Latest / Own More Doors / #93 Tired of Your Rental? The 1031 Exchange Playbook

Transcript

#93 Tired of Your Rental? The 1031 Exchange Playbook · Own More Doors

• 0:00
  SPEAKER_01: Can you imagine paying three or four hundred thousand dollars to Uncle Sam?
• 0:05
  SPEAKER_01: This client sold a medical building in California.
• 0:08
  SPEAKER_01: I think it was around like six million and purchased fifty or more.
• 0:11
  SPEAKER_01: I think it was more than fifty replacement properties.
• 0:14
  SPEAKER_01: So they increased their net worth, their net worth more than double.
• 0:17
  SPEAKER_01: So you can do whatever you want as long as the value matches.
• 0:20
  SPEAKER_01: Eight out of ten times your exchange fails because they are they're too scatterfrained.
• 0:25
  SPEAKER_00: So it's mid-October, and what we find is once we get closer to the end of the year, people start panicking.
• 0:32
  SPEAKER_00: And sometimes there's people who need to buy something immediately for tax reasons.
• 0:37
  SPEAKER_00: People are trying to meet their 1031 exchanges, and there is a little bit of a panic.
• 0:43
  SPEAKER_00: And so it's interesting because people rush to close transactions.
• 0:47
  SPEAKER_00: Sometimes buildings that weren't selling all year get sold towards the end of the year.
• 0:51
  SPEAKER_00: Um, we're gonna be doing a deep dive today on 1031 exchanges.
• 0:55
  SPEAKER_00: I'm here with Aristotle Compass with uh Excel 1031.
• 0:59
  SPEAKER_00: Aristotle, thank you for being here.
• 1:00
  SPEAKER_00: Yeah, thanks for having me.
• 1:02
  SPEAKER_00: Glad great to be here.
• 1:03
  SPEAKER_00: Aristotle, just give us a little background.
• 1:05
  SPEAKER_00: Um, give us some basics on 1031.
• 1:09
  SPEAKER_00: I look, most of our listeners are really savvy.
• 1:12
  SPEAKER_00: They're investors, uh, they're learning.
• 1:15
  SPEAKER_00: And um, but just give us give us a basic introduction into a 1031 exchange, uh, the benefits, why it started, uh, is it a good thing, and who's it good for?
• 1:29
  SPEAKER_01: Great question.
• 1:30
  SPEAKER_01: So, but to answer your question about or talk about real quickly about the end of the year, so you can you still have time to do a 1031 exchange.
• 1:38
  SPEAKER_01: So as long as the relinquished property closes this year, you can report that for 2026.
• 1:44
  SPEAKER_00: So you mean you could close obviously you could close the down leg.
• 1:49
  SPEAKER_00: Correct.
• 1:49
  SPEAKER_00: Okay, but then but then you're saying you could still you could still get the up leg and not close that till next year?
• 1:55
  SPEAKER_00: Correct.
• 1:56
  SPEAKER_00: Okay.
• 1:56
  SPEAKER_00: And yeah, and report it for 2026.
• 1:58
  SPEAKER_00: Okay, got it.
• 1:59
  SPEAKER_00: Okay, so that's good to know.
• 2:00
  SPEAKER_01: That's really good to know.
• 2:01
  SPEAKER_01: Yeah, we have a lot of clients who are trying to take advantage of that because, like you said, they're they need tax deductions or they need to sell their property for whatever reason by the end of the year, they can still do a 1031 exchange.
• 2:11
  SPEAKER_01: So um, but yeah, so going back to you know, 1031 exchanges, like you said, your listeners probably already know what they are.
• 2:17
  SPEAKER_01: You can look it up.
• 2:18
  SPEAKER_01: It's pretty straightforward.
• 2:19
  SPEAKER_01: People have most investors have done them.
• 2:22
  SPEAKER_01: But basically, um, there's a lot of advantages to do a 1031 exchange.
• 2:27
  SPEAKER_01: The most important one is to defer your taxes, right?
• 2:29
  SPEAKER_01: You're gonna sell a property, and if you're gonna buy a new property, you might as well consider doing a 1031 exchange.
• 2:35
  SPEAKER_01: Uh, 1031 exchange is really geared for someone who has held the property for a long time, right?
• 2:41
  SPEAKER_01: This does not apply for flippers, really applies for people who have holding on who have held on to a property for five years, 10 years, 20 years, or even longer.
• 2:50
  SPEAKER_01: So um IRS allows you to defer the gain if you do a 1031 exchange.
• 2:55
  SPEAKER_01: What does that look like?
• 2:56
  SPEAKER_01: Well, you sell the property, your downlink property, your relinquished property, and you roll the proceeds into a exchange account and you work with someone like myself, a qualified intermediary, and we hold the funds until you buy your new replacement property.
• 3:09
  SPEAKER_01: Uh, so you're not touching the funds at all.
• 3:12
  SPEAKER_01: And that's the whole point of an exchange.
• 3:13
  SPEAKER_01: So you don't touch the proceeds or the funds, and that will allow you to defer the game.
• 3:18
  SPEAKER_01: Now remember, it's a tax deferral, not a tax elimination.
• 3:22
  SPEAKER_01: You will eventually have to pay taxes if you sell that property.
• 3:26
  SPEAKER_01: But if you're like Juan and I, I mean, I'm an investor.
• 3:29
  SPEAKER_01: I mean, you want to stay in the game for a long time.
• 3:31
  SPEAKER_01: You don't want to just sell and cash out.
• 3:33
  SPEAKER_01: You want to keep the money going, not have to pay taxes at all, and keep your cash flow going.
• 3:38
  SPEAKER_01: Right.
• 3:39
  SPEAKER_01: Um, who are the people doing 1031 exchanges though?
• 3:44
  SPEAKER_01: Anyone that anyone that owns a rental property that wants to buy a new property.
• 3:48
  SPEAKER_01: So, a couple of reasons why you want to do an exchange besides deferring the taxes is maybe you have a property that's just run down, right?
• 3:54
  SPEAKER_01: Maybe it's uh you've owned it for 10 years, the roof is shot.
• 3:58
  SPEAKER_01: HVAC, it needs to be replaced.
• 3:59
  SPEAKER_01: It could be a single family home or duplex.
• 4:01
  SPEAKER_01: You own it and you're like, I don't want to dump any more money into it, but I want to get something new.
• 4:05
  SPEAKER_01: I want to get something that's maybe um a little bit more upgraded, maybe that's has uh a better area, whatever.
• 4:11
  SPEAKER_01: People do exchanges for that.
• 4:13
  SPEAKER_01: Um, a lot of people do exchanges because they run out of depreciation, right?
• 4:17
  SPEAKER_01: Um, I'll tell you this.
• 4:18
  SPEAKER_01: I'm not a tax accountant, but you know, and everyone should be taking depreciation on their property every year.
• 4:25
  SPEAKER_01: If you're not doing that, you should be doing that.
• 4:27
  SPEAKER_01: Because here's the thing, Juan.
• 4:29
  SPEAKER_01: When you, if you don't do a 1031 exchange and you sell your property, you still have to pay what's called depreciation recapture tax, regardless if you took that depreciation or not.
• 4:39
  SPEAKER_01: That kind of stinks, right?
• 4:40
  SPEAKER_01: Yeah.
• 4:40
  SPEAKER_01: Yeah.
• 4:40
  SPEAKER_01: So if you're out of depreciation on a residential property, you can depreciate 27 and a half years, right?
• 4:45
  SPEAKER_01: Uh, if you run out of that depreciation, maybe it's time to consider getting into something new so you can take advantage of those tax uh the taxes if you need if you need tax benefits.
• 4:55
  SPEAKER_00: Yeah, for for people who contact me and and I always ask, hey, so what's the motivation for selling?
• 5:00
  SPEAKER_00: And most times it's oh tenants driving them crazy.
• 5:04
  SPEAKER_00: They're they're thinking, look, um, just like you said, I want to be in a better area.
• 5:10
  SPEAKER_00: Sometimes people get fed up with the, you know, and here's the other thing of it too.
• 5:13
  SPEAKER_00: Um, I notice when someone buys a building, then that's the time that they're gonna do all the improvements.
• 5:18
  SPEAKER_00: It's at the time because it's a new toy to play with, right?
• 5:21
  SPEAKER_00: So it's like, I'm gonna do the roof, I'm gonna do, I can't wait to paint it, or I'm gonna do this improvement.
• 5:25
  SPEAKER_00: And it's good.
• 5:26
  SPEAKER_00: It's actually good that people do that because then we're uh, you know, here in Long Beach and all of Southern California, we have aging uh housing stock.
• 5:34
  SPEAKER_00: And so when it's good when it trades hands, someone comes in, they're excited about it, they're gonna put a lot of investment into it, which is a plus.
• 5:41
  SPEAKER_00: But through the year, like if you've owned something for five, seven, ten years, you're you're like less motivated.
• 5:46
  SPEAKER_00: And somehow you'd rather fix up something new than fix up your existing.
• 5:51
  SPEAKER_00: That's just the way it is.
• 5:51
  SPEAKER_00: It's the way it's the way it's always been.
• 5:53
  SPEAKER_00: And so um, those are some of the major reasons I I think people get people want a new project, and maybe that's just um human beings like looking for the next thing to work on, and or hey, even though sometimes the properties they'll call me, they'll say, Look, Juan, I'm cash flowing perfectly.
• 6:11
  SPEAKER_00: I bought it at a good time.
• 6:13
  SPEAKER_00: Uh, my loan's not coming due.
• 6:14
  SPEAKER_00: Like sometimes I'm like, Are you sure you want to do this?
• 6:18
  SPEAKER_00: But you know, sometimes it's it's what they want to do.
• 6:21
  SPEAKER_00: And and and I'm gonna share with you two uh two examples where where I've done this.
• 6:26
  SPEAKER_00: I um when I was fresh out of college, in fact, I think it was in college, so this was uh 2003.
• 6:32
  SPEAKER_00: I bought my first triplex and I held on to it for I don't know, 15, 18 years.
• 6:38
  SPEAKER_00: Um tenants were driving me crazy.
• 6:41
  SPEAKER_00: Uh one person had tons of cats, like all the neighborhood cats would come to our property.
• 6:46
  SPEAKER_00: I just I was fed up with it.
• 6:47
  SPEAKER_00: And and honestly, that was the main reason.
• 6:49
  SPEAKER_00: Now I saw an opportunity in the FI Plus market, and I saw that the FIP plus market was trading at discounted levels.
• 6:56
  SPEAKER_00: And so I knew that the triplex I could still sell at a premium.
• 7:00
  SPEAKER_00: So I got to sell that uh high and then buy the eight-unit building that I ended up buying.
• 7:06
  SPEAKER_00: So the eight-unit building for me was a better location, more doors, more gross income, a better gross rent multiplier, a better price per door, better price per square foot, better cap rate.
• 7:16
  SPEAKER_00: Across the board, Aristotle, everything was better across the board.
• 7:21
  SPEAKER_00: One caveat the cash flow, um, because now the interest rate was going to be much higher, uh, wasn't as good.
• 7:28
  SPEAKER_00: But I but I could deal with that.
• 7:30
  SPEAKER_00: I didn't need cash flow today.
• 7:31
  SPEAKER_00: Now it's it it's it's positive, it's positive cash flow.
• 7:35
  SPEAKER_00: But the other property I had owned for so long, the mortgage was so little, the interest rate was so little, yeah, there was tons more cash flow, right?
• 7:42
  SPEAKER_00: But anyhow, so that was like a perfect example of I got a better asset.
• 7:48
  SPEAKER_00: And and so some people might wonder, well, why don't you just sell it, pay your taxes?
• 7:53
  SPEAKER_00: It if you do that, then all of a sudden you have less money to work with.
• 7:58
  SPEAKER_00: And so I came out with let's just say$600,000 from that triplex and I put that into an eight-unit building.
• 8:06
  SPEAKER_00: The government lets you forgo paying taxes temporarily, and then you you have that purchasing power to buy something else, right?
• 8:16
  SPEAKER_00: And so the you know, typically when when if we're looking at say a million-dollar investment or a two million dollar investment, and if each goes up by six percent, then really what you want is the higher asset because that one's really going to gain you more in appreciation.
• 8:30
  SPEAKER_00: And so that's like a a really good example, like where even in my case, I thought this was the best thing that I could do.
• 8:38
  SPEAKER_00: And I did that about 14 months ago, and I did it twice.
• 8:39
  SPEAKER_00: I did it with a triplex, I ended up doing with a fourplex, and so I'm selling the smaller stuff to get into the bigger stuff.
• 8:44
  SPEAKER_00: But for me, the 1031 option is a great vehicle.
• 8:49
  SPEAKER_01: It is good point.
• 8:50
  SPEAKER_01: So, did you you probably know this or maybe you don't?
• 8:52
  SPEAKER_01: But for people who are listening and you're in California, if you sell a property that's used for investment or business purposes and you don't do a 1031 exchange, the average tax rate that you'll probably pay is anywhere from 30 to 40 percent.
• 9:08
  SPEAKER_01: So if you have a million dollar gain, for example, can you imagine paying three or four hundred thousand dollars to Uncle Sam?
• 9:16
  SPEAKER_01: That's ridiculous.
• 9:17
  SPEAKER_01: No, I don't want to do that.
• 9:18
  SPEAKER_01: Why would you do that, right?
• 9:19
  SPEAKER_01: So it so again, you're only you're only gonna do that if you just are gonna say, hey, I'm out of the game, I don't want to invest anymore, I'm throwing in the towel, I'm done.
• 9:28
  SPEAKER_01: But here's the thing, too.
• 9:29
  SPEAKER_01: 1031 exchanges, sometimes you might not even need to do one.
• 9:32
  SPEAKER_01: Because if you have a lot of losses already in other properties, let's say you own a big portfolio and you have like 10 or 15 properties, and some of them are losses.
• 9:39
  SPEAKER_01: And maybe the one that you are thinking about doing to 1031.
• 9:43
  SPEAKER_01: Again, I'm on a tax accountant, talk with your tax accountant, but maybe in your situation, maybe you don't even need to do a 1031.
• 9:48
  SPEAKER_01: You know, I'm not trying to talk myself out of you, you know, your clients working with me, but there could be a chance where you have a lot of losses that might offset that gain and you might not really not have to pay much in taxes.
• 9:59
  SPEAKER_01: But if you just have one property and you have a lot of gain, it only makes sense to do a 1031.
• 10:05
  SPEAKER_00: I get people calling me and they want to do a 1031 on the personal residence.
• 10:10
  SPEAKER_00: And so why don't you talk about that?
• 10:12
  SPEAKER_01: Yeah, well, that's a great question.
• 10:13
  SPEAKER_01: Um, and the answer is it's possible.
• 10:16
  SPEAKER_00: Okay.
• 10:17
  SPEAKER_01: So the reason why I say it's possible is is because if you are using um a your property that you're living in, your primary home, if you're renting any rooms out, for example, or you own a business that you run out of your property, that percentage could actually be exchanged.
• 10:32
  SPEAKER_01: I'll give you an example.
• 10:33
  SPEAKER_01: Let's say you have a four-bedroom home and you rent out two bedrooms.
• 10:37
  SPEAKER_01: Your accountant will probably agree that's 50% of your home.
• 10:40
  SPEAKER_01: Two bedrooms out of two, out of four bedrooms you're renting, that that is 50% of your property as a rental property.
• 10:46
  SPEAKER_01: So that 50%, you could exchange that 50% into something else, not the entire primary home, but the 50%.
• 10:54
  SPEAKER_01: Um, another example is I I'll give you um is I had a client, he hasn't done an exchange yet, but he owns a rental property, I think, in Colorado somewhere.
• 11:02
  SPEAKER_01: And he run, he owns a um like a like a metal fabricating business.
• 11:06
  SPEAKER_01: He's been looking for some kind of a light industrial property up in San Francisco somewhere, but he can't find anything in his price range.
• 11:13
  SPEAKER_01: Anyway, he said, Hey, can I just buy a property and have like a barn or something the next to property on the land and run my business on that?
• 11:21
  SPEAKER_01: I said, Absolutely you can.
• 11:23
  SPEAKER_01: Uh so let's just say the property is worth 400,000, the value in Colorado.
• 11:27
  SPEAKER_01: If he buys a house for a million in California, for example, if 400,000 of that million um satisfies his exchange, if the barn is 40%, let's say of that million, then he can he can actually use the exchange for his primary home and his business.
• 11:44
  SPEAKER_01: So a lot of cool things you could do.
• 11:45
  SPEAKER_01: But um, so the answer to your question is it is possible to exchange part of your primary home, not all of it.
• 11:52
  SPEAKER_01: Um if if it's been rented out, and it's you have to be able to prove that that was the case.
• 11:57
  SPEAKER_01: That is a great question.
• 11:58
  SPEAKER_01: So you have to document it, right?
• 12:00
  SPEAKER_01: Meaning that you have to claim the income on your tax return.
• 12:03
  SPEAKER_01: If you're renting rooms out to your sons and your daughters, which is, you know, hey, that's great, do it.
• 12:08
  SPEAKER_01: But if you're not claiming that income and you're just pocketing the cash, you're not reporting that, that's not gonna qualify for an exchange, unfortunately.
• 12:15
  SPEAKER_01: So you have to do that.
• 12:16
  SPEAKER_01: Here's another example.
• 12:17
  SPEAKER_01: What about ADUs?
• 12:18
  SPEAKER_01: You've seen a lot of ADUs pop up in Long Beach everywhere, right?
• 12:21
  SPEAKER_01: Yeah.
• 12:21
  SPEAKER_01: So if you own a primary home and you're renting out your ADU, that is part of your primary home.
• 12:25
  SPEAKER_01: So imagine that ADU, you're renting it, but again, you got to claim that income.
• 12:30
  SPEAKER_01: If you're just pocketing it, hey, I'm just gonna pocket to two grand a month, then when you go to sell and you have a really large gain that exceeds, you're familiar with uh IRS code 121, right?
• 12:40
  SPEAKER_01: The the uh exclusion, homeowners exclusion for your personal residence.
• 12:44
  SPEAKER_01: For your personal residence, right?
• 12:45
  SPEAKER_01: So you're allowed to exclude up the the first 500,000 in gain if you're married.
• 12:49
  SPEAKER_01: Yeah, right.
• 12:50
  SPEAKER_01: Um but if you have a but if you have a$700,000 gain or an$800,000 gain, and hey, lucky, you built an ADU on your property years ago and you're claiming that income, you can probably 1031 a port that ADU portion into, I don't know, a rental property and sell your home, buy a new home, but then use the proceeds, part of the proceeds to buy a rental property or something.
• 13:10
  SPEAKER_00: And in that situation, and I I I would assume, so let's just say that maybe the the the primary house, the main house that that the owner would live in is probably 70%.
• 13:19
  SPEAKER_00: Uh and then and then maybe the ADU in terms of size is probably 30%.
• 13:22
  SPEAKER_00: And then that's probably something that they had have to figure out.
• 13:24
  SPEAKER_00: In some cases, it could be 40, but in most cases, that ADU, if it's behind a house, typically is smaller, one bed, two bed, and typically the front house is gonna be bigger, but it's possible that it's 50-50 for anyone listening.
• 13:35
  SPEAKER_00: Could be.
• 13:35
  SPEAKER_00: Yeah, it could where and and what I mean by 50-50 is that um the square footage is the same, and that's how they're probably gonna look at it.
• 13:42
  SPEAKER_01: Right, exactly.
• 13:42
  SPEAKER_01: Your accountant is gonna be the one that's going to determine the the the ratio.
• 13:47
  SPEAKER_00: Yeah.
• 13:48
  SPEAKER_01: So yeah, it's it's it's exciting because a lot of people have been building ADUs, and I haven't seen a ton on the market for sale, like houses with ADUs in the back.
• 13:57
  SPEAKER_01: Um, I'm sure you all heard about that ADU that was sold in San Francisco, right?
• 14:01
  SPEAKER_01: It was the first ADU that was actually sold and taxed, like has its own separal, uh separate um property address and everything.
• 14:07
  SPEAKER_00: Did you hear about that?
• 14:09
  SPEAKER_00: No, but I know that there's a lot because people have been telling I thought there was a law waiting to be passed where people could essentially make the ADU.
• 14:16
  SPEAKER_00: They could build the ADU and it has its own APN and they could go ahead and sell it off completely.
• 14:21
  SPEAKER_00: That's what they just did.
• 14:22
  SPEAKER_01: So it was a first sale in San Francisco.
• 14:24
  SPEAKER_01: I forgot how much it was, whatever, but it was like the first one that sold legally.
• 14:29
  SPEAKER_01: And I'm like thinking, that's kind of strange because how is that gonna affect the value?
• 14:32
  SPEAKER_01: I know we're getting off on a different uh thing, but how would that affect the value of that property?
• 14:36
  SPEAKER_01: Because you have some other house behind you or whatever, and it's a separate whole thing.
• 14:41
  SPEAKER_01: So you have two houses in one lot with two different IDs, right?
• 14:44
  SPEAKER_01: I don't know.
• 14:45
  SPEAKER_00: It's kind of like an HOA situation.
• 14:47
  SPEAKER_00: That's a small HOA situation, but that's gonna help out.
• 14:51
  SPEAKER_00: I thought that was still something that was gonna work its way through the uh it in and maybe we're talking about different laws right now.
• 14:56
  SPEAKER_00: But I know here in Long Beach, there's there's clients of mine where we're not able to get the right price that they want, right?
• 15:02
  SPEAKER_00: To to to to meet their profit margin.
• 15:04
  SPEAKER_00: If anything, it's at a loss right now.
• 15:06
  SPEAKER_00: And they built two ADUs and they're hoping and praying that they're able to sell off the ADUs.
• 15:11
  SPEAKER_00: You cannot do that right now in Long Beach.
• 15:12
  SPEAKER_00: And so I don't know exactly what happened in San Francisco, but if it does pass, that does open up because what that does is if you could sell those off individually, they're gonna be worth more individually than they are together in most cases.
• 15:24
  SPEAKER_00: And so Aristotle's talk a lot of times people are afraid that, okay, hey, I have this eight-unit building, there's tons of equity.
• 15:35
  SPEAKER_00: I I've been watching the Own More Doors podcast, and I realized that I could get a 16-unit building, a 12-unit building, a 20-unit building in a better area with really good returns now because of the way that the market is at.
• 15:47
  SPEAKER_00: I'm afraid that I'm not gonna be able to find the right one within the time and I hate the time constraints.
• 15:51
  SPEAKER_00: How do we work around that?
• 15:53
  SPEAKER_01: Yeah, it's a great question.
• 15:54
  SPEAKER_01: So I get that question asked often where people say, Hey, is there any way I can extend the 45-day identification period?
• 16:02
  SPEAKER_01: So if you've never done an exchange before, what happens is when you do an exchange, the day that the property closes, the downlay property, you have 45 calendar days to identify your new property.
• 16:12
  SPEAKER_01: It's a month and a half, right?
• 16:13
  SPEAKER_01: Doesn't seem like a long time.
• 16:15
  SPEAKER_01: Hopefully, you're working with an amazing brokerage like Sage and your team because you guys know the areas.
• 16:21
  SPEAKER_01: What I always recommend doing is know, try to try to um try to figure out exactly where you want to buy and what you want to buy, right?
• 16:28
  SPEAKER_01: Before you even sell your property.
• 16:30
  SPEAKER_01: Because if you know exactly, if you say, hey, I want to be in Wrigley area or I want to be in in Belmont area, like then you know exactly where to go and where to focus on.
• 16:39
  SPEAKER_01: Um, many times I will do exchanges for people and they're all over the place.
• 16:43
  SPEAKER_01: So like looking here, looking there, out of state, 10 different places.
• 16:47
  SPEAKER_01: And then guess what?
• 16:48
  SPEAKER_01: Like eight out of 10 times your exchange fails because they are they're too scatterbrained.
• 16:52
  SPEAKER_01: So having a great team lined up should help eliminate that 45-day deadline.
• 16:56
  SPEAKER_01: But there's nothing you can do to like extend that deadline.
• 16:59
  SPEAKER_01: Um, what I would say just is just prepare beforehand, get focused.
• 17:03
  SPEAKER_01: Um, there is uh something called the reverse exchange, which I don't you know about that.
• 17:08
  SPEAKER_01: Um, that's basically in simplistic terms is when you buy your new property first.
• 17:12
  SPEAKER_01: Let's say you have the funds to buy your new property, an 18 uh 16 unit, whatever.
• 17:17
  SPEAKER_01: Um, you buy that first, and then you have 180 days from when you close on that to sell your other property.
• 17:23
  SPEAKER_01: So uh the pressure will be on to sell that property though, right?
• 17:26
  SPEAKER_01: So you can't sell it above market, you got to price it exactly right, and that's what you're gonna help your clients do.
• 17:31
  SPEAKER_01: But that is a possibility just to do that.
• 17:33
  SPEAKER_01: Some people like the relief of that.
• 17:35
  SPEAKER_01: They say, Oh, I don't I have 180 days to sell my property at six months, should be easy to sell that property in six months.
• 17:40
  SPEAKER_00: Yeah, and and that one's a reverse.
• 17:42
  SPEAKER_00: And and and the thing is you have to have the money already.
• 17:45
  SPEAKER_00: But most times, the reality is most times you need to sell the the property to have the money.
• 17:50
  SPEAKER_00: And so, but yeah, I mean the reverse, you know, we've done them here at our office.
• 17:54
  SPEAKER_00: In fact, Cody Charnell in our office personally did it, and so um, and so he was in a good place.
• 17:59
  SPEAKER_00: But so I always tell people, look, because they're like, I can't believe I only have 45 days.
• 18:04
  SPEAKER_00: I'm like, you don't have 45 days.
• 18:07
  SPEAKER_00: Start looking now.
• 18:08
  SPEAKER_00: Like, what's stopping you from looking now?
• 18:10
  SPEAKER_00: Like it's 45 days from when it closes, but you know, look, right now, if if most properties are sitting on the market a hundred plus days, it's just if it, you know, depending on pricing and everything else, they're sitting on the market for a long time.
• 18:24
  SPEAKER_00: We start looking now, we start looking now, and so it's not that we only have 45 days, that's from the day we close.
• 18:31
  SPEAKER_00: Correct.
• 18:31
  SPEAKER_00: But we know we're gonna close.
• 18:32
  SPEAKER_00: Like we know when they've removed contingencies, and so really we have a lot of time.
• 18:36
  SPEAKER_00: And so, and here's the other side of it too.
• 18:38
  SPEAKER_00: Um it is a buyer's market right now, and so many sellers will contact me and they'll say, Juan, can we get a list of everyone who's in a 1031?
• 18:49
  SPEAKER_00: Because the perception is a perception, the perception is 1031 people are desperate and they'll overpay for a property.
• 18:57
  SPEAKER_00: That's the perception.
• 18:57
  SPEAKER_00: I it it's a perception.
• 18:59
  SPEAKER_00: I don't unless I don't agree.
• 19:02
  SPEAKER_00: They are, they do have to buy something.
• 19:04
  SPEAKER_00: There's tons of opportunity.
• 19:06
  SPEAKER_00: So I don't agree that they're desperate.
• 19:07
  SPEAKER_00: In fact, they have more leverage now than ever before because they are a 1031 and there's literally there's there's more sellers than there are buyers.
• 19:16
  SPEAKER_00: And so if if you're a buyer, you really get to really at this point call the shots.
• 19:20
  SPEAKER_00: And I'm talking about the five plus market, if it's a fourplex, triplex, that might be a little different.
• 19:25
  SPEAKER_00: Um, but the perception is hey, they they have to buy something and they'll overpay.
• 19:31
  SPEAKER_00: Is that something you come across?
• 19:32
  SPEAKER_00: I just kind of a mindset that you see?
• 19:34
  SPEAKER_01: Um, not that so much, but I will tell you that a lot of people that we start working with when it comes to exchanges, a lot of them already have a property under contract that they're that their replacement property.
• 19:45
  SPEAKER_01: They they say, hey, I'm closing on my replacement property in three weeks and I'm doing my and I'm closing on my my down lake property in three weeks.
• 19:53
  SPEAKER_01: So it's like it's pretty close.
• 19:54
  SPEAKER_01: So a lot of people come to us already, they're they already have a property of mine.
• 19:58
  SPEAKER_01: Um, I don't recommend that actually, because if you have a property in a contract and you've earnest money at Jeopardy on a replacement property, and you haven't even closed on your down your downlake property yet, what if that down lake property doesn't sell in time and then the seller on the property you're buying, uh, they're like, hey, hurry up, we need to close and the pressure's on.
• 20:19
  SPEAKER_01: But you're like, I need the funds for my down lake property.
• 20:22
  SPEAKER_01: So I don't recommend that either.
• 20:24
  SPEAKER_01: But um definitely have properties in mind before you go into exchange and again have a game plan of what you want to buy.
• 20:30
  SPEAKER_01: And also, you I'm sure you do this, you're a broker, but like you make sure that you're talking to a lender that you can get, make sure you can get the loan for a larger property, right?
• 20:39
  SPEAKER_01: What if you can't even qualify for a 10 unit and all of a sudden you're like, hey, uh, I'm selling my property, but I can't buy another property.
• 20:46
  SPEAKER_00: You know, that's a that's a big thing too.
• 20:49
  SPEAKER_00: In that situation, Aristotle, I right now, because it is a buyer's market, you could go to a seller who's desperate and they'll give you the time.
• 20:57
  SPEAKER_00: And like they'll they'll give you the contingency period.
• 20:59
  SPEAKER_00: So you're right.
• 21:00
  SPEAKER_00: In most cycles, there's no way they're gonna wait for you.
• 21:03
  SPEAKER_00: The cycle we're in right now, that seller, they're gonna wait for you.
• 21:07
  SPEAKER_01: Well, I'll give you an example.
• 21:08
  SPEAKER_01: Yeah, I had a lately uh uh we were doing a lot of farmland transaction, which is very interesting.
• 21:12
  SPEAKER_01: Um, because um I read an article about a week or two ago.
• 21:16
  SPEAKER_01: Farmland in America is over$6,000 an acre.
• 21:20
  SPEAKER_01: It's the highest it's ever been.
• 21:21
  SPEAKER_01: Imagine if you have farmland somewhere where maybe you never even really used it, you just inherit it over the years and it's just sitting there.
• 21:27
  SPEAKER_01: You should exchange that and start making income.
• 21:30
  SPEAKER_00: Like put that into an income-producing property, farmland that if you're not unless you're farming it, but yeah, I guess that was my question.
• 21:37
  SPEAKER_00: If this is farmland that's not being farmed, like they're not growing corn or maybe they are, but but maybe I mean I don't know.
• 21:43
  SPEAKER_01: I don't know much about the farming business as far as like profit goes, but I mean, farmland's pretty like not profitable from what I hear.
• 21:50
  SPEAKER_01: I mean, the government subsidizes you, right?
• 21:52
  SPEAKER_01: So like I don't know how that works, but like if you're making a 1% return on your farmland, put it towards something that's gonna make you a five or six percent, right?
• 21:58
  SPEAKER_01: Put it into something better.
• 22:00
  SPEAKER_01: Um, but my point is there was a client that we did an exchange for recently.
• 22:03
  SPEAKER_01: She has some, I don't know if it was farmland or maybe it was vacant land.
• 22:06
  SPEAKER_01: Um, but she already had a replacement property in escrow.
• 22:10
  SPEAKER_01: And the person oh well, it was farmland because the buyer was getting a uh agricultural loan.
• 22:15
  SPEAKER_01: Okay, and the the seller, the exchanger, had no idea that it was gonna take 60 days for that loan to go through.
• 22:20
  SPEAKER_01: So she already had her replacement property tied up for 60 days.
• 22:23
  SPEAKER_01: So you're to your point, you're right.
• 22:24
  SPEAKER_01: Sellers are like, hey, we want to sell our property, we'll wait for you.
• 22:27
  SPEAKER_00: Yeah.
• 22:28
  unknown: Yeah.
• 22:28
  SPEAKER_00: Good point.
• 22:29
  SPEAKER_00: Yeah.
• 22:29
  SPEAKER_00: Um you're gonna walk us through some examples of what you're seeing out there, and yeah, I just want people to realize there's a lot of people who I guess they don't they don't know.
• 22:39
  SPEAKER_00: Maybe you're fed up with your building, and I it's okay to be fed up with your building.
• 22:45
  SPEAKER_00: It's okay.
• 22:46
  SPEAKER_00: I've been like that, and I represent so many investors all walks of life, and they'll call me and I can hear it on their voice.
• 22:52
  SPEAKER_00: They're sick and tired of it.
• 22:53
  SPEAKER_00: It's okay.
• 22:54
  SPEAKER_00: You don't have to be married to this property.
• 22:56
  SPEAKER_00: It's okay to walk from it to it.
• 22:58
  SPEAKER_01: It's an emotional thing though, too, right?
• 22:59
  SPEAKER_01: To let a property go.
• 23:00
  SPEAKER_00: Sometimes, sometimes, yeah, for some people, you know.
• 23:03
  SPEAKER_00: Maybe you're more the emotional person.
• 23:05
  SPEAKER_00: I don't know, but I'm just saying, like it it could be, it could be for people.
• 23:09
  SPEAKER_00: Yeah.
• 23:10
  SPEAKER_00: Sometimes, sometimes I see this.
• 23:12
  SPEAKER_00: It was their personal home.
• 23:14
  SPEAKER_00: They bought a bigger house, that became a rental.
• 23:17
  SPEAKER_00: It was their first house, it was the house that they brought their um their um newborns to.
• 23:24
  SPEAKER_00: And so I see that.
• 23:25
  SPEAKER_00: And then and then and then we end up selling that house and we go into like an eight or a 10-unit building, and then you know, but but there is an emotional component to it.
• 23:32
  SPEAKER_00: But um, I want you to walk us through some examples that you've worked on.
• 23:36
  SPEAKER_00: And for anyone listening, um, Aristotle is able to do uh to assist with 1031's nationwide.
• 23:44
  SPEAKER_00: And so we're here at Sage Real Estate, we we could refer you to someone else that's uh like us out of state.
• 23:52
  SPEAKER_00: Southern California will definitely help you, but anything outside of state, which we get a lot of interest and a lot of inquiries, we'll connect you with someone else.
• 23:58
  SPEAKER_00: But with someone like Aristotle, he he will personally be the one helping you.
• 24:02
  SPEAKER_00: Um, so I'll I'll give you the floor, walk through some of these examples so that people really what I want is for people to I want their minds to expand on what is possible.
• 24:11
  SPEAKER_00: Because it's not always um just because you have a four-unit building doesn't mean you have to buy apartment buildings.
• 24:17
  SPEAKER_00: That's right.
• 24:18
  SPEAKER_00: Just because you have a piece of land that you've rented out um for truck storage or parking doesn't mean that you need to buy another piece of land.
• 24:26
  SPEAKER_00: Like you could swap.
• 24:28
  SPEAKER_00: This would be the time if you've like wanted to dabble in something new.
• 24:31
  SPEAKER_00: This could be the time.
• 24:32
  SPEAKER_00: So, anyhow, um I'll let you take it away from here.
• 24:35
  SPEAKER_00: Um, and we'll go from there.
• 24:37
  SPEAKER_00: Okay, perfect.
• 24:37
  SPEAKER_01: Um, I'll just note real quickly that the so the IRS when when it comes to like kind property, all they care about when it says when they say, Oh, you can swap your property out for a like kind property.
• 24:48
  SPEAKER_01: What that means is anything, any prop any real property that that's going to be used for investment, business or trade purposes, not a second home, not a primary home, but anything else qualifies.
• 24:59
  SPEAKER_01: All right.
• 24:59
  SPEAKER_01: So let's talk about this first example here.
• 25:01
  SPEAKER_01: So this was a client that sold four single family homes in Cleveland, Ohio.
• 25:06
  SPEAKER_01: They had four of them that had a bunch of equity, and he wanted to combine all four into one exchange, which is possible, and uh use the proceeds to purchase an 18 unit in Tucson.
• 25:16
  SPEAKER_01: He already had this property in a contract in Tucson.
• 25:19
  SPEAKER_01: Um, and um now this one um he actually ended up just selling three out of the four, uh, but he was happy with that.
• 25:26
  SPEAKER_01: And then the other the the fourth one, I think he's just gonna either keep it or do an exchange on something else down the road.
• 25:31
  SPEAKER_01: But he was able to combine all proceeds, the proceeds from all three of those into one exchange and then wire and then send that to his Tucson property.
• 25:39
  SPEAKER_00: I'm glad you're showing this as an example because there's a lot of people who, when they first started investing, they looked, and let's just assume that the investors are in California.
• 25:49
  SPEAKER_00: You know, uh here prices are expensive.
• 25:51
  SPEAKER_00: And so then they go to a place like Ohio or they go to Texas or they go to Indiana and they just can't believe how cheap those are.
• 25:59
  SPEAKER_00: And then they do buy them and they buy several of them and they get excited, and then just like anything else, you're looking to trade.
• 26:05
  SPEAKER_00: And so sometimes people's in their mind, they're like, How can I ever sell one, two, three houses all at the round the same time to meet this deadline, but it's done all the time.
• 26:18
  SPEAKER_00: And I mean, this is a perfect example.
• 26:19
  SPEAKER_00: We just had someone contacted us, they were um uh somewhere in New York, but like like like in the northern part of New York where homes don't really sell for much, and they she literally sold four different homes.
• 26:34
  SPEAKER_00: She worked with someone out there, and they all closed around the same time.
• 26:38
  SPEAKER_00: We were able to get them a property all the way out here in California.
• 26:41
  SPEAKER_00: Same thing.
• 26:42
  SPEAKER_00: Sometimes people's fear or limiting beliefs keep them from doing something that they really want to do because they think it's not possible.
• 26:51
  SPEAKER_00: But here it's a perfect example that people do do it, and it is possible, and it's it's not I think people get stuck and then they're stuck in properties that they're they're not in love with anymore.
• 27:01
  SPEAKER_01: Yeah, well, this is a tricky situation because if you have properties like scattered all over the place, like I have several properties scattered in different markets, it's hard to combine them all or try to have them sell at the same time, right?
• 27:11
  SPEAKER_01: Different markets, different timing.
• 27:12
  SPEAKER_01: Um, but I want to make one point to you on a lot of people think if you're selling, and it could be several duplexes that you want that you want to sell at one time.
• 27:19
  SPEAKER_01: A lot of people think that they need to close all at the same time in order for you to use them.
• 27:23
  SPEAKER_01: That's not the case.
• 27:24
  SPEAKER_01: So let's say you saw one, let's say you have three on the market, one sells today, one closes today, I should say, right?
• 27:30
  SPEAKER_01: That starts the 45 identification period.
• 27:32
  SPEAKER_01: You already have your property identified, you know what you want to buy, you put that under contract, then maybe 30 or 60 days later, duplex two closes, and then 30 days later, duplex three.
• 27:42
  SPEAKER_01: That that's fine.
• 27:43
  SPEAKER_01: But in order to close on your new property, your up property, you need all the funds from those three properties, right?
• 27:49
  SPEAKER_01: Generally.
• 27:49
  SPEAKER_01: And so you have to keep that in mind.
• 27:51
  SPEAKER_01: So you have 180 days.
• 27:52
  SPEAKER_01: The exchange is is 180 days total.
• 27:55
  SPEAKER_01: So you can have funds keep going in your exchange account.
• 27:58
  SPEAKER_01: But the problem is when you identify your property, um, I mean, what's the typical uh closing time on a uh like a 12 unit apartment property?
• 28:05
  SPEAKER_01: Is it 60 days, 90 days?
• 28:07
  SPEAKER_01: 45 to 60 days.
• 28:08
  SPEAKER_01: Okay, so two months roughly.
• 28:09
  SPEAKER_01: So if you don't sell all your properties within that time frame, and then you're gonna have to push back the sale and everything.
• 28:16
  SPEAKER_01: So, but it is possible to do that.
• 28:17
  SPEAKER_01: So make that point.
• 28:19
  SPEAKER_01: Perfect um here's a second example here.
• 28:21
  SPEAKER_01: Um, we were talking about farmland.
• 28:23
  SPEAKER_01: Somebody, this client sold a piece of farmland in Virginia and purchased a single family home for his kid to rent.
• 28:29
  SPEAKER_01: That's a kind of a unique thing, right?
• 28:30
  SPEAKER_01: People say, Can I buy a house and rent it back to my kid?
• 28:34
  SPEAKER_01: Absolutely you can.
• 28:35
  SPEAKER_01: No problem with that.
• 28:36
  SPEAKER_01: As long as you have a lease in place, it has to be market close to market rent.
• 28:39
  SPEAKER_01: Yeah.
• 28:39
  SPEAKER_01: And uh yeah, and you're documenting that.
• 28:42
  SPEAKER_00: I see people buy homes for their kids when they're going to college.
• 28:48
  SPEAKER_00: And they'll use that as a 1031 and then and then you know, they'll it gives housing for their son, daughter, and then they rent out rooms, and you know, it look, I mean, look, I'm at a point, Aristotle, where my daughter is a junior, we're looking at colleges already.
• 29:04
  SPEAKER_00: And I'm I'm like, well, where's she gonna go?
• 29:06
  SPEAKER_00: What is the price of real estate?
• 29:07
  SPEAKER_00: Because I might be buying a property there, and you know, I I I don't like the idea of spending money on a lease.
• 29:14
  SPEAKER_00: Yeah.
• 29:15
  SPEAKER_00: And in my opinion, it's wasting money, right?
• 29:17
  SPEAKER_00: I'd rather having an appreciating asset and collecting income.
• 29:20
  SPEAKER_00: 100% agree with you.
• 29:21
  SPEAKER_00: It's more than you.
• 29:22
  SPEAKER_00: And so this is a good example.
• 29:23
  SPEAKER_00: Um, sometimes I see this example, Aristotle.
• 29:25
  SPEAKER_00: You tell me people will okay, so I've sold people's say fourplexes here in California, then they buy a house out of state that they lease for a period and then ultimately they end up using it after, I guess, a two or three year period.
• 29:39
  SPEAKER_00: Uh, is that something you see?
• 29:41
  SPEAKER_01: So you're saying it was a rental property and then they moved into it?
• 29:44
  SPEAKER_01: Yes.
• 29:45
  SPEAKER_01: And then they sell it or they're no?
• 29:47
  SPEAKER_01: No, after no, it becomes their house after they've rented it for several years.
• 29:50
  SPEAKER_01: Yeah, you can do that absolutely.
• 29:51
  SPEAKER_01: We have a lot of people who asked, and and we've had people say, hey, I want to retire in Hawaii in like 10 years, right?
• 29:57
  SPEAKER_01: I want to sell my pro I want to sell one of my properties here.
• 29:59
  SPEAKER_01: One of my investment properties.
• 30:01
  SPEAKER_01: Investment properties here, correct.
• 30:02
  SPEAKER_01: 1031 into a rental property in Hawaii, Honolulu, whatever.
• 30:05
  SPEAKER_01: And then as long as you're renting it out and you're documenting that for roughly two years or more, then you can move into that and then you can claim that as your primary home.
• 30:14
  SPEAKER_01: And then guess what?
• 30:14
  SPEAKER_01: When you go to sell that property down the road, capital gains are not realized.
• 30:18
  SPEAKER_01: They're gone because it's your primary home.
• 30:20
  SPEAKER_01: That's under tax because under tax return, you're gonna list that as your primary residence.
• 30:23
  SPEAKER_01: Yeah.
• 30:23
  SPEAKER_00: So that's a scenario where it's an investment property turned uh 1031 into an investment property that then turned into a personal residence.
• 30:31
  SPEAKER_00: Yeah.
• 30:31
  SPEAKER_00: So, anyhow, yeah, if you guys follow along, people do do that.
• 30:33
  SPEAKER_00: It is possible.
• 30:34
  SPEAKER_00: And so uh it's a great way to do it.
• 30:36
  SPEAKER_00: Yep.
• 30:37
  SPEAKER_01: Here's uh here's another one.
• 30:38
  SPEAKER_01: This is a really unique one.
• 30:39
  SPEAKER_01: So this guy was selling a motorcycle dealership, right?
• 30:42
  SPEAKER_01: He sell the property, of course, not the the stuff.
• 30:45
  SPEAKER_01: The business, right?
• 30:46
  SPEAKER_01: Not the business.
• 30:47
  SPEAKER_01: Um, and then uh this was in Missouri, and then he did a partial exchange, um, meaning that he uh he was a partner with his, I think it was his brother or cousin or something like that.
• 30:55
  SPEAKER_01: And his brother or cousin did not want to do a 1031.
• 30:58
  SPEAKER_01: He just wanted to walk away, right?
• 30:59
  SPEAKER_01: So he's gonna pay the taxes on whatever he doesn't invest.
• 31:01
  SPEAKER_01: But this gentleman invested uh his proceeds into like a restaurant that he owned.
• 31:05
  SPEAKER_01: So possible.
• 31:06
  SPEAKER_01: Um completely different asset classes, right?
• 31:08
  SPEAKER_01: Motorcycle dealership to restaurant.
• 31:10
  SPEAKER_00: It works.
• 31:11
  SPEAKER_01: It's just a business.
• 31:12
  SPEAKER_00: Um part of the issues that I've seen is um, and I guess if and if you could try to simplify this, the issues that I've seen sometimes when there's we're helping partners go off to the next place is um the IRS really has they want the the taxpaying entity that sold the current property to be the taxpaying entity that buys the next property.
• 31:37
  SPEAKER_00: And you can't like well now Will's gonna own it.
• 31:40
  SPEAKER_00: Like they have a problem with that.
• 31:41
  SPEAKER_00: Kind of walk us through so people understand what that is.
• 31:44
  SPEAKER_01: Yeah, so you're talking about title investing, that's a huge thing, right?
• 31:47
  SPEAKER_01: Yeah.
• 31:47
  SPEAKER_01: Um, so like in this case, I think it was just in their personal names, that's fine.
• 31:51
  SPEAKER_01: Same in California.
• 31:52
  SPEAKER_01: If it's if it's your brother, you and your brother, or you and your your cousin own a property, and you're in it's in your your individual names, you guys can split off, no problem.
• 31:59
  SPEAKER_01: Like during escrow, you can split off, right?
• 32:01
  SPEAKER_01: No big deal.
• 32:02
  SPEAKER_01: But if it's in an entity, like an LLC, which is common, and one partner wants to do an exchange and one doesn't, um, California, we have crazy laws here, I should say ridiculous laws.
• 32:11
  SPEAKER_01: Um uh they highly scrutinize on dropping and swapping, it's called right.
• 32:16
  SPEAKER_01: So dropping that person out of the LLC and then and then doing the exchange, right?
• 32:21
  SPEAKER_01: They don't like that right before you're getting ready to close.
• 32:23
  SPEAKER_01: So let's say you're an escrow and you come to me and you say, Hey, Aristotle, uh, I have this property and it's me and my uh my business partner, Jack, or we want to sell this property, right?
• 32:32
  SPEAKER_01: Jack doesn't want to do an exchange, we're in an LLC, he wants to go his own way.
• 32:35
  SPEAKER_01: That's gonna be a problem, right?
• 32:37
  SPEAKER_01: Um, I'm not saying you can't do it, but it's it's risky because in the event of auditing, what happens is in when you're an escrow, title would need to transfer property to tenants in common, right?
• 32:48
  SPEAKER_01: Um, out of the LLC, because one wants to do the exchange, one doesn't.
• 32:51
  SPEAKER_01: So let's say you're 50-50, so 50% tenants in common.
• 32:54
  SPEAKER_01: Um, but the California, they look at that and say, well, you know, uh Juan, you you you will you only hold this property in your own name for a couple weeks before you close.
• 33:04
  SPEAKER_01: You're supposed to own it for a year or two years to do an exchange, right?
• 33:07
  SPEAKER_01: They don't like that.
• 33:08
  SPEAKER_01: Um, any other state, not a problem.
• 33:10
  SPEAKER_01: Not a problem.
• 33:11
  SPEAKER_01: In any state but California, you can do this, right?
• 33:14
  SPEAKER_01: So my so my yeah, so my point is that you need to get uh and you you need to engage with the qualified intermediary before you even list your property if you have this type of scenario.
• 33:24
  SPEAKER_01: If you have multiple members on the LLC, some want to do an exchange, some don't, don't do that during escrow, right?
• 33:29
  SPEAKER_01: Because that's you're running to risk.
• 33:31
  SPEAKER_01: And the only thing you could do at that point is if you don't want to have to you know face an audit potentially down the road, is just do the exchange with everyone on it and do it and then you know transfer them off at a later date.
• 33:41
  SPEAKER_00: Aristotle, I and this is a perfect segue.
• 33:44
  SPEAKER_00: Um people must bring you like crazy off-the-wall examples all the time.
• 33:51
  SPEAKER_00: I got one, I got one that came up actually a couple days ago.
• 33:54
  SPEAKER_00: Okay.
• 33:54
  SPEAKER_00: Want me to tell you about?
• 33:55
  SPEAKER_00: Yeah.
• 33:55
  SPEAKER_00: So this I've never heard this.
• 33:57
  SPEAKER_01: Well, hold on, even before we go there.
• 33:58
  SPEAKER_00: Okay, okay.
• 33:59
  SPEAKER_00: I'm gonna let you share it.
• 34:00
  SPEAKER_00: But um if you have a regular question, it could be a crazy question, it could be off-the-wall question.
• 34:07
  SPEAKER_00: You you may not even uh you may be wondering, is this even legal to ask?
• 34:11
  SPEAKER_00: Ari, what's the best way to get a hold of you?
• 34:13
  SPEAKER_00: Just so someone could reach out to you.
• 34:14
  SPEAKER_00: Yeah, yeah, definitely.
• 34:15
  SPEAKER_01: Cell phone's the best.
• 34:15
  SPEAKER_01: It's okay.
• 34:16
  SPEAKER_01: 310-467-8122.
• 34:19
  SPEAKER_01: My cell phone, you can call, text me anytime.
• 34:22
  SPEAKER_01: Answer my phone on weekends, evenings, so ask you anything.
• 34:25
  SPEAKER_00: Ask me anything.
• 34:26
  SPEAKER_00: Because anything that I'm pretty certain that no one's gonna call you with a question you haven't heard yet.
• 34:31
  SPEAKER_00: You'd be surprised.
• 34:32
  SPEAKER_00: Okay, it is possible.
• 34:33
  SPEAKER_01: Okay.
• 34:33
  SPEAKER_01: All right, okay.
• 34:34
  SPEAKER_01: So but this this this this example I was gonna tell you.
• 34:37
  SPEAKER_01: So this gentleman, I I haven't heard this before.
• 34:40
  SPEAKER_01: This gentleman, he had an LLC with five members, five partners, and he sounds young.
• 34:44
  SPEAKER_01: He sounds probably in his like his 30s.
• 34:47
  SPEAKER_01: They own a rental property, which this gentleman who called me, he's one of the members, he rents it back from the LLC.
• 34:56
  SPEAKER_01: From right, he they wanted 1031 that property into a new property at a higher price point, but he wants to buy that same property that he's renting.
• 35:06
  SPEAKER_01: He can do that.
• 35:08
  SPEAKER_01: The reason why he can do that is because he is not he he is he he owns the same amount of share of the property as everyone else.
• 35:15
  SPEAKER_01: So let's just say he's 20 percent.
• 35:17
  SPEAKER_01: 20%, correct.
• 35:18
  SPEAKER_01: So um, if he owned more, that would be considered a related party transaction, and that is prohibited.
• 35:23
  SPEAKER_01: So uh, which, you know, for example, like you can't you can't buy your you can't 1031 into your dad's rental property.
• 35:30
  SPEAKER_01: That's a related party transaction.
• 35:31
  SPEAKER_01: The only way to get around that is if your dad did a 1031 into something else, then that's fine.
• 35:36
  SPEAKER_01: But you can't just do it.
• 35:37
  SPEAKER_01: So anyway, this it was very strange because the guy was leasing back the property.
• 35:40
  SPEAKER_01: Now he wants to buy the same property.
• 35:43
  SPEAKER_01: And so it's it's actually a fairly simple transaction, but it's like I've never heard that before.
• 35:47
  SPEAKER_01: Someone's leasing back a property and then they want to buy it with all members, and then he wants to also exchange it to a new property.
• 35:52
  SPEAKER_00: It's very so then so then he gets 100% of the current property and 20% of maybe the other property.
• 35:58
  SPEAKER_00: Correct.
• 35:58
  SPEAKER_01: That's yeah, smart, smart young man is what I would say.
• 36:01
  SPEAKER_01: Yeah, it's it's it's unique, but right.
• 36:03
  SPEAKER_01: But those types of things come up.
• 36:04
  SPEAKER_01: Can I do this?
• 36:05
  SPEAKER_01: Can I do that?
• 36:05
  SPEAKER_01: So now a couple couple more examples here.
• 36:08
  SPEAKER_01: Uh so this gentleman sold, or people, I think it was a husband and wife, they sold an 18-unit property in Seattle, I think is where it was.
• 36:14
  SPEAKER_01: It was like three six-unit buildings.
• 36:17
  SPEAKER_01: And uh, yeah, there it is.
• 36:18
  SPEAKER_01: And then uh they did an exchange into six brand new duplexes in Texas.
• 36:22
  SPEAKER_01: Yeah.
• 36:22
  SPEAKER_01: In different areas.
• 36:23
  SPEAKER_00: So again, they they were buying multiple properties from that from three.
• 36:27
  SPEAKER_00: Okay.
• 36:27
  SPEAKER_00: So okay, so so this is an example of it a lot of times.
• 36:30
  SPEAKER_00: People think that the that that the 1031 is to get to own more doors, hence, hence my podcast name, right?
• 36:38
  SPEAKER_00: But it is possible to to to downsize and maybe what they did here, I get it.
• 36:44
  SPEAKER_00: They went probably from an old maybe dilapidated property, maybe they saw it.
• 36:50
  SPEAKER_00: Not everything is in the path of growth, and sometimes things are going in a bad direction, and they're like, uh, we want new construction because we're tired.
• 36:57
  SPEAKER_00: I'm I'm sure this was the discussion.
• 36:59
  SPEAKER_00: We want to we want new construction, we're tired of the headaches, we're tired of maintenance stuff, buy new stuff.
• 37:04
  SPEAKER_00: And they actually bought less, but it still made sense.
• 37:06
  SPEAKER_00: Right, right.
• 37:07
  SPEAKER_01: Yeah, because it just depends on where you're at in your life.
• 37:09
  SPEAKER_01: I mean, I mean, you know, are you are you at that age where you just don't want to deal with that stuff anymore?
• 37:13
  SPEAKER_01: Or maybe you're more hands-on, like yourself, and you want to roll up your sleeves and do the work yourself.
• 37:17
  SPEAKER_01: I don't know.
• 37:18
  SPEAKER_00: I I always tell people, look, um, and only because of like the different age spectrums that I deal with.
• 37:24
  SPEAKER_00: You know, it's young, I mean, old, everything.
• 37:28
  SPEAKER_00: And so I noticed that if you're young, you're trying, you're on the offensive.
• 37:34
  SPEAKER_00: And I always, and I never played soccer, but I always use this analysis, like you're like trying to shoot shot after shot, you're you're passing the ball, you're trying to, you're trying to go down the field.
• 37:43
  SPEAKER_00: And I noticed that when you get much older, you're on the defensive.
• 37:46
  SPEAKER_00: You're no longer, you're like, hey, I don't need to grow anymore.
• 37:50
  SPEAKER_00: I'm already risking first.
• 37:51
  SPEAKER_00: Yes, and you you are now just trying to hold on to victory and stall the clock.
• 37:55
  SPEAKER_00: That's that's the for lack of a better uh scenario, that's what I think it's like.
• 38:00
  SPEAKER_00: And so it just depends on where you're at.
• 38:01
  SPEAKER_00: You're absolutely right.
• 38:02
  SPEAKER_00: Correct.
• 38:02
  SPEAKER_01: Yeah, uh, a couple more here.
• 38:04
  SPEAKER_01: Let's see.
• 38:04
  SPEAKER_01: We've got sure let's go.
• 38:05
  SPEAKER_01: These are five.
• 38:06
  SPEAKER_01: Um, yeah, this uh client sold a single family in uh in Cambria, California, and then they exchanged into an eight unit in Nashville.
• 38:13
  SPEAKER_02: Interesting.
• 38:14
  SPEAKER_01: Talking about 20 more doors.
• 38:16
  SPEAKER_01: So that was a really unique property, the the one that they sold because that was um, I believe it was like two homes on one lot, or maybe one home with like like two parcels.
• 38:24
  SPEAKER_01: I think it was two parcels actually on one lot.
• 38:26
  SPEAKER_01: Uh very interesting.
• 38:27
  SPEAKER_01: It took a long time to sell that property, but uh but Cambria is a beautiful area, Central Coast.
• 38:31
  SPEAKER_00: I mean, it's took a long time to sell for some reason.
• 38:34
  SPEAKER_00: Okay, well, maybe they got a premium on on price because it is not cheap up there.
• 38:37
  SPEAKER_01: Yeah.
• 38:37
  SPEAKER_01: So this next example is gonna blow your mind.
• 38:40
  SPEAKER_01: This is you're talking about only more doors.
• 38:42
  SPEAKER_01: This client sold a medical building in California.
• 38:45
  SPEAKER_01: I think it was around like six million.
• 38:46
  SPEAKER_01: So medical office.
• 38:47
  SPEAKER_01: Medical office, yeah, sorry.
• 38:48
  SPEAKER_01: Uh, and purchased 50 or more.
• 38:51
  SPEAKER_01: I think it was more than 50 replacement properties in different states, all the time.
• 38:55
  SPEAKER_01: California, I mean everywhere.
• 38:56
  SPEAKER_01: It was, and they they now they added um they added more to their portfolio, I think, as far as the dollar amount, because I think they I think their portfolio was like 12 million or 18 million, whatever it was.
• 39:08
  SPEAKER_01: They they exchanged it to a lot larger.
• 39:10
  SPEAKER_01: So they increased their net worth, their net worth more than doubled, I think, is what happened on that property.
• 39:14
  SPEAKER_01: And that's the other thing, too.
• 39:16
  SPEAKER_01: It's it's owning more doors gets you that higher net worth, it gets you that cash flow, it gets you where you, you know.
• 39:22
  SPEAKER_01: So that was an amazing deal.
• 39:24
  SPEAKER_01: I mean, um, but can you imagine identifying all those properties?
• 39:27
  SPEAKER_00: Well, you know what here's the thing though, is I I just want people who are listening to say, you know what, people do it all the time.
• 39:33
  SPEAKER_00: Yeah, I I think people and I talk to them, and that they're they're they're in my database now, and they're we're resisting selling a property when we know we want out.
• 39:43
  SPEAKER_00: Ah, we're tired of it.
• 39:44
  SPEAKER_00: You know what?
• 39:45
  SPEAKER_00: Uh, you know, sometimes a situation where like the husband bought the building, then they passed, the wife now has it, and it it's it's not what they wanted.
• 39:54
  SPEAKER_00: And but sometimes they're afraid, well, what what am I gonna buy?
• 39:57
  SPEAKER_00: But to your point earlier, you have to know what to buy.
• 39:59
  SPEAKER_00: If someone calls me and they're like, we'll look anywhere, I'm like, nope, I'm sorry, I can't work with you.
• 40:03
  SPEAKER_00: And like, I'm I'm like, look, you have to know where you're gonna buy.
• 40:07
  SPEAKER_00: You have to, because otherwise, there's no way that I could be of value to you if you just say, I'll consider anything anywhere, anytime.
• 40:12
  SPEAKER_00: Nope.
• 40:13
  SPEAKER_00: Right, I can't take you on as a client.
• 40:14
  SPEAKER_00: Those are high.
• 40:15
  SPEAKER_00: It's just because I don't even know where to start.
• 40:18
  SPEAKER_00: You have to have an area.
• 40:19
  SPEAKER_00: And it's okay.
• 40:20
  SPEAKER_00: Sometimes if you start and you're like, look, one, uh, I'm thinking somewhere in Southern California.
• 40:23
  SPEAKER_00: I'm like, all right, let me just send you some examples and let's start looking at some.
• 40:26
  SPEAKER_00: I want you to see cap rates, I want you to see the returns, um, drive by them, and then we'll go from there.
• 40:32
  SPEAKER_00: Um, one interesting thing that's happening, which you know, a lot of times people think that it's uh people leaving California, selling assets in California because they've gone up so much in value and they're gonna leave.
• 40:41
  SPEAKER_00: We're we're having clients sell properties out of state and they want to buy rental income properties here and they want to be by the water, and they're like, you know what, we're gonna keep one vacant because we're gonna Airbnb it when we're not here and we're gonna use it, or our kids are gonna be going to uh Irvine or USC or UCLA, and we just want a place to be close to the beach and we'll buy an eight-unit building.
• 41:01
  SPEAKER_00: So I've seen it in reverse where people are contacting us and you know, they're finding us thanks thanks to this podcast YouTube channel, and it's not always one way, like people fleeing California.
• 41:12
  SPEAKER_00: That's not that's not always the scenario.
• 41:14
  SPEAKER_00: People don't really realize how many people are actually coming into the state.
• 41:17
  SPEAKER_00: Yeah, right.
• 41:17
  SPEAKER_00: I mean, there's a lot of people coming in.
• 41:19
  SPEAKER_00: Well, the narrative is that we're fighting each other to get to the border because we're we want out of California.
• 41:23
  SPEAKER_00: You know, I'm looking outside the window right now.
• 41:25
  SPEAKER_00: It's it's a beautiful uh mid-October day and it's it's really, really nice.
• 41:29
  SPEAKER_00: Right, right.
• 41:30
  SPEAKER_01: So uh two more examples where we can wrap up here.
• 41:32
  SPEAKER_01: So uh this is a pretty basic one.
• 41:34
  SPEAKER_01: Someone uh had a condo in Irvine, it went up quite a bit in value.
• 41:37
  SPEAKER_01: They owned it for I think probably 10 or 12 years, and then they ended up buying a fourplex in Costa Mesa.
• 41:41
  SPEAKER_01: Costa Mesa has a lot of really cool fourplexes like Covington fourplexes and expensive, expensive, yeah.
• 41:46
  SPEAKER_01: One point, two million, one point eight, whatever.
• 41:48
  SPEAKER_00: Yeah, yeah.
• 41:49
  SPEAKER_00: I mean, I would I would average out the the average four plus fourplex there is probably two million, where in Long Beach it's under one four.
• 41:54
  SPEAKER_00: I mean, it's Costa Mesa doesn't have as many fourplexes, but they are they are in demand.
• 41:59
  SPEAKER_00: And this is a very smart move.
• 42:00
  SPEAKER_00: And I, you know, if you've been listening to my channel, you know that I'm telling you right now is to sell the small stuff for the big stuff.
• 42:06
  SPEAKER_00: Doesn't have to be a five plus, doesn't have to, although that's what I would recommend you do.
• 42:09
  SPEAKER_00: But going from a condo to a fourplex, condo to a triplex, brilliant idea right now.
• 42:14
  SPEAKER_01: Yeah.
• 42:14
  SPEAKER_01: And this last one that's a typo there.
• 42:16
  SPEAKER_01: I think I just forgot the the right, but this one, this was a um, it looks like a duplex.
• 42:21
  SPEAKER_01: This person's bought a duplex and and then they ended up, or they sold the duplex and they ended up buying a a couple, like two duplexes, uh maybe different areas, different markets, something like that.
• 42:30
  SPEAKER_01: So the wording's incorrect there, but that they those are the pictures of the properties they bought.
• 42:34
  SPEAKER_01: So um, so my whole point is that like you don't have to sell a single family home and buy a single family home rental, right?
• 42:40
  SPEAKER_01: You don't need to sell a duplex and buy a duplex.
• 42:42
  SPEAKER_01: You can do whatever you want as long as the value matches.
• 42:44
  SPEAKER_01: That's that's the one of the requirements that the IRS requires is that you have to purchase something equal to or greater than the net sales price that you sold for.
• 42:52
  SPEAKER_01: That's all.
• 42:53
  SPEAKER_01: That's all they care about.
• 42:53
  SPEAKER_01: And that you're using all the proceeds.
• 42:55
  SPEAKER_01: And then you defer your uh gains 100%.
• 42:58
  SPEAKER_01: So it doesn't matter what you buy.
• 42:59
  SPEAKER_01: You can even buy, I don't know if you know much about cell phone towers.
• 43:02
  SPEAKER_01: I've I'm getting kind of learning about them, but those are investment cell phone towers, right?
• 43:06
  SPEAKER_01: You can buy, you know, they call it air rights.
• 43:09
  SPEAKER_01: You can, you know, buy a cell phone tower for air rights or buy land that has an oil well.
• 43:13
  SPEAKER_01: You know, in Signal Hill, they have those oil wells, you know.
• 43:15
  SPEAKER_01: You can buy a piece of land with oil well on it that counts as uh for 1031 exchange.
• 43:19
  SPEAKER_00: Aristotle, give me some unique stuff.
• 43:20
  SPEAKER_00: You know, you're talking about uh cell towers.
• 43:22
  SPEAKER_00: Like what other unique things that are maybe people don't think of uh doing a 1031 either out of or into that you've seen?
• 43:29
  SPEAKER_01: Well, uh vacant land is a big thing.
• 43:31
  SPEAKER_01: You know, California, we don't, we know we're not building enough land, so to speak, right?
• 43:35
  SPEAKER_01: And there's actually not as much land, but like I see people exchanging out into like places like um uh Apple Valley, Victorville area with a lot of manufacturing and um and things.
• 43:45
  SPEAKER_01: So you can buy land and you can build on it.
• 43:47
  SPEAKER_01: That's another thing.
• 43:48
  SPEAKER_01: We we do something what's called an improvement exchange.
• 43:50
  SPEAKER_01: That's when you sell your investment property and you use the proceeds to build.
• 43:54
  SPEAKER_01: So that's a possibility.
• 43:56
  SPEAKER_01: But California doesn't really work that well because you got to build everything, you got to do everything within 180 days.
• 44:01
  SPEAKER_01: Yeah, good luck.
• 44:02
  SPEAKER_01: Good luck with that, right?
• 44:02
  SPEAKER_01: Yeah, yeah.
• 44:03
  SPEAKER_01: So um, but improvement exchanges are a big thing.
• 44:05
  SPEAKER_01: Um, what else?
• 44:07
  SPEAKER_01: Um yeah, like I said, uh light in uh flex space is pretty big thing.
• 44:10
  SPEAKER_01: You've heard of flex space?
• 44:12
  SPEAKER_01: Yeah.
• 44:12
  SPEAKER_01: So um we've had someone recently uh sold a, I think it was like a duplex they sold, or maybe a triplex, and then they exchange into like a uh um a flex space.
• 44:22
  SPEAKER_01: Flex space is like a little bit of office up front and then like a big warehouse in the back or whatever it might be, right?
• 44:27
  SPEAKER_01: Um distribution is a big thing too, you know, distribution like uh warehouses, distribution uh buildings.
• 44:33
  SPEAKER_01: That's a big thing people exchange into.
• 44:36
  SPEAKER_01: Um because um and then um uh triple net properties, right?
• 44:39
  SPEAKER_01: If you can get yourself into a triple net property, those are pretty awesome too.
• 44:43
  SPEAKER_01: Um I don't know, do we want to talk about DSTs or anything like that?
• 44:47
  SPEAKER_00: That's probably more for another show, but one thing that I did want to ask you, because sometimes I do see this, you know, sometimes um uh people don't they're they're they buy something that they didn't necessarily love, but they didn't want to pay the taxes.
• 45:03
  SPEAKER_00: And so like, hey, the time's coming due.
• 45:05
  SPEAKER_00: They just bought something.
• 45:06
  SPEAKER_00: And I'm not saying it was a bad investment, they just bought something.
• 45:10
  SPEAKER_00: It wasn't their first choice, but it was better than paying 30-40 percent in taxes, right?
• 45:15
  SPEAKER_00: So they bought a property that maybe wasn't like one of their top three, but they're like, you know what, the other two were taken or whatever happened, they they had to close on something.
• 45:26
  SPEAKER_00: How long do they have to cl uh hold on to that before they retrade again?
• 45:30
  SPEAKER_00: At least a year.
• 45:31
  SPEAKER_00: Okay.
• 45:31
  SPEAKER_00: At least 12 months.
• 45:32
  SPEAKER_00: All right.
• 45:32
  SPEAKER_00: So it's it's so so for the people listening, like if they think, oh my gosh, I'm gonna pay tax.
• 45:37
  SPEAKER_00: Who says you have to pay taxes?
• 45:39
  SPEAKER_00: Go buy something.
• 45:40
  SPEAKER_00: Well, I don't love it.
• 45:41
  SPEAKER_00: Well, that's fine.
• 45:42
  SPEAKER_00: Just buy it for now.
• 45:43
  SPEAKER_00: It just buys you another year.
• 45:44
  SPEAKER_01: Hold on to it for a year or two and then tell if it makes sense to sell it.
• 45:47
  SPEAKER_01: Correct.
• 45:47
  SPEAKER_01: Um, but one thing I want to note too, real quick before I wrap up, is um you can do a partial exchange, right?
• 45:52
  SPEAKER_01: So that means that you don't use all the proceeds to buy a property, right?
• 45:56
  SPEAKER_01: Let's say you want to roll some of the property into a DST or you just want to hold some of it for a rainy day or something, right?
• 46:03
  SPEAKER_01: Whatever you withhold or you keep, you're taxed on.
• 46:05
  SPEAKER_01: But let's say, but but that doesn't that doesn't stop you from doing an exchange.
• 46:08
  SPEAKER_01: You can exchange in your property, and let's say you have an extra hundred thousand left over, give or take.
• 46:13
  SPEAKER_01: You can keep that if you want, you'll be taxed on that, but on that hundred thousand dollars, but at least you bought a property, you exchange, and then you can keep the rest of it for uh whatever you need, reserves or or a DST or some other investment that you are thinking about.
• 46:26
  SPEAKER_00: Got it, you got it.
• 46:27
  SPEAKER_00: Um, Aristotle, thank you so much.
• 46:28
  SPEAKER_00: We're gonna keep having you back.
• 46:30
  SPEAKER_00: Um, hopefully, people, if you guys like what we talked about today, let us know in the comments.
• 46:34
  SPEAKER_00: Give us some likes, give us some questions.
• 46:36
  SPEAKER_00: Uh, make sure you reach out to Aristotle.
• 46:38
  SPEAKER_00: Aristotle, please give us your phone number one more time.
• 46:40
  SPEAKER_00: I want people, I want your phone to ring because of this.
• 46:43
  SPEAKER_00: Sure thing.
• 46:43
  SPEAKER_00: Thanks, Juan.
• 46:44
  SPEAKER_00: Uh, so it's 310 467 8122.
• 46:49
  SPEAKER_00: Cool.
• 46:49
  SPEAKER_00: And we're gonna have uh his information uh in the show notes.
• 46:53
  SPEAKER_00: Thank you so much for listening.
• 46:55
  SPEAKER_00: Until next time.
• 46:56
  SPEAKER_00: Thanks.