Episode Transcript
[00:00:00] Speaker A: A qualified intermediary like myself comes in where we help administer the transaction on behalf of the exchange.
[00:00:06] Speaker B: Or yeah, I've had some people in the past go, well my lawyer's just going to be my qualified intermediary or my CPA is going to be my qualified intermediary. What's the problems with that if they try to do that?
Hey everybody, welcome back to Trust this today's a tactics and Tips Tuesday.
I'm Joe Seal, your real estate asset protection lawyer here in Orlando, Florida and today I have the joy of meeting Michael Velasco, who's the founder and qualified intermediary for Exchangeable llc. Michael has extensive expertise in standard reverse and improvement. We're going to explain what those are exchanges.
Michael is one of less than 100 certified exchange specialists in the country.
We're also going to explain what that is a little bit later.
Michael's also founded and owned a Scottsdale, Arizona based accounting firm giving him deep knowledge of tax codes, depreciation and entity structures. His diverse background includes property management, legal expert witness testimony, property rehab, flipping projects, contract for deed and alternative financing, and significant experience with short sales and REO properties for banks such as Fannie Mae, Countrywide, bank of America and Chase. He holds bachelor's degree in management from Colorado Christian University as a proud member of the Federation of Exchange Accommodators and he lives in Old Town Scottsdale. Michael, welcome to Trust this Tuesday.
[00:01:33] Speaker A: It is great to join you and Joe and I were just having a little bit of a sidebar before we started on all of the exchange the issues in exchange right now and I'm excited to kind of jump on with you guys and share my knowledge and get in the proverbial weeds on some of these 1031 exchange issues. So I'm happy to be here Joe, and really excited.
[00:01:56] Speaker B: First of all, just for the really basic what is a 1031 exchange and what kind of property can be exchanged in a 1031 exchange?
[00:02:04] Speaker A: Yeah, so great question. Prior to the 2017 tax and jobs act that was enacted, you could exchange personal property and now we can just do real property. And I think that's the biggest where most of the confusion comes in in regards to 1031 exchange is it is the trading or transfer or exchange of real property to avoid or to defer taxes, long term capital gains, depreciation, recapture on a piece of real estate. And where the confusion comes in is the term like for like. And the term like for like just means real property for real property. So you can exchange land in A single family. Single family into commercial and everything in between. We can even do oil royalties. There's some exotic DST instruments as well, which we'll get into maybe a little bit later. But the point is, you can exchange any real property for any real property as long as it's equal or greater value and an investment property. IRC 1031 gives us all the guidelines, and that's really where a qualified intermediary like myself comes in, where we help administer the transaction on behalf of the exchange. Or.
[00:03:19] Speaker B: Yeah, I've had. I've had some people in the past go, well, my lawyer's just going to be my qualified intermediary, or my CPA is going to be my qualified intermediary. What's the problems with that? If they try to do that?
[00:03:29] Speaker A: Yeah. So you got to be careful in 1031, using a disqualified party. Your age, real estate agent, your attorney, your cpa, not all of those are disqualified parties. So you really need a third party that's neutral to step in and help handle the funds of the transaction and help you administer and answer all your questions. So using your own attorney, it just isn't. They become disqualified, and the exchange would be compromised if you. If you used a disqualified party.
[00:03:56] Speaker B: Yeah, that's one of the things we were talking about before we came on.
I used to work for a title agency that we also acted as qualified intermediary. And I never felt comfortable with that because I was always scared that we were disqualified because we were also attorneys who had represented a lot of the parties in the past. And I'm like. I'd always tell my boss, I'd be like, man, I don't think we're allowed to do this. Yeah, keep on going. We're fine.
[00:04:18] Speaker A: Yeah, so you got to be careful on that. I think there are large title companies that.
Large qualified intermediary companies that are owned by title companies, and they act as QIs, and there is special exemption in the code for title companies. I think where in some states, particularly back east, where you have attorney closing states. Back west, we all have title companies out here. Back east, we have attorneys that help. Well, if the attorney's also representing the client in some capacity, then, you know, at that point, you know, they'd have to send it to another company to do the QI work. So. So it's definitely more on the east coast. More something that needs to be thought through before an attorney actually acts as a qualified intermediary.
[00:05:05] Speaker B: Well, and my thing is, I always just send people out because it's not Just that it's also.
[00:05:10] Speaker A: It's.
[00:05:10] Speaker B: It's complicated. I mean, you've got a forward exchange. Explain what a forward exchange is and that, because that' really the simplest one and it's not completely simple, is it?
[00:05:19] Speaker A: Yeah, I think. And Joe and I were talking about this a little bit before we got on air. It's the nuances of this business. It's. Everybody thinks it's just such a straightforward transaction, but there are so many different types of exchanges. And then within those exchanges, there's just. It's riddled with nuances and to kind of visit with you on what a forward exchange is. A forward exchange is your most basic exchange, where you're taking a relinquished property, a property you own already, and you sell that property. The funds go to the Qi, and then you have 45 days to identify a replacement property and 180 days to close it. When you find that replacement property, you'll go under contract and then the QI will send the funds to the title company as a closing attorney and close the transaction. So that's the simplest and one that's probably most elementary, that is probably used as the most common as well. And so after you sell the relinquished property, you're tasked with a tight timeframe of 45 days to identify. And that's really where in a forward exchange, people tend to like them the least, because they have such a tight timeframe. So in terms of actual practicality, a lot of the clients and investors are shopping for a replacement property a lot of times before they even sell the relinquished property. You know, working on getting under contract, perhaps with a contingency. And so I think that's your greatest constraint. And the biggest complaint we get from people exchanging their property is 45 days to identify is not a lot of time. So.
[00:06:56] Speaker B: Right. Yeah. And I've run into that with clients that they just don't have time to identify. I think you can identify up to 3 or it's also based on value. And they often run into that problem. It's like, I can't find anything.
So then sometimes they end up with a reverse exchange. So explain how a reverse exchange works.
[00:07:19] Speaker A: Yeah, and reverse exchanges for those investors out there that have a portfolio of relinquished properties and maybe some access to liquidity. Because in a reversed exchange, you're acquiring the replacement property first.
And the reason why maybe more advanced investors, those with a portfolio and those to access the capital, like it so much, is they can take their time to acquire the replacement property and they wait for the right deal to come along. And then they go under contract and we use what they call an EAT LLC or a parking instrument to hold title to the replacement property. Because in a 1031 exchange, one of the rules is you can't own the replacement property and the relinquish property at the same time.
So the IRS gave us revenue procedure in 2000 and that revenue procedure is 2037 where they said you can create an eat LLC, which is a fancy term for an LLC that we're going to create that's owned by the QI, because I'm acting as the exchange accommodator and the escrow holder. And and so we're going to hold title to this property in this llc and then at the end of the once we acquire the replacement property. And that requires capital, right, Because Joe, we haven't sold the relinquished property. Right. So we have a capital problem because without selling the relinquished property, we don't have the liquidity to close on the replacement property.
So the other issue in a reverse is to access the liquidity if you have the funds and you can close on it. A lot of investors choose to do that because they can close quickly on the replacement property, get a really good deal that hits the marketers, perhaps off market, we can close in the EAT llc.
Then we go to the relinquished property, our portfolio or the property we know we're going to list, get it listed, get it sold.
Once the relinquished property sells, we now have a liquidity event, right. We have capital. We can then reimburse the taxpayer for any funds they brought to acquire the replacement property. And at that point we transfer the entity, the LLC over to the taxpayer and we have a good exchange. And so that needs to be done within Safe harbor. And we can maybe have a non safe harbor dialog here in a little bit. But in safe harbor, you have 180 days to sell the relinquished property. We already know what the relinquished property is, so identification becomes less of an issue.
But we have 180 days from the date we acquire the replacement property to, to close on the relinquished property and transfer the entity.
[00:09:56] Speaker B: So, so you gotta find a buyer for the re relinquished property pretty quickly and get that.
[00:10:01] Speaker A: We do, yeah. We gotta PRI and prices, especially in this market and we're talking here, September of 2025, we, we better price that relinquished property correctly.
[00:10:11] Speaker B: Yeah, yeah, yeah, yeah, yeah. It's definitely turned into a buyer's market out there.
All across the Sunbelt.
[00:10:18] Speaker A: Yeah, yeah, across the country.
[00:10:21] Speaker B: So what's an improvement exchange?
[00:10:23] Speaker A: So an improvement exchange we're going to do the same thing as we did with the reverse. We're going to use an eat LLC to hold title the property. So let's say we've got a property in Orlando that needs.
And for easy math, we've got a relinquished property worth 300,000. Right. We're going to sell for 300,000. We sell that property and we have 300,000 in the account. Let's assume it's all cash. We have 300,000 in the account, we find a tremendous deal in Orlando for $200,000. I know that's not really possible in this market, but let's say we do, and it needs $100,000 improvements. So we're going to take 200,000 of it of the funds from the relinquished, and we're going to close on the replacement property with $200,000. We that means we've got $100,000 left in the account.
We can then use those funds to improve the property.
And in order to do the equal or greater value, the other rule we didn't really talk about is if we sell at 300, we have to buy at least $300,000 in real estate for full deferral. So we take the 200,000, we close on this fixer upper, we use 100,000 in your exchange account to pay contractors to improve the property to the equal or greater value of 300,000. And then at that point we transfer the entity just like we did in a reverse exchange. But the improvements need to be done prior to you taking title to the property. And so it's called an improvement exchange. They're tremendous for adding value to, especially in the multifamily space where we're stepping in and adding value. Or if you just want a rental property that doesn't want, doesn't have a bunch of repairs, you're not going to get nickeled and dimed. You go and fully renovate the property. The only constriction on that, Joe, is 180 days to get it all done. And as you know, working with contractors over the years and your clients working with contractors over the years, that could be probably the most challenging thing, is to make sure these contractors are on time and we get everything done at the property within 180 days.
[00:12:21] Speaker B: Now that 180 days starts running when you sell the relinquished property, Is that right?
[00:12:27] Speaker A: Correct. Yeah. So in a forward improvement exchange, you really need to have your replacement ready to go and close on it quickly so we could start the improvements. Yeah, because if, if you close on the relinquished property and Then, you know, three months goes by and you finally close on the replacement. Well, that 180 days just got chopped in half. Now we got 90 days to get the improvements done. And that can be, that could be problematic, you know. So you want to have your replacement lined up quickly.
[00:12:57] Speaker B: Yeah, and I've had people get mixed up on those time deadlines. They thought, oh, it's 45 days and then 180. No, everything runs concurrently. It's 45 days and everything's from the date you relinquish the property. You're relinquishing to buy the replacement.
[00:13:14] Speaker A: Yeah, that's 145 days to identify the replacement property and all the improvements we're going to do to the replacement property. So when we identify, we're not just identifying the replacement property, but all of the repairs and we usually take. That sounds really confusing, but we just take a bid from the contractor typically and we've got the property address of the replacement and then kind of all the things we're going to do to it and those have to be, you know, substantially the same as what they call it. You know, we have, whatever we were identifying, we're improving. Those have to be substantially the same. So you can't just throw a bit on there and do half the work. You really need to, you know, take some time to make sure that those, those identification of the, the improvements are correct.
[00:14:05] Speaker B: A great tax code term. Substantially the same.
Yeah, Reasonable time. They love to use those kinds of things.
[00:14:13] Speaker A: They love using words like we talk about that all the time. Substantially the same. Does substantially the same mean 50% of the improvements we identified or does it mean 80% or. And so these are the interesting nuances that happen, Joe, like we were talking about a little bit earlier, is these. The nuances of the business are the, are the things that are really where you need to, you need to have an expert on your, on your team that really knows that either your cpa, tax attorney or counsel like yourself.
[00:14:42] Speaker B: So well, and, you know, looking at pricing, I know just the simple foreign exchange is probably the, the most cost effective way to go for a 10:30 exchange as far as what you're going to pay for a qi. And then prices go up depending on the complexity from there.
[00:15:00] Speaker A: Correct. Yeah. So in, in, in my world, or at least for my company, you know, Forward exchange is 1195 all in for your replacement, your relinquished property. To kind of give you some context, an improvement exchange started 84.50 and so did my reverse exchanges. So there's significantly more and you basically, the taxpayer may be saying, why is it so much more? Well, we're holding title to the property.
We've got a document suite for these which is really extensive and expensive.
And then we're usually creating an entity, an EAT entity. And I'm having to file while I am in possession of this property, I also file a tax return for the time that I own the property. And so that is a revenue procedure that we have to follow.
And believe it or not, Joe, which is interesting, we had a QI in California not file a tax return for the EAT LLC during the time that they owned it. The state of California disputed the exchange because the QI did not correctly and put that on their tax return. And so we had an actual California surprisingly caught it and disputed the exchange because of it. So, you know, having a QI that really knows this stuff and really is thorough about what they're doing and the reporting so that it doesn't compromise your exchange.
[00:16:21] Speaker B: Well, that brings me around to, you know, we talked also before we started of, you know, what is the regulation, what are the regulations out there on qualified intermediaries, licensing or bonding? Is there any nationwide standard that they all have to comply with or how is that handled?
[00:16:42] Speaker A: Yeah, it's, it's a real. That is a really interesting question, Joe, because there are in some states very limited regulation and in Arizona, for example, very next to none on the regulation front. But most, not most of the states, a lot of the states have incorporated a bonding and, you know, insurance regulation for doing exchanges, meaning you have to have half a million dollars in E and O insurance and then at least a million dollar fidelity bond or crime bond, which just really protects the clients.
And then on a national level, the Federation of Exchange Accommodators is a great organization that oversees the ethics of exchanges and also has a lot of say in how we hold the funds are exchange funds and really qualified escrow accounts, which means the taxpayer has to sign off on a movement of funds and also they have to be in separate accounts.
And then there are states that are crazy regulations like Idaho, which I happen to have a QI license in Idaho, where they really require you to get an escrow license or a title license. And it's pretty significant. Yeah, the underwriting package is about that thick.
And I went through the process because I do a lot of exchanges out of Idaho. And so I had to have a license to do that. So it's important that.
And then lastly, I'll tell you, Joe, before I get into what's important, I'm a certified exchange specialist too, which is kind of like a CPA designation for an accountant. Not all accountants are CPAs. Right. They have to go through a certain amount of testing and schooling in order to get the designation. Same for a Cesar.
I have continuing education credits I got to get.
And there's certain regulatory stuff that we have in regards to the CES designation. So whether you pick my company or another company, I think two things. I'd look for FEA as a member because they oversee the ethics of QIS and how we handle those escrow accounts.
And then also CES designation just says that, you know, they're even more qualified. So those are the things I would look for.
And, you know, I asked some tough questions. Where's the funds held? Are they held in a separate account with. Under my name? You know, do I get to sign off on any movement of funds? So those are the things that I, you know, if I'm an investor, those are the things that I look for.
[00:19:13] Speaker B: Yeah, it's like we were talking about too beforehand years ago. Land America, massive $2 billion company, and they failed in the Great Recession. And all that money that they were holding, they failed because they were playing with the money they were holding in escrow for the. Accommodate for the. For the. As the intermediary. And the money went away one night, never came back. And all $2 billion worth of exchanges across the country just failed. And the IRS gave no leniency. They said all your exchanges are all failed and you're going to have to pay tax, capital gains and all your depreciation recapture. All that gets paid now because your qualified intermediary failed.
[00:20:02] Speaker A: Which is kind of a pivotal moment in this industry, Joe, is that how could you lose that much money for clients? And so when we hold funds, it's merely a savings money market account is where we hold the funds. And anything else that the QI is doing with the funds, to me is a problem, you know, and it should be held in something.
The good thing about just having it at a national bank, we use a Raymond James bank. There's not a lot of banks. Here's the issue. There's not a lot of banks that know how to handle QI funds and sub accounts. Like, you can't go down to Chase and get them to open a bunch of sub accounts for you. So they're typically regional banks, commercial banks that really do a good job with this.
But you want to, you know, you want to have it in a, in a, in a bank that's been, you know, aaa Rated all that kind of stuff. And that's what we do.
And I think the, the comforting thing.
[00:21:00] Speaker B: For.
[00:21:03] Speaker A: Taxpayers in regards to big large national banks or banks that are big enough to where that own maybe a regional bank that, you know, we haven't lost funds in a Bank in 40 some years. No clients actually lost funds. Now if you're moving the funds offshore or buying mortgage backed securities with the funds, that's a whole different issue. But an actual bank failures, it's pretty comforting in some ways to me that the government has stepped down even within the last couple years with some of the bank failures on the west coast there, that they stepped in and made it right for the client. So I think, at least from that perspective, that's what I think about too is that the government seemed to be, you know, if it's just a normal checking account, savings account, they seem to be backing that even more.
[00:21:56] Speaker B: Yeah, we saw that after the great crash that they, they still backed all the trust accounts that lawyers and title companies had because it, they definitely exceeded the $250,000. They did in a lot of cases.
[00:22:09] Speaker A: They did. And we talk about FDIC and it's like, well, the government's kind of, it seems they've kind of set the precedent that they're going to protect the Americans funds as they should, in my opinion. As they should. Like this is a, this is a huge issue that could cause, run on banks and other issues that can. Right. If we have that kind of distrust in our financial, you know, industries. Yeah, right.
[00:22:32] Speaker B: Well, I want to go back to identification because I've had some clients run into this problem that they can't identify enough properties. So one, one client of mine, he does this a lot and one of the things that he does is he always, his third choice on his identification form is always a dst.
Can you explain maybe how that works or what, what I'm talking about when I say dst because I've had so many clients call me and say I can't find anything to identify.
And I go, well I go well look into a dst. And they go, what's that? I said, and I always go talk to the intermediary. They can help you with that.
[00:23:11] Speaker A: That's not exactly, exactly. Well, let's start with what a DST is. So it's a Delaware statutory trust. And this is just an acronym for a kind of an investor pool that typically owns a larger commercial property. And DSTs are all in all different types of investments. It could be a land dst, it could Be a commercial building. It could be a strip mall, it could be a hotel, which, which is an interesting place. So they have all different types of DSTs. They have some that have debt where you maybe are, are replacing debt on a property. They have some that are all cash.
And you're mostly going to see returns between 4 and 7%. We also have energy kind of style DST where you can purchase oil royalties with it. That's actual real property. So the DST is just a conglomerate, let's call it, of other 1031 investors purchasing larger commercial properties typically.
So what's great about that, it gives you great flexibility because there's so many of those and they're always open for identification that, like your client, Joe, that's identifying the third property as a DST just in case the other two properties fall apart. We have a fund we can go to that we can put our funds in and not pay taxes. I would tell the clients, vet, vet, vet, anytime you're going to do a property into a DST because there are, there are some, some issues with DSTs. I had a client, not a client of mine, but a client of another, another qi that put $2 million in a DST and never received a fund and the fund went bankrupt. So somebody that's been doing it a long time, a group that's been doing a long time, has a tremendous track record at any time real estate could, you know, have it. We could have another big crash. We don't, we can't control that. And that's the risk of anybody that's an investor. Right.
But it is important that you kind of vet who you're going into and what industry that you're going to be in. Right. Commercial office hasn't been great since, since 2020. Right.
But there may be some opportunities now for getting into office because the prices are so cheap, you know, so those are things you got to kind of think through strategically about how you're investing in some of the, some of the funds.
But let's get back into the identification of the identification rules because that's important as well.
In a forward exchange, we have the opportunity to identify up to three properties. Okay. And there's a couple of rules. You can change that identification anytime up to the 45th day. And so your client is identifying two properties that they might buy and a DST.
Well, if you just said, hey, I want to buy three properties, we better make sure that at least one of those is going to be available for us to go under contract with what I tell clients is identify 3. Go try to go under contract and through inspection period on at least one of those. Okay? And then you have two backups. You can change those identifications at any time up to 45 days. So if two of them go under contract and you have the other one, we can drop those and we can add two more. So you can change it as many times as you want up to the 45th day.
There is another rule, it's called the 200% rule.
So if we are going down in value and this is the case where we're going to use the 200% rule, the 200% rule states that you can identify as many properties as you like up to 200% of the aggregate value of the relinquished property. Meaning if I have a million dollar relinquished property, I can identify as many properties as I want up to $2 million. Which doesn't make sense. The 200% rule, if you're going up in value, right? Because if you identify three going up in value, you're going to be way above 200%. But if you're going down in value, and I'll give you an example, I had somebody out of the Bay area sell a $3 million property and identify thousand dollar replacement properties. He used the 200% rule. So if you're going down in value selling large or buying a bunch of properties, 200% rule, you can identify as many properties as you like as long as they are under 200% of the value of the relinquish property. So those are, those are the two rules. There's also one other rule. It's called the 95% rule, which people will rarely use that. But you can identify as many properties as you like as long as you close on 95% of which there, there are some scenarios where that is important. I actually have one going on right now in North Carolina. That's that we're using that rule 95% rule, selling a million, buying $6 million worth of real estate, right? We can't use the 200% rule, can't use the 3 property rule, so we gotta use the 95% rule. So I told them during the exchange, I said we can't cancel on any of these because it'll blow the 95% rule. So that's the danger of the 95% rule. So those are the three identification rules you can use.
[00:28:19] Speaker B: Well, I hope that viewers and listeners are getting the sense that you really need to be working with somebody who has experience, knowledge, tax knowledge, the background in this, you don't just go to, you know, somebody and say, here, hold my money for this exchange. And trust me, we talked about DSTs. What about tenants in common, the TSC properties?
Are we seeing much of that anymore?
[00:28:42] Speaker A: I think I have four ticks going right now. The term we use is tick in the industry, and it's just tenants in common. Or you may see it as tenancy in common. And that's a vesting of a property. And you say, well, why would I use a tenants in common vesting? The revenue procedure, if you want to nerd out a little bit on it, is Revenue Procedure 2002, 22, which basically the IRS said, yes, you can do ticks, yes, you can do tenants in common ownership. Here are the regulations, and it gives us a bunch of regulations on how we take how we acquire 1031 property in tenants in common. And so tenants in common is a percentage of a property, so I can own a percentage. So if Joe and I go on partner on a property and we, we say, hey, I'm going to be 50% and Joe's going to be 50%, we buy a $200,000 property and we both bring 100,000 to the table, Joe will own it. Tenants of common 50%, I'll own it 50%. Right. And then we can do whatever we want with our 50% basically at any time. So if Joe 10 years goes by, the property's now worth 400,000.
Joe says, I want a 1031. And I say, I want to pay for my daughter's college. Right.
So Joe could take his 50%, which at that time, if it appreciated to 400,000, his 50% would be 200,000.
He could take his 200,000 and buy equal or greater $200,000 replacement property with that. And I could cash mine in and pay taxes on it. And if so, if you're not in a tech, then you need to either drop into that type of formation or if you're in a partnership, you may have to drop out of that into a tenants in common. Because the taxpayer, which is important that we discussed, Joe, it's the same taxpayer rule if, if you have an LLC partnership that's filing a 1065, that is the taxpayer. If Joe and I own the property, tenants in common 5050, we're the taxpayers, not the partnership. So the partnership, if it owns the property, has to buy, be the buyer and seller of the property. And the solution if we don't want to do that is to drop into tenants in Common ownership and Then we go our separate ways. And so tenants in common are terrific, terrific instruments for owning property with multiple partners to where it gives you flexibility to 1031 exchange.
[00:31:06] Speaker B: So one of the biggest questions I always get is, well, how long do I have to hold it as an investment to qualify for an exchange that I can then exchange the property later? Do I, is it, is three months long enough? Is a year long enough? Is two years long enough? How long do I have to hold it as an investment?
[00:31:25] Speaker A: Good question, Joe. So if you'll ask a most tax attorneys and CPAs, they'll say you should hold it for a year.
The issue, like many things with the IRS is there's nothing in the code that says you have to hold it for a year.
So it leads to a lot of ambiguity. What the IRS is saying is you must hold this for investment purposes.
So flip flippers don't qualify, developers don't qualify. It's your health, your intent is to hold it as an investment property.
So typically they stayed a year. There is some case law where a taxpayer sold a property prior to a year that held for the taxpayer where their intent was to hold it as an investment and something happened, right? There is one case where a spouse died and the wife said I can't manage this, right? And so she goes, I need to sell this into something that I don't need to manage. So she 1031 exchanged it into something else.
Well, the IRS said no, can't do that. And taxpayer took him to tax court and said, wait a second, my intent was to hold this for investment property it held for the taxpayer. So there is some case law that says if your intent was to hold it and then you just happen to sell it sooner, you get an off market offer or something like that.
And there also has to be significant gain for you to do that too. Where in some cases the gain is coming from a previously 1031 property. You got all this carryover, depreciation and, and gain from another property. That's, that's where the issue is. Because most of the time if we hold the property for six months, it's not going to go up in value unless it was, you know, it was the spring of 2020, right, or 2021. You know, our properties don't go up that much in value. So all that to say you should hold it for your intention be to be held for investment properties and most CPAs and tax attorneys will tell you to hold it for a year.
[00:33:25] Speaker B: Well, one of the things, one of the last questions I'VE got for you that I've had clients come into me and they're, they're aging out. They don't want to exchange for more real estate. They're done with real estate. They want to start getting out of real estate. Is there any way that they can do that? Maybe the dst or is there any other way that they can gracefully exit out of managing, dealing with the day to day operation of real estate and, and get out that they're not having to deal with that?
[00:33:54] Speaker A: Yeah, And I think DSCs are certainly an option.
I think there's some triple net commercial real estate. We, I had a client that did a piece of dirt for Starbucks on a triple net lease. And so Starbucks came in and built the building or another investor built it and they just had a land lease on the, on the thing and it was triple net. It was, it was easy peasy high qualified tenant. So I would explore that with your, with your agents, both your residential commercial agents and maybe a DST broker is go, where can we get the highest and best return? Right. With the least amount of management? The only issue with dsts is you lose control of what you're doing. The DST providers are making all the decisions on there and of course getting a management fee and whatnot. So you really have to think strategically and critically about, you know, where am I going to get the best, you know, the best return probably with the least amount. What we call quiet money. Right, right. Is some of this is very noisy. You know, especially the single family rental game, it's very noisy. Even though you have a property manager, it seems to be very noisy. So there are some different things and there's like oil royalties. So you can just take and go into an oil producing, you know, rights and just collect your checks, you know, so there, there's lots of options. I think it's just sitting down with your advisors and trying to determine what's the best for you.
[00:35:22] Speaker B: One, one thing I have pointed out to clients over the years, it has to be United States property for United States property. Because I have had people go, well can I exchange this for property in. And, and it was in a European country and Mexico or something like that. Right?
[00:35:37] Speaker A: Right. Yeah. I mean they, they want you, the IRS wants you reinvesting in America and we want you buying equal or greater value. You notice that little trick too. It's like, hey, we'll let you do it but you better be going, you know, equal or greater value. And so yeah, I think Guam, the Virgin Islands are the other Two places that you wouldn't think you could exchange, but you can. There are some limitations on that, but you can go to those two places. Other than that, it's the United States.
[00:36:04] Speaker B: Right. Right. Well, Michael, it's been great nerding out with you here on 1031.
One thing before I let you go.
Our mission is to help people aspire to a better life. So I always ask my guests, every guest who has some, who is someone who has helped you aspire to a better life.
[00:36:21] Speaker A: Well, there are two people. One, I met a very. When I was in my late 20s, a very.
An incredible man that was a hard money lender.
This is back in my kind of real estate days.
And he really took me under my wing and he taught me hard money lending, which I do a little bit on the side, really taught me all of the deed positions and the security instruments for when we were lending. And back then, I was the one borrowing, you know, until I started making some money to where I could be the lender. Right. Which is a much better side to be on. And he had no, he had nothing in it for him other than to just help a younger guy out. And then now I, I kind of teach people how to do that along with 1031 exchange.
So he was a tremendous person that helped me. And then my mentor in the QI business was named Sheila Long, who is also a ce. Yes, I'm a member with the, in the federation with her. Another person that really took me into my wing and I tried to pay her consulting fee. I'm like, hey, I need you consult with you. I was never afraid to pay for the consulting and just, hey, what do I not know right? About this business? And she just helped me because she wanted to help me. She goes, I absolutely will not take money from you. And she helped me. And she's, she's one of the best QIs in the country as well. And we talk.
I was talking with her yesterday afternoon about a, a mixed use issue that we were having. So it, it's those type of people who just kind of poured into me for no other reason, just to help me. And so that, that was a tremendous. And, and of course, I gotta try to pay it forward and some of the people I mentor and help.
[00:37:58] Speaker B: So, yep, pay it forward, pay it forward. That's what we're all trying to do. I'm so happy you came on the podcast day. Thank you for coming on. I'm sure our viewers and listeners got a lot of great tips here. It's a little Advanced, I hope for.
Yeah. And, and I, I'm glad because I know a lot of people. I think they hear the same boring, basic 1031 talk over and over. I'm hoping that this advanced talk will definitely help a lot of people out.
Michael, again, thank you. If, if you ever need anything from us over here in Florida, just let us know and I'm sure.
[00:38:31] Speaker A: Absolutely. Yeah, absolutely. Anybody needs any 1031 help, 1031exchangeable.com is my, my website that's 1031 exchangeable. If I have somebody like get a hold of me.
Lots of great videos on there and you know, Joe's an incredible resource too. I tell you. I don't know if I've been on many podcasts and I'm usually on one once a week that knows this much about 1031 exchange. I can say that about Joe. It's like, what a great resource for connecting you with the right people, you know. So it was, it was, it was a pleasure being on Joe.
[00:39:01] Speaker B: Well, thank you for that. We're definitely going to make sure that all your links are down in the show notes. So if anybody needs to get in touch, anybody needs a qualified intermediary, Michael's your guy.
And until then, everybody, I'm going to sign off for today and Trust this.
Thanks for listening to this edition of Trust this. If you got something out of it, please press like and subscribe and give us a five star review to help us reach others who can benefit from this series. Until next time, keep aspiring to a better life.
