Q&A: Delaware Statutory Trusts, Stop-Loss Orders, & VOOG

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0:57hey everyone and welcome back to the rich habits podcast a top 10 business podcast on spotify we hope that you all had a very merry christmas a very happy hanukkah kwanzaa whatever you and your family and your loved ones celebrate we hope it was wonderful happy holidays all around we're thrilled that you came back to listen to this episode of the podcast and of course this This is our question and answer edition, which means that you all submit questions via Instagram DMs at Rich Habits Podcast. You email us your questions at richhabitspodcast at gmail.com. Or you ask your questions inside of the Rich Habits Network, which, Robert, we recently surpassed 500 members inside of the Rich Habits Network, which is a huge accomplishment if you ask me.

1:36Yeah, I am definitely excited for 2025 and this episode and just feeling jolly about the holidays. So I am definitely excited for the end of the year, everything that's happening in the markets, and just ready to start cranking out some really good episodes in 2025. But a quick heads up, folks. Interest rates are falling, but you can still lock in 6 % or higher yield with a bond account at public.com. That's a pretty big deal because when rates drop, so can the interest you earn on your investment. Now remember, a bond account allows you to lock in a 6 % or higher yield with a diversified portfolio of high yield and investment grade corporate bonds.

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2:53Yield to worst is not guaranteed. This is not an investment recommendation. All investing involves risk. please visit public.com slash disclosures slash bond dash account for more information. Now, our first question of the episode comes from Jeff C. Jeff says, hey, Austin and Robert, I have a question about DSTs. I'm considering selling my rental property and completing a 1031 exchange into a Delaware statutory trust or a DST to generate passive income. Due to a life event, my cap rate dropped to just over 2 % and I'm currently netting around$15.80 a month after expenses. The sale should result in around$800 ,000 of pre-tax money.

3:32What are your thoughts on this? Should I do the 1031 exchange to a DST or am I better to take the tax hit and invest the money accordingly to provide myself more liquidity as a DST would time my money up for a while? Also, I was looking into K properties and investments to do this. Have you ever heard of them? Thank you so much, Jeff. I'll kick this one off, Robert. Personally, I'm not familiar with DSTs. So I had to do a little bit of research here. I know Robert knows a little bit more about them than I do. But essentially, a DST is a Delaware statutory trust. It's a legal entity created under Delaware law designed to hold title to a property or asset for the benefit of its investors or beneficiaries.

4:09It provides a flexible framework for trust creation and operation. One of the most common applications, to your point, Jeff, is in real estate investment specifically for these 1031 exchanges. investors can use the DST to defer capital gains taxes by exchanging into real estate held within that trust. So in Jeff's instance he has this house it's not cash flowing the way he wants to it's worth$800 ,000 he sells it and instead of paying taxes on that$800 ,000 he 1031 exchanges that money into this DST which is a trust essentially all about real estate. Now setting up and managing a DST can be really complex it involves a lot of detailed legal and tax consideration work here.

4:50But also on top of that, which is also kind of a con here, and Jeff already alluded to it, they're not very liquid investments, right? So your money is tied up for a while. Now they could be structured more flexibly, but I think at the end of the day, it's not something that I would do. I would rather find my next deal or pay my taxes and invest it accordingly. But Robert, maybe you could talk a little bit more about what a DST is in this instance, maybe some pros, cons, maybe even the fees, things like that. Yeah, for sure. And just to be clear, this sounds really official Delaware statutory trust but this is not the state of Delaware this is an individual company run by normal people every single day so even though it sounds super official and cool we still have to look at all of the aspects of is this a good investment or is it bad to use this particular DST and in my opinion you just have to look at the facts this DST is super illiquid and you don't have any real control over the investments within the DST.

5:44So that is super important in this aspect of do you want your money being illiquid and held for a very, very long time. Secondarily, the fees are outrageous. The amount of money they pull out in fees in these real estate investments is really high. I did some looking myself because I've never done one in Delaware and it was 7 % to 15 % of the total investment for sponsor fees and commissions alone were 6 % to 9%, averaging over 17 % above normal fees. Because remember, you still have closing costs and everything else related to this and inspections, all of the other fees related. So in my opinion, this is a bad idea.

6:27I wouldn't use it. I would rather see you hire a management company or work with a lawyer that's gonna charge you a lot less money to help you figure out what to do here or simply do a traditional 1031 exchange. So that's what I would do because remember to do that 1031 exchange, you do have some time between selling the original property and purchasing the new one. So that's the takeaway, high fees, illiquid, and you don't have any control over your investments. So just be careful. I love that answer, Robert. I'm right there with you. the fees, the illiquidity, the complexity. I mean, sure, maybe if you want to do some crazy stuff, this could work for you.

7:06I'm sure this works in very specific situations for very specific people. But if it were me, I would much rather pay my taxes, my long-term capital gains taxes here in this instance, invest the money accordingly in the markets or in my next deal or whatever I can figure out here. But I don't think I'd do the DST. Now, our next question comes from Chris. Chris says, Hi, Austin and Robert. My name's Chris. And I want to thank you both for the fantastic podcast and newsletter. I never miss an episode. My fiance was recently accepted into medical school and we're considering buying a home where she's in that four-year MD program.

7:37However, we will most likely move to another state afterward for her residency. So I'm torn between buying a home and living there for four years or just renting. If we buy, we'll either sell the home when we have to move out of state or keep it as a rental after we move. Housing in the area is generally affordable and I'm leaning toward a turnkey single family home rather than a duplex or a multifamily. Most of the duplexes in the area are fixer uppers and I'm just not looking to do that for my first property. So here's my question. Would you suggest buying or renting in this situation and what factors should we consider?

8:07And if we do buy the house, do we keep it as a rental after we move? Again, we'll be moving to another state so we'd be those like out of state landlords. And then my final question for this whole thing is can I use the money in my taxable brokerage account as part of the down payment? For context, I'm 26. I have 100 ,000 in my Roth IRA, $43 ,000 in taxable brokerage account,$30 ,000 in collectibles,$23 ,000 in my high-yield savings, $12 ,000 in crypto,$4 ,000 in a high-yield savings account, and we'll probably have another$10 ,000 to$15 ,000 in cash by the time I purchased. So what do you guys think?

8:34Do we buy or do we rent? Robert, I'll let you answer this one. I love this question. Great job getting yourself in a really, really good financial situation. And my first take on this is I think you should rent because at the end of the day buying a home right now is extremely expensive home prices are at all-time highs mortgage rates although coming down a little bit are still pretty high and i just don't know especially if it's only going to be for two three four years if it makes sense to go through all of that drain a lot of your savings assuming you put 20 down and do all of that just for a short term unless it's an area that has really high growth and high capital appreciation in that instance where you could buy now and in four years maybe be up 30 or 40 percent on the home then that is different but in a traditional sense if the area you said is affordable has a three four five percent capital appreciation year over year i don't know that it's worth going through all of that to buy the home having to go through the closing the inspections and all the work to get that turnkey home when you could just go rent be done in a weekend and be moved in but it's all up to your individual situation and what you think is best.

9:46But from a financial perspective, I think it's better to rent over buying unless it meets the criteria that I laid out. I'm right there with you, Robert. Renting is the answer here. And there's a couple of reasons why, in my opinion. First, if you're not going to plan to live in the house for at least five years, it's really hard after closing costs, the unpredictability of the markets, interest rates, and things that go wrong when owning a house. We all know about my dishwasher story, right? There are all these things that cost thousands of dollars that go wrong with home ownership that you can completely avoid by renting.

10:18So if you're not going to live there for at least five years, I think it's a bad idea. So that's point number one. Point number two is you've done a wonderful job investing your money at 26 years old. You've got about$150 ,000,$160 ,000 here invested, which is wonderful. And to go and put money down on a house, either one, you would do an FHA, three and a half percent down on a, call it$300 ,000 house. So let's call it 10 to 15 ,000 all in cost. But now you're borrowing 300,$350 ,000, which is at these rates, Robert, call it 3 ,200,$3 ,500 a month of a mortgage. That's tough. That's a lot of money.

10:53When the two of y 'all could go rent something for 15 to 2 ,200 bucks, I'm sure, depending on where you live, maybe around campus, something more localized. So in my opinion, one, you're not gonna live there for long enough for it to make sense. two, the actual monthly payment is gonna be a lot more expensive than renting. And then also three, I would love to see you all knowing that you guys are gonna move here and jump around and like, you know, I'd love to see your fiance, get her MD, do the residency and then say, okay, where do I wanna actually, you know, plant roots as a doctor? That's where you buy, right?

11:27That's where you wanna buy. Now, of course, all this can change. If interest rates go to 2 % tomorrow, my argument gets thrown out the window, but I don't think that's gonna happen. In this instance, Chris, if I were you, I would rent. Renting in this situation is not throwing money away. I don't want you to think about it like that at all. And it will allow you to, one, have more cash flow against your monthly expenses, allowing you now to have that 15 % to 25 % to continue investing, continually max out this Roth IRA, get more money in the brokerage account. I mean, you're doing so well at such a young age.

11:55You guys are going to set yourselves up for multi-millionaire status very, very quickly. But I think some of that could get a little more turbulent if you threw in a single family home in the mix. I couldn't agree more. And, you know, it just lends to simplicity. You've got a lot to focus on right now as you grow your family and get through medical school and all of that. And I just think the rental is gonna be better off financially and long-term for your peace of mind. So our next question comes from Josh W. Josh says, first off, the Rich Habits podcast is amazing. I listen to it every week and it makes my work commute very enjoyable.

12:28Following your advice has changed me and my wife's investing and wealth building journeys. We just got married and she hasn't done any previous investing or saving for retirement. And now we're both on track to retire multi, multi millionaires. Let's go, Josh and Josh's wife. Love that, love that. So in a recent episode, you all mentioned stop loss orders. What do y 'all do when it comes to your stop loss orders? Are you using these when you invest in single stocks and ETF? What are the rules that you personally follow for stop loss orders? I'll take this one, Robert. So essentially, a stop loss order is a way for you to be more of a trader than an investor.

13:07Here's what I mean. Let's say that you went out and you bought shares of Tesla stock at$400 a share. If you're like me, you're a Tesla investor because you believe in their humanoid robots. You believe in the robo taxis. You believe in everything they're doing with AI. You believe in the company for a very long time. And because I have that deep rooted belief in what this company is building and how profitable it will be in the future. I don't really care too much about what the stock price is doing on a daily, weekly, or sometimes even monthly basis. Sure, I'll check in on it and make sure like my investment thesis isn't going out the window, right?

13:38Elon's not doing something crazy here, but I don't really care where the stock's trading at in the short term because I know over a long period of time, I know where we're headed. A stop loss order essentially is a sell order that you have turned on at all times on your stock that says, I bought it at 400. And if Tesla stock trades at, let's call it$380 a share, so it trades down 20 bucks a share, I want to sell all my stock immediately. Give me out of it. So like, that's what that order is. It's a way for people to make sure that they cap their downside loss, assuming they have like a short term trade ideology here.

14:16Now, again, this could be helpful if you are a trader and you're trying to make sure that you don't lose money on a trade or whatever it is, but it's not something I do personally. And I don't think it's something Robert does often personally anymore. Is it helpful? Of course, it could be helpful if you're someone who again is very much swing trading, or maybe you're you want to make sure that you don't lose money on a trade, like there's ways that you can do that with stop loss orders. But I really want to encourage you, Josh and everyone else listening to have a long-term investment mentality as it relates to buying single stocks and ETFs, especially when you're thinking about buying a single stock, right?

14:51The whole reason you bought that stock is because you have a deep conviction in what that company is doing and how that company will trend over the next, Robert, I'm not buying a stock unless I'm holding it for at least 18 to 36 months, right? That's one and a half to three years, right? I know that in three years from now, Tesla will be doing a lot better than they are at the moment. So that's the type of mentality I want people to have when they buy these stocks. and having that stop loss order, sure, it guarantees you not to lose more than X amount of money in a short period of time. But at the end of the day too, Robert, you only lose money if you sell.

15:20Yeah, I can't add too much to it other than this. And that is stop loss orders are great to use. I used to use them every single day in all of my trades back when I was day trading and swing trading. But when you're doing long-term investing, you also have to look at the downside of a stop loss order, because let's say you set a stop loss order on Tesla and it has a bad day and it triggers that stop loss and you sell and like we see all the time then the market recovers and it goes right back up a couple days later well guess what you have to form a new position because you're out of that position so you have to look at the downside of the stop loss order as well when you're trading these volatile stocks like a Tesla or a Nvidia or even Palantir so just keep that in mind Austin I think you covered it well I don't use them anymore because I am a long-term trader and I'm really not swing trading or day trading any longer.

16:15Our next question comes from Jason L. Jason says, I'm turning 50 this year and my wife just turned 50 as well. We have$1.2 million in our two rollover IRA accounts invested mostly in funds of a bunch of individual stocks. We do have 400 ,000 in the S &P 500, another 150 ,000 in things like VOO and QQQ, but the remaining money is spread across BlackRock, NVIDIA, Morgan Stanley, and Microsoft, just to name a few. Actually, I have too many to list. About$30 ,000 is in my current 401k. We're both contributing 6 % to get the match and 9 % of our checks go into a bridge account. We recently just changed this to your podcast and we now have even more control and we feel great about it.

16:56I have$32 ,000 in another Roth that's been maxed out with all Apple stock. It has$25 ,000 of Apple stock in it, a little bit of Disney and a little bit of the NASDAQ, but my lifetime returns of over four years on Apple are doing pretty great. We have our emergency fund of four months, which is$20 ,000 in cash and then$10 ,000 in a high-yield CD. We just reduced this due to your podcast of making our money work for us. We're currently in the process of downsizing, possibly selling our house. We can talk more about that as well, Robert. But his main question is, at my age, should I sell all these individual stocks in my rollovers and put them more into index funds and ETFs to reduce my risk.

17:34Want to start this one off? Jason, I love the situation you've created. You've done a really, really good job for 50 years old. So congrats on that for you and your family. In my opinion, I think you're doing really, really well, but maybe you should have less stocks. Like you said, you have many, many, many of them. So we don't know what that means. It could be 30 or 40. So many people get tied up in this situation where they're chasing money with too many stocks. I think you can have a really well-rounded portfolio with 10 to 15 stocks and really cover all your bases. So without knowing what many, many means, I would say you probably should sell off some of those underperforming stocks.

18:13Keep the good ones that we like, the Amazons and the Broadcoms and the Teslas and all the ones that we know and love and get rid of some of those to bring it in a little bit and wind it in. And that's what I would do in this instance. So then that way you have more diversification potentially, but you're not spread so thin across too many crazy stocks. I like that answer a lot, Robert. I think Jason here, if I did my math right, has about 50 % of his two rollover accounts invested into single stocks. So$600 ,000. I think that is a little too much. In my own solo 401k retirement account, where I am a little bit more aggressive with single stocks.

18:53It's about a 75-25 split, 75 % into ETFs, 25 % into single stocks here. And so, you know, again, you're 50 years old, you've got another 20, 30 years of investing ahead of you. I think it's fine if you want to dabble in the dark arts of single stock investing, as I like to call it. The reason I say that is because some names do obviously go down, and I'm sure you realize that over your 50 years. But, you know, if I were you, I would probably move out of maybe half of this$600 ,000 that you have in single stocks in these accounts and put them into things like VTI or MOAT, maybe EUG if you still want to have some aggression there, or maybe just the Dow Jones.

19:34I mean, there's a lot of different places that you can park this money that will still allow you to earn that 8, 10, 12 % per year that you're probably used to with names like BlackRock, NVIDIA, and Microsoft without having so much risk. And the reason why I say it's a way for you to, you know diversify and really protect your downside risk here is and i'm not saying we're going to go into a bear market i'm not saying we're going to a recession and stuff like that but when we have increased volatility when the s p 500 or the nasdaq or the dow jones goes up down left and right remember these are a basket of a bunch of different stocks those individual stocks inside of those indices move a lot more to the upside and a lot more to the downside during the same period of time.

20:18For example, you mentioned you have BlackRock stock. BlackRock during the 2022 bear market went down by 45%, right? Compare that to the S &P's 25%. NVIDIA, it was a very similar situation. Microsoft, Morgan Stanley, very similar situations there, right? So they move up and they move down much more aggressively than the indexes. So I just want to make sure that you understand that. So back to my original point, 75 to 25 split there, I think is a great idea. Now the second part of his question that we alluded to there was the downsizing of the home. He says that we owe$57 ,000 on a house at a mortgage rate of 2.25%.

20:54We would sell it for$600 ,000 leaving us about$525 ,000 of cash after the sale. He also says if they sell the house they plan to rent locally for a year before taking the proceeds to purchase another house in the South. They live in the Northeast right now. So his question is, what should he take that money and park it in over the next 12 months? Well, I say high yield savings account. I mean, I can't predict what the stock market's going to do in nine to 12 months. So get that four and a half, 5%, whatever you can there. CSHI is a great ETF that will allow you to do that. But Robert, what do you think about selling this house at 2 %?

21:29Yeah, it's tough. I'd really have to understand the market dynamics. What's the capital appreciation in that area. You obviously have a lot of equity. Could it be a really profitable long-term rental? Where to put the money for a short term if you sell it? That's tricky. I like your idea of putting it in a high-yield savings account so it's making that 4, 4.5%. But it's just a great situation to be in, and I don't think there's a wrong answer here. It just really comes to your risk tolerance because, like Austin said, it's really difficult to time any market, and I would hate for you to take that money out, dump it into the S &P 500 with VOO and you happen to have eight, 10 months of down market and then all of a sudden you've gone backwards.

22:13So I like protecting it for such a short period of time if it's only gonna be a year. If it turns into two, three, four years, then I definitely think you need to get it in the markets, get it into some of these funds we talk about like VOO, QQQ, maybe you get it into SPYI or QQQI to earn some income on it, but I like where Austin's at with the high yield savings. Okay, so listen up, folks. Time could be running out to lock in a 6 % or higher yield at public.com. You can lock in a 6 % or higher yield with a bond account, but remember, your yield isn't locked in until the time of purchase, so you might wanna act fast.

22:51Lock in a 6 % or higher yield with a diversified portfolio of high yield and investment grade corporate bonds only at public.com forward slash rich habits. So our next question comes from Wesley H. Wesley says, hey guys, I've been listening to the show and I've picked up some helpful information. I have a personal IRA through Vanguard that I rolled over to a 401k from a previous employer. However, I had about 112 ,000 of it sitting in a target date fund for 10 years. After seeing a whopping 7 % total gain during that 10 year time, I'm ready to now spread this into VOO, VGT, QQQ, AIQ, and many more ETFs you will recommend.

23:32My question is this. Over how long of a period of time should I dollar cost average into these ETFs? I don't want the money sitting for too long because I've only made 7%, but I also respect the idea of averaging out the buy-in. Also, what's your take on VOOG, Large Cap Growth Fund? It has some serious gains. You guys should check it out. I appreciate that, Wes. Thank you so much for your question. Yeah, sorry to hear, man. 7 % over 10 years. Oh my God. That is one of the worst performances I've heard from a target date fund. I don't know what they had you in. I think probably what happened here, Robert, was they had them in a lot of bonds and the value of those bonds collapsed in 2000.

24:09And I think it was 22 because the Fed was raising interest rates so quickly there in 22 and 23. So I just, my goodness, I'm sorry to hear this, Wes. I really am, but I'm glad you're taking action. Glad you're wanting to put this$100 ,000 to work in some ETFs that we recommend. And I love the idea of dollar cost averaging. If I were you, I would do about a three or four month average out. So call it$25 ,000 a month. And the reason I say that is because on December 12th, Robert and I alluded to this in the newsletter, which was that the markets are frothy right now. We're at a same valuation as to where we were in 2021 before we had that pullback, right?

24:45That COVID stimulus bubble we had in 2020 and 2021. and our price to book ratio is very much close to where it was during the dot-com bubble in 2000. So I'm not saying that the markets are in a bubble. I don't think we are. I think there's a lot to look forward to with the deregulation under the Trump administration. There's so many different things as it relates to reshoring manufacturing and all this stuff that's going to help us grow as a country and grow our GDP, which is bullish for stocks. AI is one of those things, lower interest rates. I mean, there's a lot of like things culminating together that make sense for this market dynamic.

25:16But on the same token, we could very well be overbought. And there's definitely an opportunity to perhaps buy a 5 % or 10 % or 15 % dip in the markets in the next, call it three to six months. Is that going to happen? I don't know. Not a fortune teller, but I wouldn't be surprised if we did see some volatility in Q1 or Q2 of next year. So giving yourself, Wesley, the opportunity to dollar cost average throughout that dip, if it does happen, is probably a really good idea. I love this take from you, Austin, And I think it's really, really good advice. The only thing I would add to it personally for the$112 ,000, I would immediately go maybe to public.com, put it in a high yield savings account and then distribute your money each month from there, because then you're already outperforming the target date fund at four, four and a half percent while you distribute it and dollar cost average over that three, four, five, six months.