From Landlord to LP After Realizing He Only Had So Many “Christmases” Left | Ep. 35

Episode Summary

In this episode of The Sage Investor, host Brian Spear sits down with Steve Hostetter, a retired firefighter and experienced real estate investor, to discuss transitioning from active landlording to passive investing. After building an 11-unit rental portfolio that generated $8,000 to $10,000 in monthly cash flow, Hostetter realized that managing properties, handling tenant calls, and overseeing maintenance were consuming his most valuable asset: time. Seeking a lifestyle shift to focus on family and retirement, he systematically sold his active real estate portfolio and transitioned his capital into passive commercial real estate syndications and Limited Partner (LP) opportunities.

The discussion details strategic execution, highlighting how Hostetter offset potential capital gains taxes during his portfolio liquidation by leveraging accumulated depreciation from passive real estate investments. Spear and Hostetter analyze essential decision-making criteria for passive investors, stressing that underwriting the sponsor’s track record, character, and integrity is far more critical than evaluating a single property or deal structure. Additionally, Hostetter shares a candid analysis of an early career “unforced error” where selling assets prematurely cost him long-term compounding, as well as lessons learned from navigating economic cycles and interest rate shifts. This conversation provides business owners, high-net-worth individuals, and active landlords with an educational framework for evaluating LP investments, optimizing after-tax cash flow, and aligning financial strategies with personal life goals and time freedom.

Key Takeaways

• Active landlording can be successfully traded for passive LP investing to reclaim time while maintaining stable cash flow.
• Passive real estate depreciation can be strategically leveraged to offset capital gains taxes when liquidating active rental portfolios.
• Sponsor evaluation and character assessment are more critical to passive investment success than individual deal mechanics.
• Prematurely selling appreciating real estate assets creates an unforced error that sacrifices decades of compound growth.
• Financial strategies should align with personal values rather than yield-chasing or speculative risk driven by fear of missing out.

Key Topics Covered

• Transitioning from active landlord to passive Limited Partner (LP)
• Reclaiming time equity versus building total net worth
• Capital gains tax mitigation using passive real estate depreciation
• Evaluating sponsor integrity, track record, and debt structures in commercial real estate
• Mitigating interest rate risks and macro market shifts in passive syndications
• House hacking and building initial cash flow with duplexes
• The impact of long-term compounding versus premature asset sales
• Value-add real estate rehabilitation and quality tenant retention strategies
• Mobile home park asset class dynamics and supply scarcity advantages
• Estate planning, asset preservation, and the tax rules surrounding depreciation recapture

Episode Chapters

00:00 Intro
Brian Spear introduces the core theme of time versus wealth and welcomes retired firefighter Steve Hostetter to discuss his real estate journey.

01:05 Passive Income for Family (and Friends)
Steve Hostetter details his current position as a passive real estate investor and shares his primary financial goal of building legacy wealth to help his family and others.

03:23 The Lightbulb Goes Off
Hostetter recalls his early inspiration for real estate investing, including watching a college friend house-hack a duplex and observing a commercial fisherman successfully build financial independence through property ownership.

08:14 An Expensive “Unforced Error”
Hostetter discusses joining the fire department and purchasing his first two duplexes, before reflecting on his decision to sell them prematurely—a move he considers a major early investing mistake.

12:12 Rebuilding (and Selling) His Portfolio
Hostetter describes re-entering real estate in 2010, scaling an 11-unit residential portfolio, and achieving significant long-term equity appreciation through quality property maintenance.

14:37 Passive Income for Retirement
Hostetter explains the realization that time with his family was ticking away, prompting him to seek out passive commercial real estate opportunities that eliminate landlord responsibilities.

17:56 From Landlord to LP
Spear and Hostetter analyze how experience as an active real estate investor provides crucial insights into debt-to-equity ratios, property management, and commercial real estate dynamics.

20:13 The Sponsor Is Everything!
Hostetter emphasizes that vetting the sponsor’s character, history, and integrity is the single most important decision for a passive LP investor, sharing personal experiences across various asset classes.

26:52 Deferring 100% of His Capital Gains
Hostetter explains how he utilized depreciation from passive investments and 1031 exchanges to minimize capital gains tax liabilities while liquidating his active rental portfolio.

29:12 Replacing 6-Figure Cash Flow
Hostetter outlines how his 11-unit portfolio generated $8,000 to $10,000 in monthly cash flow and details his transition to replicating that income through passive LP syndications.

34:45 Steve’s Sage Principle
Hostetter offers his primary investment advice: “You do you,” warning against comparison, FOMO, and taking unnecessary capital risks for yield you do not need.

35:35 You Do You!
Brian Spear summarizes the episode’s key takeaways on cash flow, time freedom, tax efficiency, and matching financial decisions with personal values.

Full Transcript

[Transcript begins]

Steve Hostetter: So this is early 90s. I got hired by the fire department. After being in the department about for three years, I’d saved up enough money and I bought two duplexes. I had never been a landlord before. When you wanted to advertise to get somebody in your unit, you put an ad in the paper learning about contracting you and talk to a guy at the hardware store or read a book. I do remember sitting in the living room floor thinking like, what did I get myself into? I moved away from that property. I think I kind of talked myself into selling it, which kind of an unforced error.

Brian Spear: Time is one of the biggest determinants of wealth. But time is also one of the biggest adversaries we face in life and investing. Welcome back to The Sage Investor. My name is Brian Spear, and my mission is to help you generate cash flow and build legacy wealth in a tax-efficient manner, because that’s what I’m trying to do for my family, and I’m sharing all the secrets that I learn along the way. Today’s conversation is with Steve Hostetter. He’s a retired firefighter, longtime real estate investor, whose story is built on practical lessons rather than big claims. Well, Steve, welcome to the show, but extremely excited to have you jump on and talk shop. How are you doing today, man?

Steve Hostetter: I’m doing well. Yeah. Got in, finished my workout this morning and got back here to come spend some time with you. So I’m doing it.

Brian Spear: Well, appreciate you, again, carving out some time. You know, as we all come to realize over time, time is the most valuable resource that all of us have. So appreciate you being willing to spend a little bit of time, invest a little bit of time with us for the betterment of all the listeners out there, buddy. So again, thank you very much. To begin, always love to tee it up with the following, just so that people kind of have some bearing of where you’re at in your investment journey. But I would ask you, Steve, what kind of investor do you consider yourself today? And what are you optimizing for now as an investor that you weren’t optimizing for earlier in your journey?

Steve Hostetter: Yeah, sure. So I am a passive investor now, for the most part, particularly in real estate. I used to have rental and I did that for quite a while. And over the last five-ish years, I’ve moved into real estate passively. I am active in the stock market. I find that fascinating. I enjoy that. Um, and so, but I’m a little slower and a little more cautious and, uh, um, hopefully I’ve learned a few lessons over the years. And so I guess they would say that that’s what has changed over the last few years. Then, uh, regarding my goals, um, I do want to continue to, uh, to grow my portfolio. I, as it were, uh, it, it is a goal of mine to, um, uh, to help out my, my family, uh, friends, people that I don’t know. Um, in other words, I’m not gonna ever gonna be a big philanthropor, I guess, philanthropor, but, um, I can help out some people. And, you know, I think that’s a worthy goal. That’s important to me. That’s kind of my goal right now is, I would say, like to continue to add to my wealth.

Brian Spear: Beautiful. You know, it’s amazing, right? Have freedom today to do what you want, but ultimately be able to make an impact beyond yourself. It’s beautiful. I’ve come to appreciate that about you, Steve, over time, getting to know you over the last numerous years. So again, it speaks volumes about who you are and the family, Junie, and the whole family of what you guys do. It’s beautiful. So let’s run it back. Okay, you gave a little bit of color. Now you’re kind of passive. Real estate passive stuff as well as some stock market stuff. But back in the day, more active. Give us a little color in terms of when did investing become – you know, a real path, uh, for you to, to generate freedom, give a little color on your background, how you got to where you’re at.

Steve Hostetter: Probably two different people affected me. One was a good buddy of mine when I got out of college and he got out of college, he, uh, bought a duplex and, uh, his I think his you know his family may have helped him out with that a little bit more he had a little more money than we did but it Uh he Bob Duflex lived in one side with a roommate another friend of ours rented out the other side and I just saw that work for him how his you know roof costs was so little uh you know and and not only was it little other people were helping him get some traction in his financial life by paying his mortgage, you know, and, and growing his real estate thing there. And then the other person that was influential to me in college, I, uh, I worked on a commercial fishing boat in the summertime. And old George, guy fished for, he was a school teacher. And then he got a fishing boat to fish in the summer. And then with his fishing money, invested in real estate. And then he wasn’t a teacher anymore because he didn’t need to do that anymore. And, yeah, I just watched him pretty much be – I watched his independence and his wealth grow from real estate. And I guess I’ll take a one more thing that I think is probably important about my story is that when I got out of college, so my resume said commercial fisherman, so I wasn’t walking into any great business jobs. That’s what my degree was in. And anyway, I started working for Northwestern Mutual selling insurance. And back then, insurance… was one way that you save money. So whole life insurance plans were saving plans and it was a good plan, but I was not a closer and I was not good at it. But what I really gained a lot, I learned a lot about myself in that experience. And that, so when you go and you talk to people about saving money, we would go through a written plan. Where are you now? How do you save money? What are your goals? Blah, blah, blah. Everyone would always have a reason not to start saving money. Okay. So it was like, well, I’m just out of college and I’m just getting started. So, you know, I want to do this, but not right now. And then it was like, well, I’m going to get married, so I got to save up for this wedding. And then it was we’re saving up for a house. And then it was, oh, you know, my wife’s not working because we just had a kid or whatever it was. Pretty soon as we’re saving for our kids for college and nobody wants to save money. And I was a spender, you know, I saw this in myself, like in between years of college, if I made 700 bucks all summer, that, you know, I spent my last dollar on a pizza, May 31st, as school went out. And if I remember one year, I made $700 all summer, the next year I made $5,400 fishing. And I spent my last dollar on a pizza when the school year was out. So this was a big, you know, I knew at that time that if I did not want to end up as one of these 55 year old people that were now looking back and realizing they just never got started, I didn’t want to do that. So that’s a really long answer, Brian. Sorry about that. But… Those are my start thoughts anyway.

Brian Spear: Yeah, it’s one of these things where everybody has a winding road and a journey that they ultimately – to go on this journey, right? And there’s always some sort of interesting, oftentimes unique and fun way in which the light bulb goes off. All of us have that moment where the light bulb goes off. But you have to take action on it, right? Just because the opportunity is in front of you, you have to actually take advantage of the opportunity when you see it in order to be able to seize it and have a significantly better life downstream, right? Real estate is a simple game. But you actually have to take action. You know, your comments remind me of a poem by Dennis Waitley, if you guys have ever heard of this. It’s called Someday I’ll. If you’ve ever heard of this, someday I’ll, someday I’ll go do this, someday I’ll go do that. And if you just wait, you’re just sitting there living on this someday aisle, but you have to basically, at the culmination of the poem, it’s basically making a vow to take someday aisle and make it your now. Actually, literally go take action today. or else that procrastination will just adversely affect you in a tremendous manner. We’re talking about compound interest here. Everybody knows the power of compound interest, but you have to be in the game. So kudos for you for taking action and getting rolling. So a winding road. Now you see the light. You understand real estate is something that you should get involved in, right? Talking about finding your way. And give me a little color in terms of your first actionable steps there. Duplex’s active involvement, how long you did that, what changed along the way during that early trajectory of your real estate investment career? Little bit of color.

Steve Hostetter: So after my failed start in business, like I said, I spent about a year in insurance. I got hired by the fire department. And I love that career, that’s what I did for 30 years. And after being in the apartment about, I would say, two or three years, I’d saved up enough money and I bought two duplexes. And they were older. I wouldn’t say they were run down. They were in a decent neighborhood. But my plan was kind of to do something with my buddy Eric had done where I’m going to live. I lived in a side of that duplex, had a roommate, rented out the other three units. I learned a lot of lessons during those first few years My father wasn’t a contractor. I didn’t have any of those kind of skills. I had never been a landlord before. So this is the early 90s. So when you wanted to advertise to get somebody in your unit, you put an ad in the paper. And, you know, learning about contracting you and talk to a guy at the hardware store or read a book like so. So things were different then. But that was my first experience. And grit and determination are so important. There were times where I do remember sitting in the living room floor thinking like, what did I get myself into? Not a whole lot of times. And fortunately, I was in a good period in the real estate market. You know, things were doing well. Things were appreciating. Rents went up. And even though I, you know, did not do an amazing job rehabbing places, I mean, I would have to do something and then redo it because I just did it wrong. It worked out. And so cash flow was good. I was living for free and still had, gosh, I probably… eight or $900 a month if everything was rented, positive cashflow at a time where I was probably making, I’m totally guessing here, maybe $2,500 a month, something like that. So, um, yeah, so that was my first, uh, my first round. Ha ha. So then I got married. That changes things. I moved away from that property. And I think I kind of talked myself into selling it, which is kind of an unforced error. Do you want me to kind of go into that a little bit?

Brian Spear: Please do. Yeah, this is interesting. It’s kind of the dynamic of folks downstream. Oftentimes they’ll say, I regret selling X, Y, or Z property. So please have.

Steve Hostetter: Yeah, yeah. So yeah. As a matter of fact, I remember the day I decided I was going to sell it. My oldest son, Nick, we’re walking to the store after preschool to get a snack, and he is probably three years old telling me about a telephone pole or something. And I’m thinking about my rental. I had a vacant unit. I’m like, nope, I’m just not doing this. I’m selling it. And, you know, there were a lot of ways I could have handled that. Like I said, I think I kind of talked myself into it. And then, again, kind of dating myself, the stock market was on fire. We are ramping up to the dot-com debacle, you know. So, anyway, I sold those. And I didn’t go whole hog into the stock market, but I lost some money. And so I went from having a nice position in real estate. to not such a nice position in real estate. Yeah, I mean, I just said it was an unforced error. And I got out then mainly because like I said, I really enjoyed my boys and I focused on that. And I got back into real estate again. Fortunately, they started to get into high school, had a little less need for their old man being there all the time. And so it’s about 2010 or 11, when I got back into real estate. And again, I mean, originally I was just gonna flip a house to help pay for college, but I got this place fixed up. It was such a nice place. I kind of, after my first go around in real estate, my wife and I, the name of our company was Quality Property Holdings. We kind of promised ourselves we would never rent anything that we wouldn’t live in ourselves. And so, you know, you get quality people if you have nice places. So anyway, I rehabbed this place and it was instead of taking, you know, 30, 35 grand at the time flipping it, I was just like, I can’t sell if it’s, I thought it would be worth more someday. not having any crystal ball, but that turned out to be true. And we sold out a couple of years ago, and I think we made close to $400,000 in appreciation. And just like I said, that’s just kind of dumb luck. I mean, real estate turned around and went crazy. And so anyway, that was, yeah. So we did that unit. To give you a little bit of a picture, from 2011 till close to 2014, I think uh 21 or 22 um we I bought I ended up with a fourplex two duplexes two single families and a townhouse so I guess 11 units so that’s like the size you know it wasn’t wasn’t a huge portfolio but that’s that was a look at what we had going and then Um, yeah, if you want me to keep going, I mean, I decided that I was more interested in passive real estate just as I got older. And I did not hate being a landlord. I kind of enjoyed it. I enjoyed the people part. But I tried having someone manage my units for a while. That just didn’t work out. And I discovered passive real estate. real estate investing. And so, uh, yeah, like I said, it took about the last five years to move into that selling our last unit Christmas of 2025, but just, just our last one, just that.

Brian Spear: Yeah. So you build the, the active portfolio and I, what I know about you is you’re out on the coast, right? So when you’re out on the coast, 11 units is, is, uh, a little bit more than maybe what it would be if you’re in the middle of one of the flyover states, let us say, which is not off-putting because I’m from the Midwest. But in any event, kudos to you for building that wonderful portfolio. But then something changed, right? Something changed. And ultimately, you decided you wanted to ultimately begin going down the passive route. Give us a little color. Why choose to make the pivot? Right? You had… seen the light. Now you’ve been there, done that, got the t-shirt. You’ve already gone full cycle on some real estate. You conveyed that you felt as if you maybe made a little bit of a mistake getting involved in the market. Now you’re actively building the portfolio, but thinking about, again, pivoting away from the real estate portfolio in some way, shape, or form. Walk us through that thought process, that logic, how you got to make that decision on behalf of the family.

Steve Hostetter: Yeah, I think first just discovering that it was even possible. I mean, I didn’t know that I could invest in commercial properties as a small investor. And I think I heard about it. I could be wrong, but I think Kevin was on BiggerPockets. And I’ll say it was 2002. Just guessing here, man, 17 or something like that. And it may not even have been Viver Pockets. But anyway, you know, I learned about this possibility way back then. And I started listening to Kevin’s podcast actually religiously. enjoyed that. So I learned that it was possible. And then also, like I said, I did not mind being a landlord, but 11 units is a lot to manage. And some people have, like I said, I kind of tried having a management company. They just don’t take care of it like I do. I can… Go into that in more detail if you want, but just bottom line, it takes a lot of time to do this. Managing your taxes, fixing things, and even if you decide to have someone else do it, you are locked into it to a large degree. And so that was kind of it. I just thought, well, if I can do this passively, I’ll sacrifice a little bit of income for the time that it will give me back. And so, you know, I’m 63 now. So this is probably close to 10 years ago. And I’m starting to think about retiring and what, you know, I’m I tell people at one point or another realize there’s only so many more Christmases left that you got on this planet. And so I wanted to make that switch. I guess I hope that answers your question.

Brian Spear: Oh, just absolutely beautiful. Love every bit of it. And it reminds me of like this matrix right at the beginning of most folks active careers. You know, you come out of the gate, your early late adolescence, early adulthood, early 20s. And the dichotomy is being willing to put in more sweat equity because you value money maybe more than you value time because you feel like you’ve got all the time in the world. And then as time passes, right, and people get a little bit older, the importance of time continues to creep up, and the importance of money goes down subtly. And so, as you had mentioned, making a trade-off, well, maybe I give up just a little bit of that to go into the passive role so that you can buy more time with your family because there’s only so many Christmases. It’s been my contention that the sooner that people realize that, right, when people are on their deathbed, that’s all that they’re talking about. Most folks would literally give away everything in their world, right, just for another day, another hour to spend more time with their families. And the more that you realize that time is much more important, much more valuable than money, the better it becomes for everybody involved. So I love every bit of it. And kudos for finding that solution for you and your family to be able to do what you want and spend those Christmases with family the way that you otherwise wanted to. But you now got a beautiful background. So you’ve been active. you’ve been in the stock market, you’ve gone full cycle on some active stuff, even worked passively with some property management companies, et cetera, but now fully into passive syndications. What did, you know, having that background of being an active investor teach you? so that when you’re going into passive investments, you have a little bit more wisdom than somebody who wouldn’t. What additional level of skill do you bring to the table knowing, as an active investor, additional experience, how does that help you as a passive investor?

Steve Hostetter: Commercial real estate is doing the exact same thing. We are looking for the exact same thing, appreciation and cash flow. And you have the same dynamics. You have debt you’re going to take on. and you’re going to have to make that payment, period, whether your investment plan’s working out or not. And that’s the same with single-family residents. Like if the mortgage has to get paid, and if somebody’s there making that mortgage payment, wonderful. If they’re not, I still got to come up with the money. So I think I at least did have that understanding that how important your debt to equity is. I did not, you know, I gained knowledge… during my passive, when I started getting into passive real estate regarding the debt structure and, you know, one of the nice things about having single family res units and doing that myself as I get a 30 year mortgage. But that is not true with commercial real estate. You know, 30 year mortgages like they are quite unique to our country and they’re they’re wonderful. I think even in Canada, I could it could be wrong, but I think you have to renegotiate your mortgage, you know, with your bank or whoever your institution is every whatever, five or 10 years or something like that. But anyway, so that’s a factor in commercial real estate. And that’s one that I would say I did not have a I may have had a little bit of a better understanding for when I started, but I really got a lesson in it in as I began doing more and more passive investing.

Brian Spear: And to that end, you’ve now done numerous types of passive investments. Time has flown by. You’ve done several different types of passive investments across different real estate sectors. Maybe just speak into that a little bit. What prompted you to ultimately choose various sectors in which you’ve invested? And how did you evaluate the sponsors along the way? Maybe how do you evaluate a sponsor today? What matters most to you, knowing all the stuff that you’ve been through and all the things that you’ve seen, good or bad?

Steve Hostetter: Yeah, the sponsor is everything. First, going back to sectors, one of the things that really attracted me, mobile home parks just made complete sense to me as far as the scarcity and the fact that, you know, I think there’s fewer and fewer rather than more. If I invest in apartments, I can’t control whether or not somebody builds one down the street, for example. And that would go with most other commercial real estate. That was very attractive to me. So there were times when… early in sunrise where like there were just not deals happening. So I might have, I might have sold a rental and had capital. So I would, you know, there were, it didn’t, you don’t know what you don’t know. So I looked at, I went to conferences, got introduced to different people and invested in different, sectors, but the important thing really is who you’re investing with. I think that was one advantage of Sunrise. I got to know Kevin pretty well just from hearing him on his podcast. I mean, we talked some and you and I talked some, but you get to know someone if you listen to 100 hours of them speaking. And I guess I think, I think, I mean, I guess everybody says this, though, it sounds so cliche, but I like to think I’m a good judgment of character. I like to think that when somebody’s putting me on or it sounds too slick, that I know it’s too slick. And also, you know, everyone would also say the same thing. Like, I want somebody with a track record, with a history. I will look through those things. But… uh yeah i mean that’s those are the important things and i will say that i have done deals with people that i have have all the integrity in the world and i think are intelligent uh people that had experience that still get burned when interest rates um rocket up not to the highest levels ever but at the highest speed uh you know historically speaking um so i know i kind of went off the question there a little bit but Yeah, who I am invested with is primely important. I mean, 100%. And that has to be constantly reevaluated too.

Brian Spear: Well played. I agree. Well stated. One of the old principles that we always talk about is you bet on the jockey, not on the horse. After having thousands of conversations with partners over time, people that have invested across many, many, many different types of industries, niches, active, passive, etc., whether they’re investing in deal specific syndications, fund structures, et cetera. In virtually every scenario, when guys get longer in the tooth, they will say that the most important thing is the sponsor. Bar none. It’s the human being that’s ultimately making the decisions in the investment. So it’s, again, thank you for the additional color for the venerment of all parties. And I would also say constantly reevaluating throughout the course of that relationship. Because just because you have a great prior outcome, a great prior result in a transaction or earlier deal with clients, with a given individual, with a given sponsor, it doesn’t, sometimes that leads to overconfidence, right? If the investor stops underwriting the deals to the same level of scrutiny that they had earlier on in their tenure. And I’d also convey that Sometimes it’s very difficult to determine the difference between a skilled investor and a lucky idiot. Just because you had a wonderful result, he could have just gotten lucky during one of these upswings along the way. So again, how do you try to judge through that and maybe continue to vet that sponsor throughout the entirety of the relationship?

Steve Hostetter: Yeah, well, getting back to your comment, like you can be a good investor and a smart investor and a lucky idiot at the same time. You know, I tell the story, the most profitable, quickest investment I ever made was in a mobile home park build. with a group of guys that I think are great. I still think they’re terrific. So mobile home park builds don’t happen very often. And so this thing got going. And after 20 months, a big guy came out, bought us out, and it was a two and a half multiple in 20 months. So for every dollar I invested, I got two and a half back. And I invested a lot in that deal. So I’m all excited and those guys did great, you know, but I turned around and invested a bunch of money in them in their index deal and, you know, I think they got a little over their skis. They got maybe a little overconfident. And I, it was a completely different deal. It was not a mobile home park deal. It was, you know, and I, I don’t want to reveal too much because I don’t know if it reveals the group. I mean, like I said, I still have a lot of admiration for them, but I will tell you what, we are now years into this thing, and I’m hoping to get my capital back. And they are working, if they weren’t good, they’re not going to be a big deal. investors with a lot of integrity, they could have just folded on the whole thing, but they’ve waived their fees and I think they’re scrapping and scraping every way they possibly can for their investors. But I am responsible for not really taking the time and betting that deal on its individual merits and then really assessing, you know, what my risks were. And, you know, there was some, you know, I would say that there was a lot of things that, huh, that involved us getting pretty lucky on the first deal. And there was also kind of these black swan of interest rates. It wasn’t really a necessarily a black swan. They just went up higher. Everybody put in their pro forma a couple percent of interest rate going up, right? But they just put in four or whatever it ended up being. Yeah, that would be a lesson I learned. And I’m thankful that, not to blow smoke, but of the deals I’ve done, I’ve done a number, I think probably I was looking at, I think 10 or 11, But most of the finance, most of the money I put in has been with Sunrise. And I am thankful for that. Very, very happy that that is the case.

Brian Spear: Appreciate the feedback. And again, just proud to serve you and the family amongst all the other partners that we have out there, buddy. So again, it’s been a wonderful relationship so far. It’s been fun getting to know you over time as well. And maybe trying to share some of the wisdom that you’ve learned given the experience that you’ve had over time. I happen to know you’ve also taken a keen interest on kind of the tax experience implications of these investments.

Steve Hostetter: Oh yeah.

Brian Spear: Even going so far as to say, realizing the tax structure of an investment could matter almost as much as the return itself, right? Definitely has a material impact. Could you maybe speak to just the tax structure and some of the things that you’ve done for your family over time in an effort to try to mitigate some of that tax and try to generate the best after-tax cash-on-cash return for you and your family and how LPs can mimic that stuff?

Steve Hostetter: Sure. I guess the first tax advantage I learned about was the 1031 exchange. And so I did sell a property and do 1031 exchange into a fourplex. That’s not necessarily related to a passive investing, but then the passive investing aspect, as I got more and more of an education, I learned about depreciation and how I could use depreciation to offset taxes. my capital gains when I sold a property. So as I sold my own personal portfolio, I paid little capital gains because I had depreciation that I could leverage, again, from my path of investment. And that’s not free, you know, because of depreciation recapture, it’s kind of a complicated animal. And it’s why, in other words, Evergreen Fund is something I really appreciate because if I do die and my next investment has, not sold off, then crazy tax rules, no one ever has to pay the taxes from that depreciation, which I don’t even know if that’s fair or right, to be honest with you, Brian, but that is the tax rule. And those are the rules that we will play by. And so, yeah, so I’ve sold most of my portfolio. I paid, I mean, no capital gains on much of that because of the depreciation. I got to, you know, that leveraged my depreciation for my past events against my active… investments. And again, you go to a higher rate depreciation recapture. So that’s not a no risk thing. I mean, that can happen. But theoretically, if you can continue to compound your money, even if you do end up paying depreciation recapture, hopefully, that will still have more of a benefit than that higher cap rate.

Brian Spear: So Steve, you built a wonderful portfolio, but what was the outcome for you and your family in terms of maybe cash flow? What it’s thrown off for you to be able to live the life that you want for your family? Could you speak to that?

Steve Hostetter: I retired from the fire department just about the same time our portfolio was was maxed out. I guess you would say we had, as I said, we had I had 11 units then. Our cash flow was somewhere in the neighborhood of eight thousand to ten thousand dollars a month. Obviously, depending on everything that’s rented here in the North West, things stay rented. We were living in a military town and So that’s kind of about where we were. And then my goal really was to move that cashflow into passive investments, hoping to have a similar return but just not having to manage that. And so my job really was then to find people to invest with and sectors to invest in that would return a similar cashflow. I forgot, it’s Bremerton, isn’t it? I forgot, because the military town up there. Filverdale, Bremerton is the, yeah, Bremerton’s the town, it’s Kitsap County. So in Kitsap County we have, I think it’s the second biggest shipyard, maybe the biggest submarine, nuclear submarine, uh we all within 10 minutes of you know my rental so it’s and now they’re rebuilding these places because they’re you know world war ii the shipyards themselves so they have contractors be building those they’re redoing fleets it’s like it’s a great place to have rentals but the real estate market yeah as you alluded to before I would also say, especially with kind of the newfound interest in nuclear as we progress, time will tell and see how that shakes out. The submarines are interesting for all the Navy guys, right? They’ve got to be little guys. My brother was in the Navy for a period of time, but he’s 6’3″. I don’t know if he’d survive on the submarines, you know? They’ve got to be little guys. They’ve gotten a lot bigger. But, yeah, they’re – well, I don’t think – yeah. I don’t know if there’s a height like a map. I would have fit well on one of those. But no, you’re right. Those nuclear subs are things. And they got sharp guys running those programs too. Like they, you know, you got to know what you’re doing.

Brian Spear: I agree. I appreciate you sharing so much time with us today, investing so much time and sharing so much knowledge and wisdom along the way. But prior to letting you go, I always love to round out with one final question in an effort to try to drive as much value as possible we can for the listener. But… I would say that you’ve had a wonderful career, but if somebody could only remember one piece of Sage Investment Advice from your entire life’s experience, what should it be? What would you tell them?

Steve Hostetter: I think I would say, you know, you do you. Okay. So, and this is what I mean by this. I think in our world, in our life, you know, we do this social comparison constantly, which results in FOMO. And FOMO results in flinging for the fences, chasing an incredible yield. And so… I just think it is so important to, but I feel in my life, I now have, you know, I’m just so blessed to have enough that I can meet all my needs and then have some more. Okay. And then I get to invest to, uh, help other people, help my family, you know, a legacy, as you said. And I would like to, you know, donating has always been a part of my wife and my life, but I will, I look forward to writing big checks. I think that would be cool. That’s what’s important to me. Okay. But But I can do that some already, right? But if I try to swing for the fences and risk too much because I see everybody else doing it and I’m chasing yield, then I think Warren Buffett said, I’ll probably butcher this, but I think it was, don’t risk what you do have and you do need for what you don’t have and you don’t need. And I think that is some sage advice, just, don’t worry figure out what your own game is and do that and and i’m preaching to myself right now i tell this to myself every day like be smart don’t risk your capital because i have done that and uh and i and i think it’s important to not do that and the other part of that kind of you do you is really figure out what you make sure that Your money life matches your values and what you want out of life. And I know that sounds really simple, but I just don’t think people really sit down in some quiet time and think about that. And on one hand, you can you can chase it forever. And no matter how much you get, you’re always looking at something bigger and better and your neighbor and and people like that will drive them crazy. And there’s so many stories of people going broke that my gosh, they never needed to go broke. Right. And the opposite is true, too. I know people who are like, well, you know, I don’t care about money. I don’t buy into capitalism. I have enough, you know, and I’m just not going to worry about it. It’s not my thing. And I feel like, are you sure? Because someday, you know, you may want to pay for your kid’s college. You may want to retire. And so… And, you know, people, you don’t want to end up a 55 thing. Well, I didn’t worry about money and now I’m still working at a job and maybe I don’t like that job and there’s no end in sight. So I guess that’s, I don’t know, you to you is my thought on that.

Brian Spear: simplified you do you, right? There is a threshold, a limit at which it becomes less relevant for you personally in terms of the dollars. You know, Elon Musk is the world’s first trillionaire, will never be able to spend the dollars that he has on his balance sheet. So at some point, you have to find something to do with your time that you appreciate, allocate the capital in the way in which you want to do for you and your family. So you do you, right? Living with the inner scorecard as opposed to the outer scorecard, focusing on what makes you and your family happy, not trying to impress whatever everybody else is driving around or owning and the myriad of other material things out there in the marketplace. So I love every bit of it, Steve. As always, thank you so much for, again, investing some time with us and sharing all that sage wisdom that you’ve built over your life, buddy.

Steve Hostetter: All right. Thanks, Frank.

Brian Spear: Steve’s journey is a great reminder that wealth has stages. Early on, the work matters. Saving, buying assets, creating cash flow, and building financial runway. But over time, the question changes. It becomes less about how many doors you own and more about what those doors allow you to do. For Steve, that meant moving from active ownership to passive investing, not because real estate stopped working, but because time became more valuable. It resonated when he said, you only have so many more Christmases. Another important call out is the tax efficiency. The government puts the rules of the game in play through the tax code, but it’s our job to play the tax game to the best of our ability for the betterment of our families. His closing advice is worth remembering. Know your own game. You do you. Don’t let comparison, FOMO, or yield chasing push you into risking what you have and need for something that you don’t have and don’t need. That is Sage investing at its best. Cash flow, discipline, structure, and a financial life that actually matches your values. We appreciate you spending time with us. please do me a quick favor and leave a review. Drop a comment if you find some value in these episodes. And we’d love for you to follow along and share this with somebody who may need to hear this. With that, we’ll get the heck out of here. Until next time, you’d be great.

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