Real Estate News Radio with Rowena Patton

Navigating 1031 Exchanges: A Strategic Guide for Property Investors and Second Home Owners

• Rowena Patton

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Tired of paying massive capital gains taxes when selling investment properties? The 1031 exchange might be your secret weapon for building lasting wealth through real estate investing.

Lonnie Nielsen, founder of 1031 Pros and a true expert in tax-deferred exchanges, breaks down exactly how this powerful wealth-building tool works. Whether you're a small investor with a single rental property or managing a multi-million dollar real estate portfolio, you'll discover how to leverage the 1031 exchange to keep your investment dollars working for you instead of surrendering them to taxes.

We explore what qualifies as "investment property" under Section 1031 (hint: it's broader than you might think), the critical timelines you must follow, and strategic approaches for different investor profiles. Lonnie shares fascinating insights about how investors use exchanges to move capital from overheated markets to emerging opportunities across the country, and how aging investors transition from hands-on landlording to passive income streams.

You'll learn about the potentially massive estate planning advantages that come from deferring gains throughout your lifetime, allowing your heirs to receive properties with a stepped-up basis that eliminates previously deferred taxes. We also cover common pitfalls that can invalidate exchanges and how working with knowledgeable professionals helps ensure a smooth process.

Whether you're looking to upgrade your investment properties, diversify your portfolio, or transition to more passive real estate investments, this episode provides the roadmap you need. Connect with Lonnie Nielsen at 1031 Pros to explore how this strategy might transform your real estate investment approach.

Speaker 1:

Lonnie, my old friend. This is Lonnie Nielsen. We've done some 1031s together. He is the king of 1031 Exchange 1031 Pros. That's your company, lonnie.

Speaker 2:

That's correct. Always good to converse with you and talk about the opportunities of the 1031 Exchange.

Speaker 1:

Oh my gosh, this is fun. So today we're talking, we're going to kick off through benefits, the rules of 1031 exchange. We'll do some horror stories, because they're always fun, what doesn't work and who is in this for, as well as success stories and then anything else we want to talk about. So go for it. What are the benefits of it? Larry, and he would say that, wouldn't he?

Speaker 2:

Yeah, I think the 1031 exchange is a logical piece to any investors, especially if we're starting out. With young investors that are calling and aren't quite familiar with the process. I always just tell them whether you're going to use it in this transaction or not. It's something that you need to add to your portfolio because the 1031 exchange allows you to defer the taxes that you would pay in selling a property versus using the 1031 to reinvest in other properties. So for any investor, young or old, the 1031 exchange kind of makes sense. If you're going to reinvest in real estate after a sale, then the 1031 is just a no brainer. You just want to use that.

Speaker 2:

Why give up dollars to the government when you have a legal maneuver to not pay taxes, to keep those dollars in your investment portfolio, to continue your investment process and be ahead of the game, and so it's very beneficial. I think our role is in conversing with investors is just to kind of give them the lay of the land. We're not their tax advisors, but we can certainly are competent in deciding and helping them decipher what their capital gain might look like if they sold and knowing that they're going to be able to defer the taxes if they use the 1031. So it's just, it's a logical piece to a transaction. When people get information, I always tell them if they're informed they can make an informed decision as to what works best for them. And we find many times the 1031 exchange is you know what they would choose to do, and it makes sense.

Speaker 1:

Let's define so for the agents looking who are like, wait, what did he just say? What do we mean by? Can we define investment property? And because not just investors, is it, it's an investment property, can be all kinds of things and we're talking about a light kind of exchange. So can we define what we mean by a investor? Could that be an everyday person that happens to investment and define both the entity or the, the, the person, and what we mean by an investment property?

Speaker 2:

sure so. So two questions. So anyone can take advantage of the 1031 exchange. I think you know kind of. You know the small investor who's selling a single family rental for a couple hundred thousand can use the 1031 to defer the taxes up to. You know, it could be an LLC, could be partnership, could be tenants. In common, we work with Delaware Statutory Trust where people own a portion of a big building. That might be a $30 million transaction with 50 investors. So it runs the gamut.

Speaker 2:

But I'm going to say you know, our bread and butter is probably transactions that are 500,000, a million. But anyone who is selling an investment property, if they have enough capital gain, then it makes sense for them to defer the taxes. So you could have a $50,000 transaction if there's such a thing out there. But as long as there's a capital gain to defer, that makes sense. Usually, compared to our fee, which is about a thousand dollars. They look and see what they're going to pay taxes and that's kind of the magic. Do I want to pay the taxes or can I pay a fee to a qualified intermediary like our company and move into a replacement property?

Speaker 1:

I know, when I've placed you with clients before, they've been very happy, and they were always kind of somewhat pleased by the fees. Of course, they want to do it for nothing. However, your fees were good and you gave them such great advice. So can we dig a little deeper into, before we go on to the rules around it, what? An investment property is, so it's not a primary home, is it?

Speaker 2:

Right, so good question. Yeah, we didn't get to the second part of your question. So the 1031 exchange is set up and it applies to real estate that's held for investment purposes. So a primary residence is not going to qualify. There's particular tax rules that are associated with the exclusion of gain on your primary residence. But the 1031 would apply to could be a single family rental, could be office buildings, could be land, could be multifamily Really anything that you don't live in is pretty much would qualify. Now there's some things you kind of have to look out for. If you're a flipper and you're not holding the property and renting it out and you're turning property over quickly, a flipper doesn't qualify under 1031 because that's a property that's held for resale and not for investment purposes. So sometimes we get those and those don't qualify. If I'm a builder and I'm building spec homes, or if I have building a home that's going to be sold as soon as I complete it, those don't qualify. And also developers don't qualify.

Speaker 2:

The only hybrid is a second home. Sometimes you'll find people who have properties on the beach or wherever it might be. They might have some personal use of the property and they don't rent it out. So the IRS likes to see that you've held it at least for two weeks out of the year as a rental property and that your use is limited to two weeks out of the year. Unless you're there maintaining the property, those days don't count. So it's kind of one of those that you know probably worth a conversation. But if you have a second home, vacation home, and it's not rented out, then you might be outside what they call the safe harbor guidelines of being able to use that. But any of those properties can be mixed and matched so it doesn't have to be a single family rental. For a single family rental. Land can be traded for an office office for multifamily and so at like kind is really broad. It just has to be an investment property traded for other investment property.

Speaker 1:

What if it's a both?

Speaker 2:

Yes, so sometimes we have what we call a combined use property, where I have a house and 50 acres, for example, and so we have to make then an allocation of you know what is the value of the house it's my primary residence and then what is the value of the acreage, and then we could take the acreage and make the like kind of exchange. The dollars from the house can go to the client because they have their exclusion under the primary residence rule. So it's a combined use property where maybe some of the dollars are allocated to the client and then the balance of the dollars that represent the acreage would be moved forward into another investment property. So we call that a combined use property, part 1031 and part primary residence.

Speaker 1:

Wow, so by property do we mean, just to define it a little bit more do we mean land and a home and a commercial building, a regular old house, a condo, or can we throw investment playthings in there, like boats and cars?

Speaker 2:

Sure, yeah, so boats and cars are personal property, so they don't qualify under the 1031. Going back historically since I've done this for a few years, when it used to be I think it was pre-2017, they used to allow some personal items to be exchanged. We used to do airplanes, we did, cows, we did I'm trying to think of what else Cows, cows. It was a few years back, but you used to have to be cows for cows, not cows for steers, but anyway, yeah, so the personal property rules and they used to be able to trade personal property assets that had to match up with a certain asset class. They disallowed or they did away with that. I think it was 2017 or so. So only real estate that's held for investment qualifies boats, planes, cows. Other personal property assets don't qualify under Section 1031 as of the last seven, eight years.

Speaker 1:

Got it and we were going to move on to rules. You know me already, so let's talk about rule breaking. I mean, what about workarounds to rules? So, for example, if you live in a primary home and then you decide to rent that home out and buy another primary home for two years, it could qualify correct.

Speaker 2:

Yeah. So, for example, you could move out of the property for a year, rent it out there's no set time period that you'd have to treat as a rental and then either use the 1031 exchange because you held it for a rental for a year or, if you look back and you lived there two out of five years, you can take the primary residence exclusion, even though the last year you held for investment. So you have a choice in that scenario to pick the best method that gives you the best bang for the buck. Usually, if it makes sense to consider it your primary residence, I would say take the money into your primary residence because there's not an impetus to go reinvest the 1031, we know you have to reinvest in a short time period, which is fine, many people do so. But if you had a choice and the numbers made sense, you'd have to evaluate that kind of with your tax preparer. But you could use either side of that equation to your benefit.

Speaker 2:

But usually taking the money from a primary residence sale allows you then to go back into another primary goes back into another investment property. But you're not under the timeframes that you would be if you chose to use section 1031. Now one other piece is if you looked at it and you converted it to your primary residence, if the gain is more than 500,000, which is your exclusion then the 1031 makes sense most time, all the time, because the 1031 doesn't have a limit on the amount of gain that you could defer. So sometimes people will maybe look at that, move in, move out, convert how the property is held from a primary to investment property, and then they can use the exchange or again use the primary residence rule. So it just depends.

Speaker 1:

If you had a $5 million home or a $3 million home or a $2 million home and you were married and you were taking your $500 deduction but you were making all you know. Maybe you owned it free and clear and you're making, you know, $1 million, $2 million, $3 million, it might make more sense to do because there's no limit on the amount of gain that you could defer.

Speaker 2:

If you're going that way, now the key is, you know, if I'm selling my $3 million property and number one, you know, am I willing to move out of it and rent it? You know, because that might be a tough thing to swallow, and then, if I do, I have to go out and buy investment property. So if I'm selling my $3 million property and my idea was to go buy another primary, that won't conform with the 1031 rules. But the answer to your question is so if you had a million dollars of gain, the 1031 is great because there's no limit on the amount of gain that you could defer, and so the 1031 would be a nice maneuver to not pay the taxes on a property that has more gains than $500,000. If you had the patience, time and ability to do that.

Speaker 1:

How much patience do you need? So if you moved out and lived in your other million-dollar property or your second home or whatever else you've got, how long do you have to move out for? And would just listing it for rent suffice or not? Do you have to take an income?

Speaker 2:

just listing it for rent suffice or not? Do you have to take an income? I mean, you know, if you got down to it and someone questioned your motives, you know, could you point to? You know my intent was to rent the property out here's. You know my ads for renting the property just didn't come together. I think you know it's easy if you show rental income and take depreciation on a tax return. I think that establishes it as health for investment purposes. I think there's no time period that you have to move out, but typically a rule of thumb is probably a year, so you can show it on a tax return or maybe two tax returns. I think that establishes it as health for investment.

Speaker 1:

None of us have a crystal ball right.

Speaker 1:

We're not really sure it's a gray area, so when you sorry go ahead when you make that two million dollars from your house because you've moved out into your other, one of your other million dollar properties or second home or whatever is going on. When you make that million, two million, three million, whatever you're making you I'm guessing you can go and buy a quadplex or an eight unit building at that point with the money, you don't have to buy a single $2 million house at that point. Right, you can buy whatever you want, as long as it's investment real estate, or are there guidelines on that? Can you only buy a?

Speaker 2:

quadplex, yeah. So the first one is yes, you have to reinvest in real estate that's held for investment. But then the rules are such that the 1031 exchange envisions a scenario where you're reinvesting in property that's equal or greater value. You're always continuing on or up in your investments. As long as you continue to do that, then you'll defer the taxes. So you sold for $3 million. You could deduct your closing costs, but you'd need to buy other property that's at least equal or greater in value, spending all your equity and replacing debt with new debt. So that could be made up in multiple properties or it could be one property. But if you found a single family rental that was a million and you found a multi-family property that was 2 million combined, you would be able to use those and conform with the rules of the 1031 exchange.

Speaker 1:

Nice. I would imagine quite a few people do that, because if you've got a number of properties that are high value, or perhaps you've got a kid that's gone to college in a different state you could now buy a six unit building. You know your kid could be one of them, I'm guessing, because he's paying rent. Would that conform?

Speaker 2:

yeah, that would. That certainly would be a scenario that could work and we see, you know, we'll see a lot of people who buy multiple properties as replacements for the property that they're selling.

Speaker 1:

So we're going to talk about some success stories and some horror stories as well, because they're always fun. I think for the success stories, could you give us a few scenarios where people have sold this and moved it into this and give me a few different examples so people can understand how you could use this? We just did one with kids going to college, and a lot of people do that. They invest in a property that their kid's living in and then eventually sell it. You know, especially if they're doing a master's or a PhD or something and they're going to be there longer and then that property gets. It might be one house. That that's the usual scenario. Right, it's one house and all their friends move in and pay rent allegedly and, um, you know, that's often the way it plays out.

Speaker 1:

But if you were doing it on a larger scale, like we talked about, it could be numerous properties. You could take your million, two million, and turn it into numerous rental properties anywhere in the country, right? So you could get a midwest and buy 250 000 properties and have eight of them all all of a sudden and have a portfolio or Airbnbs or whatever you want to do Can you give us some more scenarios, ronnie, because I know you really are the king of this.

Speaker 1:

Give us some more scenarios that have worked for people that are different, like we wouldn't really think of.

Speaker 2:

I like being king for a day. It's interesting. So I think a lot of times people take a look at you know where they've invested and you know we've seen, honestly, we've seen a lot of transactions where people are coming out of, for example, california and going to other parts where they can use appreciated dollars to maybe buy multiple properties appreciated dollars to maybe buy multiple properties. Maybe just things have changed in that neighborhood and so they decide, gee, we don't want to be here anymore. Or maybe they've held the property for 20 years and now we want to go buy something that's new. I just was talking to an investor who is looking to sell in Hawaii. Their property had appreciated in value and they said, taking a look at the rents that they were getting on the property with the value of the property, they weren't getting a commensurate rent with the amount of value that the property's increased. So they said I have to do exchange and get into other properties so I can use my dollars to increase my rental income, which is you, which makes sense, but a lot of people don't think that way. They had an appreciated asset but it just wasn't getting the return on investment that they should have commanded and so they were going to exchange for other properties. So we see a lot of people going to different locations, newer properties. Maybe they want to change the type of property, maybe land which is appreciated in value. They want to go to other properties that will provide income.

Speaker 2:

We've seen people go from properties where they have to manage them and they determine. You know this might be more for some older clientele but they don't want to pay the taxes, but they don't want to go into another property. They have to be involved in managing the property, what we call passive investment opportunities, dsts or triple net leases, where they'll buy a piece of a big building or a portfolio of buildings and they don't have to be involved day-to-day. They get a check in the mail. So we've seen that for some of our clienteles that really are clients who just don't want to manage day-to-day. We've also seen some too, who go out of again management intensive properties, go into mineral rights. There's opportunities there where they can buy into mineral rights which are considered to be real property and are pretty passive in nature, and so they get a check in the mail.

Speaker 1:

And you're talking about these big conglomerates now that have put these management companies together to portfolio of properties where you pay in and get a guaranteed minimum 8% Right. Talk a little bit more about that because I'm not sure a lot of realtors or people watching this know about that. So talk a bit more about those companies. You're talking about, particularly boomers. That's our biggest you know of people, obviously, and you we deal with this every day as a real estate agent.

Speaker 1:

So 60 and up, um, and you know you may have had a couple of rental properties you may have. I mean, this is one actually where what we talked about before would work. You could move out of your million, two million dollar home and you might have two or three little rental properties. You could move into one of your rental properties and just suck it up for a couple of years or a year, you said, and then sell your million-dollar property as your investment and then put all of that money that could be a two-year play or a one-year play to put all of that money into one of these big conglomerates which is completely passive, right.

Speaker 2:

Yeah, yeah, I mean I don't. You know we have advisors that we work with that you know are really familiar with the product. We're a little more transactionally oriented, but in general you're able to take those dollars, defer the taxes because kind of the last thing you want to do is take the tax hit now Because if you make the exchange, defer the taxes in whatever investment property you go into, if, as I, pass away and leave properties for my heirs, they get a stepped up basis and so all the gain I've deferred goes away. They could sell the property after I've passed and they wouldn't have any capital gain. So it's kind of a shame if you sell, pay the taxes and then you know, have less dollars to work with to invest that you could have left for your heirs.

Speaker 2:

But you know there's different portfolios, different properties, as far as the DSTs and triple net leases go, and again you know you're buying a piece of a big pie. You know, depending on how much you're investing, you might have a 1.52% interest in a $30 million property. They, you know, control the ship, they manage the property. And then you know we've seen when people will turn those properties over and you know we're working with 20 different investors who are going into other properties maybe similar DST or might be some other type of property and so I'm DST.

Speaker 1:

A lot of people listening won't know what DST is.

Speaker 2:

It's a Delaware statutory trust or it's a tenant and common ownership interest in property. So the acronym is DST Delaware statutory trust but it really relates to buying properties that are professionally managed and there's just all different types of opportunities to get into. Like I said, you know more of the younger investor wants to kind of be more hands on. They'll probably get a little bit better return if they're personally involved. But for some who you know just don't want to pay the taxes and want something that's a little more, you know that day-to-day being involved, they don't have to go check to see if the electricity is, you know, still on, or they have to replace the toilet or whatever it might be. So it certainly does work for some of the clients and we certainly have handled transactions where that's made sense for the client and it's been a good opportunity for them.

Speaker 1:

I know from personal experiences that so many mom and pops out there that just get tired and they might have.

Speaker 1:

It's just like short-term rentals, you know the regular short-term rental portfolio is six and at some point you can just get really tired of it, whether it's short-term rentals, mid-term rentals, long-term rentals. You thought it was a great plan way back when, and now you've got six of them or 12 of them, and I don't know. You're in your 60s and like, well, I could sell all these at the top of this market. Another thing here, laurie thatori, that lani on that point is that claremont juglar, 1867 to 11 year economic cycle, most places in the country now almost every state, we're seeing a decline and we're we crested two years ago in most places.

Speaker 1:

Yes, new jersey, I know you're still fine, mainly in the northeast, but for the rest of us, you know, Nick Gurley is the guy I really trust on the figures ReVenture and he is saying I mean everything I see right now is forecast between four and a half to 12s and 14s in South Florida. Decline this year, like it's. You know, we're on the decline and we're expecting that for two or three years. What does that mean for a 1031 exchange other than sell it now and put your money in a 1031? How long have you got to wait for those prices to come down a little bit to reinvest it or put it in a DST or one of the portfolio players that we've been talking about? How is the switch in the market going to change things, particularly those boomers who have six properties or 12 properties like sure now already?

Speaker 2:

I mean they do have a 45 day window after closing to identify a property. So you kind of have to have an idea of where you're going with your money and then a 180 day window to complete your exchange. I have an uncle who kind of got me into business and I would consider him one of my mentors and he was always saying when he made his like-kind exchanges he knew where he was going, he knew what potentially he was going to make on that property. So he always had a plan, so he always was looking to find the replacement property because he figured he could always come up with the ability to sell.

Speaker 2:

But yeah, I mean, I think what that means is you need to look at different markets, you need to look at different assets and see where the best opportunity is going to be. Have you kind of been in a market that's gone up and has kind of peaked and am I looking at some other place where there might be an opportunity? I mean, because any property inside the United States qualifies and so you have opportunities to move, you know, from state to state. We get that question Can I, you know, can I take my dollars outside this state and go reinvest somewhere else and I would say you know, probably 60, 70 percent of our deals are are going from one state to the other.

Speaker 1:

So yeah, and I love it there, one that you've done. And why? Why is that person going from one state to another? What kind of reason? Because that's what people will identify with.

Speaker 2:

You know what kind of cause this yeah, and again, I mean I, I would say you know, we, we probably are a little more west coast based and we see a lot of, a lot of opportunities or a lot of people going East Coast based the Ohio's, tennessee's, florida's, texas, some of the Carolinas. Maybe you know. Again, you pay me later. No, I think again, my boots aren't on the ground. You know, finding investments for clients. I'm completing their exchanges. I can tell you what my visual trend is, just from our clients, but I just think they're in search of a property that's going to appreciate more than you know where they are. Maybe rents are better, maybe different types of properties we work with. We work with a client who has done a number of transactions with, who is big into multifamily and now they're buying a, they're buying gas stations. Now, again, I don't know all the ins and outs, but I know they're very smart investors and I'm sure that they have a very good rationale for their movement towards that. But so you know, I think you kind of look at, you know what is my investment strategy. Where can I best, you know, employ my dollars to get my best return? You know what does the market look like, and if New Jersey is the place, then you know, then maybe that's the place to take your dollars to and watch it go up in New Jersey and then ride that up and then come back to another property. And that's the thing.

Speaker 2:

The 1031 exchange gives you that ability to change, you know, from one locale to another and better your investment opportunity. And I think you got to be. Whether you're investing in real estate or any kind of investment, you always got to be looking at my, at your investment and seeing, you know, am I get the best return? Am I invested in the right things? Am I making the right decision? Is it time to, you know, not just put my head in the sand, but is it time to go?

Speaker 2:

Okay, you know this has done well for me, and can I take those dollars and go into some other place that will continue that trend versus I'm got it and I'm holding for 20 minutes or 20, 20 years by golly. You know so, um, you know you got to by golly. You just I think you know the the. The good news is you have to to get good advisors around you to take a look at what you own and um, and have a good plan as to what your next move is. It's gee. I've made a you know, a good purchase, and now what's the plan for this particular property, versus not really being diligent about taking a look at the best path to get your best return on your investment.

Speaker 1:

So you've done your 1031, so you've got 45 days to identify. But the identify could be one of the portfolio players we're talking about which you could look into and take your time before you actually sell something, right, so you could have that identified already for the people who like that more safety, that are a little more conservative. And then you've got 180 days to actually close on it, which obviously in that scenario wouldn't be any problem. So how long can you jump again? So let's say, for example, we're looking at South Florida right now and the prices are coming down and we're going to take that investment and we're going to sell it and we're going to put it in for the sake of argument.

Speaker 1:

New Jersey Because we might be able to ride it out for another year before you know New Jersey are a little bit behind us. Are they ever going to, you know, see the decline? Probably, if history is anything to tell us, by, but they're probably a year behind. So if you flipped it into New Jersey and bought something there, how long have you got to hold it before you can pull it out again and do a 1031 somewhere else? Can we do this every month?

Speaker 2:

Yeah, good question. So they do. There's a Form 8824, which you use to report the 1031 exchange to the IRS and one of the questions on that form is how long the property was held that was given up in the exchange. Now, again, there's no set time period but there is if you have a short time period six months, three months there's a term property held primarily for resale. So if you start in and you're reporting it, you've held the property under a year. I'm not sure it's an automatic fail, but it might throw up the red flag because, again, you do report that timeframe.

Speaker 2:

However you can, you can construct as many 1031 exchanges as you desire. There's no, there's no limit. Like I said, we've kind of worked with a company. They've probably done 150 exchanges with us in the last five years, so you know. So I have another client that's probably done 70 exchanges down in Florida. So you probably want to show on a tax return, rental income depreciation. Probably a year or two years is probably a good time frame. But if you pin me down, I can't give you an exact time frame.

Speaker 1:

It's very clear that I understand, but we can't give you an exact timeframe, because there is that I understand, but we can say a minimum of a year.

Speaker 2:

Yeah, I think that's a good rule of thumb because, like I said, we know the flip side is they have overturned transactions for the property that was held primarily for resale. It didn't hold long enough, didn't show rental income, take depreciation, and so they deemed it really not held for investment purposes.

Speaker 1:

That's scary. That's the kind of thing that would take a small investor down. So that's useful to know, which moved very nicely into horror stories. So we see how it can work for a broad amount of people small investors, big investors, mom and pop. You know we've got six rentals, mom and pop. We've got one rental, maybe a couple that got together and they're renting. That also very commonly happens, where they either build a house together or they rent out one of their homes and then move in together in the other home that kind of thing where they've got it as a 1031. So now we can talk about ooh, what are the horror stories? Where have you seen it go wrong?

Speaker 2:

You just did one about ooh, what are the horror stories? Why have you seen it go wrong? You just did one. Yeah, I would say I mean the one that happens pretty commonly. I mean we market a lot to investors.

Speaker 2:

We get a lot of phone calls. I'm going to say at least three, four times a month we get the call of I just closed and I took the money and I'm wondering if I can do the 1031. And if, as soon as they take the money, as soon as they close, then it's a done deal and there's no ability to save their 1031 exchange. Flip side is we get calls like from some of our friendly title companies or closers and they'll say hey, I'm sitting with so-and-so and they're looking to make, like, an exchange. They didn't know how it worked or they didn't know much about it, but they're sitting here telling us we want to do a 1031 exchange, can we save them? And we'll scramble, get our paperwork together and we've had a lot of success with that where they hadn't closed and taken the money. But at least in our phone calls, at least three or four times a month, we'll get the. I'm sorry to say that we're too late and there's nothing that I can do to recreate your transaction.

Speaker 2:

The other is that it's one that trips people up as a 45 day identification period. They're notified, they know, you know, they have information that tells them when they should. You know they have information that that tells them when they should, um, you know, be identifying property and and they'll go along and and maybe they'll have a property or properties that fall out of escrow or they do their due diligence and it's just not the property they thought it was. They get past their 45 days and they can't introduce any new properties into the mix, despite their desire to do so. So those ones are tough, man, I can remember, and it seemed like, uh, you know, of course I'm getting older and some of the details get fuzzy, but I know I had a transaction where someone again took money or did something and they had like a $2 million tax bill that that, um, I had a conversation with them about because they didn't plan appropriately and it was not, uh, not not nothing that we had done, it was just they were too late to the dance, so to speak, and so, um, but so we see, we see some of those just because they they haven't prepared appropriately, and I would say too, from a real estate agent perspective.

Speaker 2:

You know, anytime you're working with an investor. When you're working with an investor, you just need to give them the idea that the 1031 exchange is a possibility. They should do their due diligence and make sure that they can have a conversation with their tax advisors so they understand what their potential liability would be. But you just don't want to be in a situation where the client ends up calling us. We've had this where they'll call and they've closed, taken the money and they will say and whether it's the fault of the agent or not, but they'll tell us. You know, we were never really informed. Now I'm not sure that an agent isn't a tax advisor, but if they're knowledgeable and it's just good client help to notify them or just guide them in the right direction to consider the 1031 exchange, exchange plus from a real estate agent.

Speaker 1:

Right, you pick up the phone. I mean, these guys pick up the phone, guys like I've called him so many times and put a bunch of clients we've all been happy. Just pick up the phone, give them to lonnie and they can have a, have a conversation about whether it's right for them and what the strategy looks like. Lonnie, how long does it take you once somebody calls and says, okay, what's going on? Obviously you have the consult. How long does it take you to get the paperwork in place? I know you said you scrambled before and that probably takes you a couple of days, but what's a comfortable period of time?

Speaker 2:

Yeah, I mean I tell investors when I talk to them when you have an offer accepted on a property. I mean we can have conversations conceptually about how the 1031 works, the timeframes et cetera, but once you have an offer accepted, that's an indication to them that they should get us involved in the transaction. We'll create the file. So usually a couple of weeks prior to closing is usually timely enough. It gets everyone involved in the transaction. We get our instructions out to everyone, but a couple of weeks or once you have an offer, if you know you're going to move forward on the exchange, there's no downside in getting us involved. So our fee doesn't get paid unless you close. And so if somehow a buyer didn't come together, then we wait with you and once you have a buyer that circles back, we'll work with your transaction when it comes back together.

Speaker 2:

So, but usually we turn documents around 24 hours. You know if we get information today, they'll. You know paperwork will go out tomorrow. We understand the timeliness of transactions. People want to have a smooth transaction. When they close they want to make sure that everything's in place, it doesn't hold them up, and so we've done this 20,000 times and enough times to know that you know what the expectations are, and we want to be a good middleman and just not notice. We want everything to go smoothly and that's our goal and people come back and work with us again because we do that.

Speaker 1:

Of course, here I am, so you know, talking about mom and pop again or the smaller time investor that maybe doesn't know you already. I would, I mean, tell me if I'm wrong here. I would say those people should get their clients with you from the get-go so that you can have a conversation. So I know you need two weeks to get the paperwork through, but just to discuss strategy. Are you willing to do that with them?

Speaker 2:

of course. So we take questions all day long, every day, um, with people who have questions. I call them, we walk them off the ledge. What is this 1031? I know I need it. You know what do I have to do? How does it work? Have I missed the time frames? Um, so we have conversations with investors all day long and real estate agents. I tell them you know, we have collection of different topics on the 1031, everything that you could kind of imagine that's applicable to a transaction and different scenarios, and so we can make them, the agent, look great. They can, you know, get information from us and feed it to their client or, if they want to, you know, do a Zoom call or tag team and have a conversation with their client, or we can call their client directly. So, however, it works, because we know successful real estate agents, successful transactions, lead to transactions for us, and so we're very motivated to help them complete transactions that make sense for their investor clients, and we're very friendly. That way it's pretty self-serving.

Speaker 1:

I think we need to build you a mini course on the app, actually about 1031 Exchange that people can go through. We have free courses on there that they can step through with a number of scenarios, because obviously it's lots of different scenarios involved. Thank you so much, Lonnie. You're awesome. Is there anything?

Speaker 2:

we missed Always. No, it's always nice to talk with you and thanks for inviting us to come and participate on your show. And yeah, our motivation is to help investors save in capital gains taxes, and we know everyone likes to do that. It's not a tough sell and it's a great maneuver. If you're an investor in real estate, then the 1031 just has to be part of your investment concepts and if you have any questions about it, we're the guys that pick up the phone and we laugh because we'll pick up the phone over the weekend and people will be just amazed that we're somehow grabbing the phone the weekend and people will be just, you know, amazed that we're somehow grab the phone.

Speaker 2:

But we know usually if someone's calling on the weekend, they want to hear from us because they probably have a question that needs to be answered before Monday, and so I've had a number of transactions where someone will call it's Saturday, we're closing Monday. Can we get this done? I'm like, if you give me information, I'll have everything ready for your closer Monday morning. It'll be a scramble, but we'll get it done. So we do. You know we take calls. I've talked to people identifying property and there'll be a midnight deadline to identify and they'll be calling me at 11 o'clock at night, going. You know how does this work. Or can I put this one in? Or what about this one? You know? So we like to be, you know, consider ourselves very available for a client. We might not be perfect on the weekends, but we pretty much no one goes 24 hours without hearing from us.

Speaker 1:

So this is my good friend, lonnie Nielsen, from 1031 Pros, so just go ahead, reach out, and we're going to have buttons below this as well, and we'll see you all soon. Thank you so much, lonnie.

Speaker 2:

Thank you, ruy, have a nice day and I really appreciate your time.

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