0 (2s):
Boom, shake the room, Fire Nation. JLD here and welcome to Entrepreneurs On Fire brought to you by the HubSpot Podcast Network with great shows like Gain, Grow, Retain. Today, we'll be breaking down tips and tricks of the 1031 exchange to drop these value bombs. I have brought Dave foster and the EOFire studios. Dave is the founder and CEO of The 1031 Investor. He is a degreed accountant and serial real estate investor, who is a qualified intermediary and consultant for tax saving strategies, such as the 1031 exchange and the section 121 homestead exemption. Dave will be telling us about the updated rules and regulations around the 1031 exchange to legally compound your tax interest that will stay with you instead of going straight to the government.

0 (47s):
So we talking about Fire Nation, what a 1031 exchange is how you can use it, the basic timeline, the best way to do it, other tips, and so much more. When we get back from thanking our sponsors.

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0 (1m 19s):
Business Made Simple hosted by Donald Miller takes the mystery out of growing your business. Recent episodes, like how to attract and retain top talent and how to make more money with your current products are straight fire. Listen to Business Made Simple wherever you get your podcasts. Dave say what's up to Fire Nation and share something that you believe about becoming successful that most people disagree with.

1 (1m 46s):
Hey, Fire Nation. It is awesome to be here with you, John. You know, when I was thinking about that question, I think particularly what I've seen throughout my life, because I'm now older than dirt is that I've had to develop patience. And I think probably the thing that I see today is that the one thing that will guarantee your success more than anything else that a lot of people just can't believe is that patients in time truly are on your side. Sometimes the longer route is the faster route. And I know we live in a microwave generation and so I probably the old curmudgeon,

0 (2m 28s):
Well, we are going to be talking about the financial side of things today, specifically about 1031. So I think that was a really good way to start at Dave because there's a Warren buffet quote that I simply love is that it's not about timing the market. It's about time in the markets. And if you can be in the markets for a long time, the odds are you're going to benefit as a result. So I already gave a great introduction of you, Dave, of what we're talking about here today, I went through some of the things that we will be chatting. It, give some teasers. So Fire Nation knows what's coming. And I want to start off with just a crystal clear explanation of what exactly a 1031 exchanges.

1 (3m 9s):
Yeah, well he, 1031 exchange is simply a process that comes from section 10 30, 1 of the IRS code. And it allows investors in real estate to sell their investment real estate and then purchase new investment real estate and indefinitely. And I mean, indefinitely defer having to pay tax on the profit or the tax benefit of rev depreciation. So they get to use the deferred tax that would normally go to the government for their own benefit. And that is adding fire on top of a real estate portfolio.

0 (3m 52s):
Well here at Fire Nation, we love nothing more than igniting flames, sparking the embers, creating fire. And as you and I talked about pre-interview Dave, we're going to keep things light. We're going to keep things fun. We are not going to get in the weeds Fire Nation. So don't think you're sitting down for some long droning textbook conversation about 10 30 ones. This is going to be fun. This is going to be light. Dave, can you share how you specifically have used 10 30 ones in the past?

1 (4m 19s):
You know, that's actually how I became a qualified intermediary. One of these people that do 10 30 ones for others was way back. The very first property I purchased was because my wife and I were looking to get out. We were trying, we had our first child and you know, kids are like TVs. Once you have one, you don't want to do anything else, but just watch them. It was amazing. And we said, if our most precious commodity is time, how can we get off the corporate trains that we're on and find a way to spend our life in vesting in our children and our life with them.

1 (4m 59s):
So like so many folks in our nation, we chose real estate is that avenue. And so I just marched at bought a duplex in Denver. I don't even want to think what it's worth today, but I fixed it up. I sold it and I was so fat and sassy John, till I went to my accountant that winter. And he said, man, are you going to pay a lot of tax? I said, yeah, you just lost your Christmas card, buddy. What I realized at that moment was that you and I, and everybody have a silent partner in every real estate deal and that silent partner, his name is uncle Sam. And usually he will do better than you will.

1 (5m 41s):
And so of course, when you've got friends like I do, they mock you mercilessly when they find out that something like this has happened, but then those same friends also came alongside and said, Dave, did you know that there was a recent court law? This was back in 1996. That's going to allow investors to not have to pay that tax. And it's the 1031 exchange I said, sign me up. And so from that moment, we had a 10 year goal to use real estate to end up buying a sailboat and moving her family got bored in the living on the water. And so from that moment, that's what we invested ourselves in. And here we are 23, 24 years later and we managed to buy the sailboat.

1 (6m 25s):
We managed to live on a, for 10 years with our kids. We've managed to build a real estate portfolio in several different geographical locations. And have you have to pay a penny and capital gains tax

0 (6m 36s):
Now Fire Nation, if that's not a fun, exciting story, I don't know what is, I mean, that is what we call living the dream here. And I think one thing that we need to get into next day for Fire Nation to really start wrapping their heads around this process is the timeline is because a lot of people might think, well, I mean, do I need to, you know, have like a five, 10 year time horizon for this? Like what are the basic timeline requirements for a 1031 exchange?

1 (7m 1s):
Yeah. So much of that. Johnny's going to be so specific strategically in terms of where you find yourself in your real estate career, but we can worry this particular piece of real estate that you're considering, but let's take a look at the general 1031 aspect of it. If you've got a property that has significant appreciation or significant depreciation that you've taken, then that might be the time for the 1031. You have to use the services of a qualified intermediary. The IRS will not let you touch the proceeds. And the intermediary has to be in place prior to the sale of the property.

1 (7m 44s):
So you want to think of the 1031 as a sell them by process. It starts with the sale. And I still get calls every month from folks who said, Dave, I closed on a sale last week. I want to do a 1031. And all I can do is weep with them because it's over. If the 1031 is not in place prior to the closing of the sale. So that's what starts everything. Now from that date, you've got a couple of serious timelines. You've got 45 days to identify your potential replacements. You've got 180 days to close on them. So it's not like you can lollygag around for a long time. You've gotta be very, very focused, but in today's overheated markets being focused on quick is not a bad thing.

0 (8m 30s):
I'm always telling my audience, be agile, be flexible, be quick because it truly is that early bird that gets the worm. And one thing that I do want to talk about before we move on to a quick break and then really talk about some cool things afterwards is think of a story, Dave, of one of your clients, I just kind of warms your hearts. Like you told us about a sad one where they might call you when it's too late. You're just like, sorry, we can't help you because there's a timeline involved. Tell us a story of one of your clients. You're just like, yes, this was such a success story because they came to me, they did the right things. We did the right things and they were able to really benefit financially. Does one come up for you?

1 (9m 9s):
Oh, all kinds of them actually come up with there's so much opportunity for people to shape their lives the way they want. But I got to tell you probably my favorite client with all the time came to me in 2003. And he was a retired woman who was at nothing but social security to live on. And she had a lot that she had paid a thousand dollars for. And that lot was, she was going to sell it for $11,000. Amazing windfall, right, amazing taxable windfall. And we talked to through the 1031, she was kind of wanting to explore that.

1 (9m 51s):
And at the end of the day, at the end of the call, she said, well, yeah, I want to do this. I said, are you sure? Because by the time everything shelled out, she was really only going to save maybe five or 600 bucks. And her response is resonated to me ever since she said, yeah, Dave, but that's my 500 bucks. And I said, fair enough. Let's do it. We did the 1031 caught up with her a while. After that, she had managed to parlay that into a small rental property that allowed her to live a good retirement supplemented with her social security that's meeting goals.

0 (10m 30s):
Fire Nation is just one of those winds. Sometimes that sets you up for success after success. I mean, I've had so many clients, listeners, students of mine over the years who have just gotten one small win at one point and it just made them believe. It gave them the confidence. And then they rolled that into a bigger win and a bigger one in a bigger one. And so they're living the exact financial and lifestyle of their dreams. So I love those stories. And again, you don't always have to look at these wins as like, oh, it has to be like a six figure seven figure win. Now sometimes it can really be that, that starring, that building block that builds your foundation. We're going to be talking about some of these cool things. When we get back from thanking our sponsors.

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1 (14m 15s):
So there, there are always better ways of doing things. I want to talk about your experience specifically here. What is the number one trick to a successful 1031 exchange? Well, I would say that the number one trip to the exchange process itself is being focused at a time. You do not want to ready firing. So even before you are thinking to sell a piece of property, you should be investigating when is going to be the right time to sell his property. And where am I going to put it honestly, in this market, the only people I see that will typically will fail in their exchanges are those that don't know where they're going to go and are not already immersed in their next market, because they've got too broad of a focus and the 1031 exchange, although that's the downside of it, the positive side to the 1031 is that you can use it to move real estate anywhere you want to the country of any type and any nature.

1 (15m 21s):
So you can sell in California, buy in Tennessee, you can sell commercial and buy residential. The world is your oyster. And if you're not focused though, you ended up then having paralysis by analysis and those Fort that those short timeframes will catch you. So I think early focus is probably the biggest key.

0 (15m 43s):
So I love that. And I kind of want to keep going in this direction because we say we're going to keep things light. We're going to keep things fun. And that's kind of what I want to do with the rest of this interview right now is really talk about, you know, some other tips, some other tactics, some of the strategies, and if any, like specific situations come up where you're like, yes, like this person did it, right? Like definitely shared that as well, but really bring this process to life for Fire Nation.

1 (16m 7s):
Sure. It's going to be specific, as you would imagine to wherever you find yourself in a real estate market. Now, anybody who says that they can time a real estate market or predict it, of course we're going to adopt their veracity, right. But we certainly know what the general course of any real estate market is like, and it's been that way for centuries. So the 1031 exchange the way I see people actually using this is that they will take, first of all, they'll start with an investment property. And that investment property is going to be probably in an area that's going to highly appreciate. Think about California throughout 2010 to 2018, how much the appreciation was.

1 (16m 53s):
But generally, if you were trying to rent those properties, you weren't going to make the kind of cashflow you wanted. So people will use the 1031 exchange to sell from a highly appreciated environment, to an environment where they can get more cashflow on their rentals, or they will sell where they will make a natural transition from say, residential investing. Or you've got to look at tenants every six months or a year to commercial investing, where you can have a tenant for 10 to 15 years. And then they'll gradually start to shape their portfolio into what suits their needs and the type of investing that they love to do.

1 (17m 40s):
There's a whole huge population now that are beginning to 1031 exchange into vacation rental properties. They love that. And so they're selling these single family rentals or multifamily properties, and they're investing in the smokey mountains and California beach and Florida. And these are all properties that qualify for 1031, their properties that they can let out their inner freak flag of hosting and their properties. They can make money for it. But John they're also properties that they can get some personal use from. So I have clients who are perpetual snowbirds.

1 (18m 22s):
If their condo in need Colorado is open. They go there for a while. The rest of the year it's rented when Colorado is full, they'll go watch the colors change in the Smokies at that's, how they're living their dream. That's the flexibility that's with you when you do a 1031 exchange, but it just kind of comes back to what we were talking about, that it takes planning and it takes a very strategic focus.

0 (18m 46s):
Yeah. I love this because Dave, so often I get from my listeners what they want out of life. They want flexibility. They want financial freedom. They want location freedom. They just want lifestyle freedom. And it sounds like this is the kind of life that you can build with these, correct. 1031 exchanges when you're doing it the right way. So take us home, brother. What else do you want Fire Nation to know about the tips and tricks of the 1031 exchange? What do you want Fire Nation to really walk away with from our entire conversation today, take the stage. This is your final keynote of the conversation. Take it home.

1 (19m 21s):
You know, I think the message that everybody needs to understand is that the IRS wants you to do this process. It's nothing that is out of the ordinary at all. What it is doing is it's encouraging investment in real estate. And the key component is that the 1031 exchange allows you to harness a form of compounding interest. And as Albert Einstein said, compound interest is the eighth wonder of the world. If you understand it, you're going to benefit from it. And it's being able to use the deferred tax dollars all to benefit your investing so that you make the money off the different tax dollars.

1 (20m 5s):
And then you get to make the money off the money you made of the deferred tax dollars. And by the end of your life done correctly, the 1031 investor will have paid no tax on real estate sales throughout their life. And here's the absolute best benefit. I call this the four DS of 1031 investing job. It's defer, defer, defer, take every advantage you can of compounding that interest and that deferred tax. And then at the end, here's the biggest D and it's not what you'd expect. It's not defer it's die because when you pass away, your investments will go to your errors and what called a step-up in basis, your ears, get your properties as if they paid market value for them on the day you died.

1 (20m 57s):
So by simply using 1031 exchanges, you're not on throughout your career. You're not only benefiting yourself, but you're providing a generational legacy to your ears so that they can live the same kind of life that you got to live. And you built for them.

0 (21m 14s):
Wow. I mean, Fire Nation, if you're not fired up about this process right now, then this probably just isn't for you. But if you are excited, I know that there's more ways to connect with Dave. I know he's actually got something special for us. So Dave, how can my listeners learn more from you? How can they connect with you? Any call to action you have for my listeners, take it away.

1 (21m 34s):
Absolutely. You know, we, we talked about making sure we stayed out of the weeds, but it's a government process. So of course the weeds of balance, but at our website, the1031investor.com, we've got a whole YouTube series of instructional videos, articles, calculators. There's going to be some other Easter eggs on there. I guarantee you that are going to be awesome for your folks to help them learn the specifics about 1031 exchanges and how to use them. That's the1031investor.com. And since, as I was pondering our talk, I came to the realization that for me, anyways, the best way to start a fire is with gasoline. You people don't, don't try that yourself.

1 (22m 16s):
The gasoline we're going to add on this thing for your folks for Fire Nation is going to be that you go to the1031investor.com/EOFire. We're going to give you $50 off your first online order for a 1031 exchange with us. That's your first start on a lifetime of financial freedom using resisting

0 (22m 37s):
Fire Nation. You're the average of the five people you spend the most time with. You've been hanging out with DF and JLD today. So keep up the heats head over to EOFire.com type Dave in the search bar. The show notes page will pop up with everything we talked about here today. And again, visit the1031investor.com/EOFire. Get your $50 off gets the heat started light that flame spark those embers. Dave, thank you for sharing your truth, your knowledge, your value with Fire Nation today, for that we salute you and we'll catch you on the flip side.

1 (23m 12s):
So awesome.

0 (23m 14s):
Hey, Fire Nation today's value bomb content was brought to you by Dave and Fire Nation. Successful entrepreneurs are great at three things, productivity, discipline, and focus. That's why I created the Mastery Journal. So you can master productivity, discipline and focus in a hundred days. And we're talking, step-by-step visit the MasteryJournal.com. I'll catch you there, or I'll catch you on the flip side,

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0 (23m 58s):
Business Made Simple hosted by Donald Miller takes the mystery out of growing your business. Recent episodes, like how to attract and retain top talent and how to make more money with your current products are straight fire. Listen to Business Made Simple wherever you get your podcasts.