Latest / The Jon Sanchez Show / How To Turn A Single Family Rental Into A Multimillion Dollar Portfolio..With No Capital Gains Tax
Transcript
- Jon G. Sanchez: The John Sanchez show on News Talk 780K, which it's a pleasure to be with you, and a pleasure to be with, well, one of my two co-hosts, Mr. Aaron Clark of Agility. How are buddy? Aaron Clark, Edge Realty: I'm doing good. So it's a reminder of Tuesday. This happened on Tuesday too. Jon G. Sanchez: Get given. It's like a reflection of Tuesday. But the good news is tomorrow's Friday. Yeah, tomorrow's Friday. So you know, we we have even more reason to be in good moods today. All right. Dwight should be joining us here so we will ⁓ make that that introduction when appropriate. Well, folks, what a day it was today. You know, when I woke up this morning, as we were told by our president yesterday, it was gonna be a day that we were gonna, according to his words, Aaron Clark, Edge Realty: I know. Yeah. Mm-hmm. Jon G. Sanchez: really do some severe damage to Iran, severe bombing. was the the that was the thought process. That's what he told us, right? He had enough and ⁓ as I said on the show yesterday, ⁓ was talking about going after you utility plants and bridges and basically a lot of infrastructure. Market kind took it with a grain of salt. You know, it it it really didn't panic about it. Oil prices didn't panic or anything like that. And ⁓ Thought that was, you know, again, very, very strange. And then get into today. Again, market was under the assumption, and he had made those comments, like I said, late yesterday. And we make ⁓ we make the assumption that it's going to happen, but maybe we shouldn't have. And here's why. It ⁓ changed today. Mid-session, the president came out and said, Hey, you know what? I've decided we're not gonna bomb Iran. And matter of fact, the Iranian war, the the ceasefire has been subtle, quote, subject to finalization, and I expect signing in the next few days. Well, you know, Aaron, I saw a ⁓ a stat. I think it was CNBC did a kind of little recap of how many times we have heard this type of situation where the ceasefire was just days away and the or the document signing was just a few days away. And every time he says it, the market reacts in a positive fashion. The market absolutely believes him. And it has been numerous, numerous times. according to the president, he said, quote, Aaron Clark, Edge Realty: Mm. Jon G. Sanchez: The U.S. just made a great settlement of the war with Iran, subject again to the finalization of the documents. said in the Oval Office today that he expects a signing to occur over the next few days. Again, repeating similar claims he has made numerous times over the course of the war. I I this this article that I saw about this, I think they claimed that he has said this 30 times was the number that stuck out in my mind. 30 times we've heard this. Did you? Okay. Yeah. ⁓ know what I'm talking about. ⁓ Aaron Clark, Edge Realty: I saw the article. Yeah. Mm-hmm. Jon G. Sanchez: No mention about the Strait of Hormous. He did indicate today that Iran will not have nuclear. you know, Aaron, it was, and I'll get to what our show topics gonna be here in second. What was fascinating about this morning when, the world was under the assumption that Iran was to be bombed upon, as I said. ⁓ what was interesting ⁓ is he something that I have said from day one, and you know it, you have heard it on this show. And that is we're not in this Iranian war for the fear of nuclear war or nuclear ⁓ weapons. We're in it for oil. I I've said it from day one. And sure enough, he came out today, this morning, again before he said we're not going to bomb said we are going to invade Karg Island. Now remember, Karg Island, folks, we haven't had to use in quite some time or mention that in quite some time. if you can imagine roughly 20 miles offshore of Iran, it's a it's an island as the name says. But basically what it is, what I want you to visualize, it's basically ⁓ an oil island, right? This is where the ships come into to load or unload oil. And so obviously very, very critical. Now if you remember in the early days of the war, we ended up bombing that. I think it was a couple weeks in once we started, so been about mid March or so, we bombed it, but didn't hit any of the the oil side of it. We just hit some ⁓ some and things like that. But he this morning we're going to invade it and we are to take over the oil, all of the oil Iran. And I said on my stock update this morning, I said, Yep, that's exactly what I predicted from day one. That's what this whole thing is about. Because then he made the comment. He said, This is going to be similar to Venezuela. And look how great that has worked out for Venezuela and the United States. So we saw oil prices you know, kind of begin to move a lot. They kind of went up, they went down, but they were really trending towards the downside because I think oil traders were like, hmm. Okay, we're we're gonna get hold and and control the world oil market, which I think is again one of his one of his strategies that you know no one is really talking a lot about. But again, he said we're gonna hit Iran very hard tonight, take over the oil infrastructure, carg island, etc. and then he reversed course and said, Look at so it's we're not gonna be do tonight. It's my call. We're not gonna do that tonight. Netanyahu's office did The conversation that the president had with Netanyahu other regional leaders about the potential memorandum of understanding with Iran. Netanyahu's office did confirm that later today. It in a statement that although Israel is not part of the negotiations with Iran, that's critical. ⁓ The Minister appreciated Trump's commitment to the final agreement at the conclusion of the negotiations, which will various restrictions on Iran's nuclear capabilities and other behaviors. So, with all said, It was a wild, wild ride today. But the amazing thing was this market, as we've said from day one, this market is hinged upon two things, the strength of the AI sector, whether you want to call it chips, software, et cetera, and the conclusion of this war. And when the president came out today and said, yep, this thing is off and we got, you know, it's gonna have a signed deal in a couple days, even though he has said it numerous, numerous times, the market went, finally, finally, we this thing's gonna come to an end. And we rallied and we rallied hard, thank goodness. Best level today. We were up a little over a thousand points on the Dow. It didn't hold it, it hit it just briefly. we finished very substantially. And so I'll give you, of course, all those details of ⁓ how we finished in the market, et cetera. But Mr. Clark, let's get back to what the show's all about today. As you ⁓ indicated a few moments ago, we're gonna ⁓ get back to the topic that we started on Tuesday, and ⁓ had a lot great comments from our audience, and and so we know we kind of struck a nerve with all of you in a good sense. And the theme of today's show is really this: how one rental property can a multi-million dollar portfolio. And ⁓ I you to think about the monopoly side of things, right? You get a couple, two or three houses on your favorite ⁓ landing place on Monopoly, and eventually you go, yeah, enough of that. And I want to trade in, I want to get a hotel or multiple hotels. We do this in real life. And Aaron is going to tell us how we're going to do that. Because one of the biggest mistakes this. Real estate investors, it's not buying the wrong property. Yeah, that can be a mistake, but it's not the biggest mistake. The biggest mistake is this. You're waiting too long to get big, right? Maybe you're fine keeping one or two rentals, but if you really want to make serious money, make serious wealth in real estate, you've got to expand. And again, I don't think anybody ⁓ in earshot, Aaron, has this dream of owning 10, 15 single family rentals. Right? Worth millions of dollars. They would rather own maybe one or two large commercial properties that have a lot of advantages over single families again play the monopoly game. So what we're gonna do today is we're gonna recap briefly why easier to manage bigger properties than it is the smaller ones. We're gonna talk about the economies of scale and how you can improve your cash flow. some the common mistakes, of course, that people make when they try to grow like this. And then we're going to recap what we touched on on Tuesday. Again, why bigger can be better and then the power of scaling. And we really went down a great rabbit hole, Aaron, on on on Tuesday getting the 1031 tax deferred exchanges. Because if you own portfolio and have single families and you're like, Yeah, it's time for me to get big, it's time for me to want to grow. Last thing you want to do is pay unnecessary taxes, i.e., capital gains taxes. So you did. I want to compliment you publicly. You did a phenomenal job. ⁓ Getting into the 1031 discussion. And that that actually prompted a lot of emails I received from our listeners about that. So I want to make sure we kind of come back, touch on that, and then begin to into the ⁓ the other areas of ⁓ how this is gonna happen. Talk plan. All right. Beautiful, beautiful, beautiful. Okay, we're gonna get to that in just a moment. Let's get back to the stock market side of things very quickly before I have to go to break. So here's final numbers after everything I said. What a day. Nine hundred and twenty-nine point gain on the I'm gonna round it It's actually Aaron Clark, Edge Realty: Sounds good. Let's do it. Jon G. Sanchez: 929.97, we're gonna round it up 930-point gain. That equates to a 1.86% increase. the SP higher by 127 points, one and three-quarters percent. And the ⁓ NASDAQ star here 640 points, 2.54% to close at 25,809. Now, if you you know, it was at this time yesterday that we were ⁓ you know basically licking wounds because of the the damage that was done in the market. ⁓ Aaron Clark, Edge Realty: Mm-hmm. Jon G. Sanchez: And so if we if we kind of go back and say, okay, ⁓ much recovery did did we really enjoy today from yesterday's selling? Well, just to give you a refresher, we lost, how ironic, Aaron, 953 points on the Dow yesterday. But we made 930 today. Hmm, how's that work? And yesterday the NASDAQ lost 509. Today it gained 640, so we're a little bit ahead. Yesterday the SP lost 120. Aaron Clark, Edge Realty: Covered almost the amount same amount. Jon G. Sanchez: And again, today we gained 127. So hmm, kind of bizarre how that worked. And all those chip stocks that sold off yesterday, yeah, you had Broadcom down 20 bucks and Taiwan Semiconductor down 19. that that that that worry is all gone. You had Intel today up $9.92, applied material rising $55.63 a share, micron up $103.99. I mean, I I could just go on and on. So once again, ⁓ all the worries of yesterday. completely gone by the wayside. And I will mention that the chip stocks today were strong even before the announcement that ⁓ we weren't gonna attack ⁓ Iran tonight. So know I it really ⁓ that short of a summary, my friends. It it really is just a situation where this market is driven by headlines. I know people, I know you, I know myself, we're we're exhausted on these headlines. One day we're we're you know getting gonna get worse in the war and next minute we're we're fine. We've got a supposed ⁓ coming. ⁓ but that's the world that we live in at this point. We this is why you have a diversified portfolio. This is why, like days like yesterday, you take advantage of some of the beaten up names that are out there because you know, ⁓ the fundamentals still there, as I keep saying over and over again, especially on Fridays when I do my market recap. The fundamentals are there. And and ⁓ Mr. Clark, I should throw in one thing because I know you watch this very closely. Inflation went through the roof on the wholesale side. You know, this that report in and of itself would have been enough to send us down. Aaron Clark, Edge Realty: Yeah. Jon G. Sanchez: Hundreds and hundreds of points on the market. PPI today came in. This is May's data, up 1.1% month over month, up six and a half percent year over year. Highest level that we have seen on PPI, the wholesale level of inflation, going back to 2022, right? Market just brushed it off. Inflation, what inflation? ⁓ to my term. Teflon coded, you know, but we will see. Yeah, you know, we ⁓ one we got to watch really close, and I keep warning all of you about this. Is two things. We've got the the SpaceX IPO tomorrow. They priced it at 135 bucks. That's just what they priced it at. No telling where this thing is going to go. you know, you kind of get that excitement behind us after tomorrow. And then once again, even if this this time it does come true and there's a truce is signed, you know, it's one of those situations where it's kind of, you know, buy the rumor, sell the news. So don't that, you know, if this thing does get resolved that this market's just gonna rally hard on it. Probably would short term, ⁓ but long wise, I don't know. You know, like I said, it's there's a it's been built into the market for quite some time that there is gonna be a resolution. Welcome back to the John Sanchez show on New Talk 780K, which with Aaron Clark of Adriality, Mr. Millard is MIA today, to be honest with you. all right, we're gonna interesting. All right, we're gonna get to our topic here in just a moment, which is the following: how one rental property can become a multi-million dollar real estate portfolio. But you gotta follow strategies, understand tax laws, et cetera. And that's what we're here to help you do. But first, let's recap the market. If you just joined us again, heck of a day. The president called off any attack on Iran tonight. Aaron Clark, Edge Realty: ⁓ Jon G. Sanchez: Said a ceasefire agreements just days away in the market, rallied on the news, finished up 930 on the Dow, 1.86%. NASDAQ gained 640, 2.5% ride, 2.54 to be exact, ⁓ the SP up 127 points. Oil the day down two dollars and twelve cents. So not a huge move. 87.81 a barrel. ⁓ Gold lost closing at $4,122.50 an ounce. A nice pullback the bond market, eight basis point decline, yield of 4.46%. And the 30-year fixed mortgage, according to Mortgage News Daily, lost three basis points to a yield of ⁓ or an APR, I guess. Six, well, probably not an APR, six point six percent. We'll just leave it at that. Okay, now let's get down to our topic again. Very interesting. Let's recap what we ⁓ again covered on ⁓ on Tuesday, just briefly, because we just scratched the surface on our topic. once again, as I said at the beginning of the show, why do we want to even look at getting bigger, right? It's economy of scale, and people don't. utilize that. I was asking Aaron during the break and and Aaron, I think this is a a a great point to kind of start. said, you know, Aaron, in in reality, you know, thinking back, I don't think I've ever had a client come to me and say, Hey John, I want to get rid of my my rental properties ⁓ ⁓ you know, my two or three rentals and I want I want to, you know, hook me up with some of your real estate buddies and let's get into some big commercial properties. I've never had that happen in over my career. And you kind of said the same thing that some people will talk about it, but it's hard for them to really move in that direction. So let's kind of start with that before I give you the recap. Aaron Clark, Edge Realty: Yeah, I mean, I think the concept of it is super interesting and a lot of people are intrigued by the whole concept. And I think that the idea of the tax savings and all that, but I think it's sort of one of those things where people look at it as a big animal that's overwhelming and they think it's just gonna be too complicated. And the thing is, is when we do these, they're very, very simple. They're they're very I mean, they're there's ⁓ nuances, but overall Jon G. Sanchez: Mm-hmm. Aaron Clark, Edge Realty: It's a no-brainer. And and I get that it's overwhelming. And the few that have taken advantage of it, they never look back and go, Man, I wish I hadn't of done that. Yeah, exactly. They all and I will say it is it is intimidating. It sounds like these deadlines like the 45 days and the 180 days and all this kind of stuff, that they're scary and what if and what if that. We have we have ways of making all of this work. And in worst case, Jon G. Sanchez: I want to go back to Tim Reynolds. Yeah, dealing with the public. Yeah. Never. Yeah. It is. I've done it. Aaron Clark, Edge Realty: You could even do what's called a reverse 1031 exchange. And that's where you go find what you want to buy. You buy it and borrow the money up front from the intermediary and then sell your previous investment and then pay it back. Now it does cost more, but if you want zero headache, no worries, yeah, you do everything backwards. know, and when they say, ⁓ you gotta identify three and all that, most of the time we just go into escrow on a property. Once we know it's gonna close, then we just Jon G. Sanchez: Mm-hmm. Find the ideal property. You gotta jump on it. Aaron Clark, Edge Realty: do all of that stuff afterwards. And and we'll even make the sale of the other properties contingent upon the successful close of the first one and we'll make them close within a day or two of each other. It's not hard to do. Jon G. Sanchez: Tingent, yep. So so let no, so let's let's back up a step. What Aaron's talking about is, and this is where we left off on the show on Tuesday. Excuse me, we we got into the 1031 Taxi for exchange. And for those of you not familiar with it, again, this only applies to investment properties. So easiest way to understand if you're like me, let's do an example. Let's you bought a rental property years ago in Southwest for two hundred thousand dollars. You call up you go, Hey, I wanna I wanna I wanna sell this thing. Aaron does his market analysis, property's worth six hundred thousand. Okay, you got two choices. You know, what are you going to do? Why you want to sell? Do you want to get a you know a pile of cash? you want to again go into more Maybe that one house you want to try to buy maybe a couple more or something else the realm of investment property and again commercial. So through Aaron's great consultation, the the client says, Yeah, you know what? I I I I really don't want to, you know, be a landlord of two or three single family properties. It's a lot of work. Aaron, find me a commercial property. So Aaron goes out and finds a commercial property. let's just say it's a you know, office building again in Southwest Reno. So ⁓ they this property for $600,000. Now, if they went to sell it without doing a 1031 tax deferred exchange, that $400,000 profit, they get they bought it at two. Aaron sells it at six. That $400,000 profit, of course, is going to be long-term capital gains, assuming that they've it for longer than 12 months, right? So Between 20 to 23.3%, they're going to pay in capital gains tax if they, you know, have a decent income. so that could be expensive. Let's round it down. Let's say it's $20,000. Or excuse 20%. So 20% ⁓ $400,000 is They're going to write a check to the federal government. Now, if they're in California or some other it's just gone. Now, if they're in California, some other state, and I always have to remind clients about this when we get into ⁓ this many states, California being one of them. Aaron Clark, Edge Realty: Just gone. Mm-hmm. Jon G. Sanchez: They have their own capital gains tax, you know, right rough, roughly right around five, five and a half percent, again, depending upon where your income is. so you got that. So let's just say, ⁓ let's say they're a Nevada resident, right? And so they don't have the California tax. But the other tax that I again, I've mentioned it a thousand times on this show that I find that many times even CPAs for fail to tell their clients about. And it's called depreciation recapture. So, you know, they've own this property a long time. The CPA has to go back, tally up all the depreciation that they've taken over the years. Total total that number up. And then guess what? Aaron's client gets to pay a 25% depreciation recapture tax. So easy, very easy to end up losing close to 40% of your overall profit. Now, when we come back, we'll talk about, as Aaron was just saying, how easy the 1031 tax-deferred exchange is. Because remember, folks, there's one great thing about real estate that lot of asset classes don't give you. And that is you can defer. as many times as you want over your lifetime, and then you die, and your beneficiaries who inherit the property. If you could see Aaron right now, he just went like you know, hands, hands going across like a referee, Aaron Clark, Edge Realty: Wiped clean, baby. ⁓ Jon G. Sanchez: wipe clean, ⁓ zero, ⁓ zero tax. No depreciation recapture tax, no capital gains tax, zero. So we'll explain that. And I'm now that you understand the 1031, ⁓ Aaron, let's get into some specifics, the 45 day, the 180 day, and then get the commercial property side of things. ⁓ Welcome back to the John Sanchez show on New Stock 780KO8s with Aaron Clark of Edge Reality. Again, a stellar day in the market after the president decided not to bomb Iran tonight. Finished up 930 on the Dow, NASDAQ gained 640, and the SP higher by 127. Once again, oil down $2.12 to $87.81 a barrel. right. We're continuing our discussion on what you have one rental property, how it can become a multi million dollar portfolio if you so desire via commercial real estate. Now, Once again, I gave the analogy. You have a single family, you want to sell it, you want more real estate, but you don't want to pay the taxes. Okay. So it gave you how much roughly you would end up paying in taxes if you ⁓ sold that. But instead, how the big money does it. You do a ten thirty one tax deferred exchange. So, Mr. Clark, let's go down the path of the ten thirty one again. Repeat what you said earlier now that people understand the the concept here a little bit. Aaron Clark, Edge Realty: Yeah. So the first thing we would do is the property that we're gonna sell, we're gonna get it ready to rock and roll. Yep. And we're gonna get it, you know, situated to where we're we're ready to list it. That's where the strategizing comes in. What do we wanna what do we wanna turn it into? So before we're gonna put it on the market, we're gonna find out what we wanna turn it into. And and the thing is in that situation, we wanna focus really on cash flow and making sure that the investment makes sense. So Jon G. Sanchez: Our six hundred thousand dollar property. Mm-hmm. Aaron Clark, Edge Realty: We're gonna go look for that product. And it doesn't have to be in Nevada. It doesn't have to be in the same location. It doesn't even have to be the same type of property. It just has to be worth more as far as what you sold the property for. You have to buy for a a little bit more, like a dollar more than what you sold it for. Yeah. So you can buy multi-units, you could buy a single family residence, you could buy condos, you could buy a a commercial complex, whatever it is. We're Jon G. Sanchez: Mm mm. Good point. Mm-hmm. Literally a dollar more. Yep. You can buy a business. Long as it's an investment. Aaron Clark, Edge Realty: Yeah, you can buy anything you want. So what we do is we we want to make sure that your desire of what you're looking for and what cash flow makes sense for you exists. So we're gonna do research, strategize, all that. Once we find out, okay, this this is definitely something that exists, if it's possible, what we can do is we can pursue that property, write a contract for purchase on it, make it contingent upon the sale of the property that's currently here that we're gonna tend 31 exchange. And that way we don't have any issues with deadline. So both of them would close simultaneously. Because you have 45 days to identify three subject properties that you're willing to turn your exchange into. And then you have to close within 180 days. So typically once we find the one that we go into contract with, then we're going to list the others as the the other identified properties. it doesn't even matter really at that point. Now, the big thing in these situations that is sort of the Jon G. Sanchez: No, I know. Formality. Aaron Clark, Edge Realty: The negative thing, which we do a lot of things to shield from is when you're buying a property and people know that it's subject to doing a 1031 exchange and they know you're on a timeline, a seller can take advantage of the situation knowing that your hands are kind of tied on your timing. if you're buying something that has some issues or needs some repairs or whatever else, they know you're in a bind. You're you don't want to start over. So we have to be really, really diligent on the front end to make sure that that doesn't happen. And the beauty of it is because we're making the purchase contingent upon the sale, if we catch it early enough, the sale hasn't even been completed to where our timeline hasn't even started. So we can abandon ship and move on to the next one. We can keep doing that until we find the the perfect property and get into something. There's a lot of strategy that goes with it, but it all lines up and makes sense. And it's not hard. Jon G. Sanchez: Yes, there is. Yes. And and again, I cannot I cannot stress enough, folks. I cannot stress enough, right? I am not a realtor. Aaron is a professional. He's licensed realtor. All I can tell you is please, if you're ever going to do a 1031 exchange, call Aaron. Call someone that has experience because I've seen deals from the tax side and the the actual real estate transaction blow up in everybody's face when the realtor and or the client did not understand the rules. There is no forgiving on this, right? So once again, the 45 days. So as soon as you sell that property, you've got 45 days to identify. Again, you get to list three of them on the paperwork. 180 days from when you sell to close. You can't go 181 days and go, ⁓ I'm sorry. You know, I didn't. And it's calendar days. It's not weekdays or work days or anything like that. That's it. Now let's nope, it doesn't. Nope. Not one. Nothing matters. So now Aaron. Aaron Clark, Edge Realty: None. Yeah. Holidays don't matter. War doesn't matter. Nothing. Jon G. Sanchez: Great explanation. Now let's go into where a lot of people also don't understand when they want to get a, you know, big commercial property portfolio. ⁓ that is the ten thirty one accommodator. ⁓ very important organization in the entire ten thirty one process. Aaron Clark, Edge Realty: Yeah, so your your accommodator, intermediary person is the one that's gonna handle all the funds. They're the they're the third parties. Yeah, you still have so everything runs exactly the same as if you're not doing a 1031 exchange, but we have that person that's like the intermediary ambassador or whatever of the situation. And so we we call them a qualified intermediary. And what they are is they're the exchange company. So they basically are the ones that make sure that Jon G. Sanchez: You still have escrow. You still have escrow, but you have Mm-hmm. Aaron Clark, Edge Realty: Everything is done according to the regulations and rules that are required by the government, state, local, municipal, city rules, laws, whatever. So they're gonna keep everything on track. And then they're the ones that are gonna receive all the monies. Cause remember, the money can't touch your account. As soon as it touches your account, you've then received the money you now owe taxes. So the money is gonna go into that qualified intermediary. Jon G. Sanchez: Yeah. Aaron Clark, Edge Realty: They're going hold on to it while we're doing everything through the transaction and then they're going to pay out from them to the escrow company and do everything through them. So they, they, in essence, become the the seller on your behalf and buyer on your behalf. Now, this is that that's the same company that would do if we were going to do a reverse company. They'd be the ones that you'd be, in essence, borrowing the money from to purchase, going backwards, and then you'd pay them back on your sale. Jon G. Sanchez: Yes. Yeah, never done a reverse, so I'm an I'm a newbie to that side of it. same mortgage qualifying criteria. Everything's the same. Okay. Interesting. Yep. Aaron Clark, Edge Realty: Yeah, everything's the same. Yeah. Yep. Everything's the same. Yeah, in essence, your ten thirty one sort of like owning part of the property, and then your mortgage is you personally owning another section of the property or percentage or ratio or whatever. Jon G. Sanchez: Mm-hmm. Right. Right. Exactly. There you go. my two cents on the on the QI, the qualified intermediary. find a reputable company, make sure your realtor knows of them, your escrow company knows of them. There have been situations where there's been, you know, a John ⁓ intermediary pops and they get the money and you never see it again. It's unre it's not not common, but it has happened. So you want to stick with some of the bigger names and well established and Again, your real estate team will know that. yeah. So again, goes down like a normal real estate transaction, normal escrow, except instead of escrow paying you that four hundred thousand dollar profit, then going to go to the QI and then they're going to hold it. And then they will forward that to the new escrow company when the sale is ⁓ is complete. So and then from there, you're great. And again, Aaron, what's the tax ⁓ situation under that scenario? Aaron Clark, Edge Realty: Goose egg. Zero. Yep. Jon G. Sanchez: Goose, the beautiful words when it comes to that. there are situations we Aaron and I should have let you know about this, where you can't find a property. So in our example, we, you know, we again, we used a six hundred thousand dollar property. So you gotta buy something, you know, six hundred thousand dollars or more. But let's just say, and this happens sometimes, especially if you're selling multiple investment properties, where you can't you can't spend enough money. There's not nothing, nothing available, right? ⁓ So let's that example. Let's say that, you know. ⁓ Aaron Clark, Edge Realty: Mm-hmm. Mm-hmm. Jon G. Sanchez: Whatever the real estate inventory is tight, and Aaron can only find you a property for 550,000. So what do you do with that 50? That's left over since you're not spending it. Well, that's called boot. And again, just like if you sold the entire property without the 1031, you're gonna owe taxes, depreciation, recapture. Unless, again, s briefly got into this. You can you can contact me. We what's called a Delaware Statutory Trust, a DST, ⁓ which it's ⁓ qualifies as a 1031, but what you're doing is you're Pooling your money with other investors into institutional portfolios, usually geez, we've multifamily, we've done Amazon fulfillment centers, but most common are apartment buildings. We just did a student housing one a few a while back. So a lot of different things, but it's all institutionally managed. ⁓ You're not the the beautiful thing about it, A, it's a 1031 exchange, B, you're no longer a landlord, C, you get a check coming in. Usually about five to seven year holding period. So that's kind of the negative side of it. and you actually, whatever percent that you have have invested into that pool, you actually get ownership. So you do get some depreciation pass-through and a few other tax deductions that you normally would get under normal real estate ownership. So ⁓ great things. The problem that that I always caution clients on, if they're good, these deals come and go. They come and go really fast. You never know what's available. There's a limited inventory. So again, someone like myself that deals with these. ⁓ you know, you wanna you get get in the vault. I ⁓ you last one I did, I had a phenomenal client. man, team, he sold a property in Sacramento and his ⁓ his down there, his 1031 accommodator, myself, the the DST company, we're always in communication, smoothest one I've ever done, Aaron. It's amazing when you have that right team, how things just boom, boom, boom, boom, boom. It's just it was just great. So that's how do it. Now, when we come back, Mr. Clark is gonna say or enlighten us on all right. We we did that. What do we want to look at or look for? What's what what's what's the features and benefits we want to look for in that commercial property if we're going to do a 1031 exchange so that we can build up this multi-million dollar portfolio? And I said, one more time, the strategy many wealthy will do is they will do this over and over and over. That $600,000 that you just 1031 into, let's say, a small apartment building, ⁓ let's say years from now it's worth $2 million. Guess what? You do it again, another 1031 and then another 1031. And then eventually we're all gonna die. And guess what? Your children or whomever will get the stepped up cost basis, meaning that those ⁓ previous, you know, tax deferred gains depreciation recapture are wiped out. At least that's the way the rules are funny. Welcome back to the John Sanchez Show on New Stock 780 KOH with Aaron Clark of Ed Rility. right, Mr. Clark, your phone number, sir, before we forget. Aaron Clark, Edge Realty: Yeah, six seven three sixty seven hundred. Jon G. Sanchez: All right. And Mr. Millard two for zero twenty twenty-two is his number on the mortgage side of things. right. We've been talking about again, from a single family rental to multiple single families larger and ⁓ properties, right? You want to get this portfolio bigger, multi-millions, so on and so forth. From a tax perspective, we laid out everything that we can share with you how to minimize or in some cases diminish those taxes altogether. Aaron, with a couple minutes left, I wanna I wanna kinda go down this path with you. What is the biggest mistake that you have seen investors make when they're trying to move into larger real estate opportunities? Aaron Clark, Edge Realty: It's when people will take cost, the tax savings, the ideal whatever investment that they're wanting to get into, and they look at those things as priority over the cash flow. So they're just trying to get out of a situation, to get into another situation that sounds really cool, and think about or they think about the future potential equitable growth in it versus the cash flow. It's always about cash flow. Jon G. Sanchez: Mm-hmm. Aaron Clark, Edge Realty: If you're looking at a property and you're not thinking cash flow, then you're looking at it wrong. Because the reality of it is, as you've probably heard the old adage, you want to buy the worst property in in the worst neighborhood to because you're going to net the most flow or whatever. So it's like y you can't look at a property and go, I'm only gonna buy something that I'm willing to live in, or I'm willing to use, or I'm willing to this. No, it's you're gonna buy whatever's gonna give you the most cash flow percentage and ratio. And the truth is ⁓ Jon G. Sanchez: Mm-hmm. Yeah. Worst property in the best neighborhood. Yeah. Yeah, dumb. Aaron Clark, Edge Realty: That's the most important thing. Jon G. Sanchez: It really is. And and you know, we we we started to go down this path on Tuesday, and unfortunately we're out of time again today, so I can't ⁓ really get into it now. I w ⁓ kind a rookie mistake, Aaron, that a lot of people make is they get investment property and they think, you know, I'm in it for the appreciation, which God willing, you'll get some of that. Where if they buy the single family, they're into it more for the for the cash flow. But keep in mind, folks, you're valuing if you go to sell that. Aaron Clark, Edge Realty: Yeah. Jon G. Sanchez: that commercial building, that commercial property down the road. three ⁓ that an appraiser will look at to the value of your property. And one of those is the income method, right? So they will literally base the value on the to Aaron's point, his very important point, the income that that property is producing and and some other factors related to it. ⁓ So again, your plan is I want to hang on to this maybe for five years and then I want to sell it, Aaron Clark, Edge Realty: Mm-hmm. Jon G. Sanchez: Get that income up. And folks, to be honest with you, this is the strategy that institutions will do. They will come in, they will what we call put on the pig. They buy undervalued properties, they rehab them, put money into them, get those rents up to market levels. Because just by doing that, again, here comes the appraisal. And times they can ⁓ get appraised, pull out a bunch of cash, roll it over to the next project, right, Aaron? That's another strategy that we'll talk about at some point. ⁓ Aaron Clark, Edge Realty: Well yeah. Definitely. Yep, they'll just continue doing it. Jon G. Sanchez: For those that are scared to do it, get them over the the hump with thirty seconds left here. Aaron Clark, Edge Realty: If you're scared to do it, I know it's intimidating. The old adage, how to eat an elephant, it's one bite at a time. Call us, we'll walk you through it. By the end of the conversation, you're gonna feel great and excited and you're gonna realize that the money you save is worth of the worry that you had put aside. ⁓ easy. Jon G. Sanchez: That is great, great advice. Perfect. right, my friend. Well, quick reminder, everybody, don't miss the show tomorrow. We have the SpaceX IPO. It's gonna be interesting to see what that rocket ship does. God bless, have a great afternoon. We'll see you tomorrow on the John Sanchez show.