capital. And then now with, with these, um, you know, cryptocurrencies, I think it's just enabled a whole bunch of tech savvy people to make some funds and now they're able to start businesses and, and that, that's really good just to diversify where the wealth is and to create new entrepreneurs that will create new opportunities and help people grow.

Sean Weisbrot: So is there anything I haven't asked you that you think I should have?

Stephen Keighery: That's a great question. I think you covered most of the margin loan you said of selling. I sort of asked that for you 'cause I wanted to get that point out there. 'cause I definitely am reflecting on that, having written a really massive check to the US government.

Sean Weisbrot: Why did you have to pay the US government? You're not an American citizen.

Stephen Keighery: Alright, you don't open a can of worms. Here's the thing, I'm American resident for tax purposes. You need to pay tax on global income and do need to pay capital gains tax in Australia. But there's a timing issue, right? So we iPod in November, so I sold shares in November and our tax year goes from 1st of July to 30th of June.

Stephen Keighery: So that tax comes later in Australia for America. 'cause it's November. 'cause it's January to December. They're like. This is your tax year. Have you paid tax on that? In Australia, which I haven't, if you haven't paid in Australia. In Australia, you need to pay in America. So I've had to pay my capital gains tax in America.

Stephen Keighery: What's gonna happen is I'm then gonna have to pay it in Australia, and as soon as I paid in Australia, I can claim a credit and the American government will credit what I paid in Australia. So just a timing problem, but it's a pretty painful problem that I have to pay the capital gains tax twice, but I will get it refunded, but it's sort of annoying.