How To Save and Reinvest Your Money Tax-Deferred With Real Estate

How To Save and Reinvest Your Money Tax-Deferred With Real Estate


welcome to another segment of market
overdrive I am your host residential real estate broker with coal banker my
name is Karla Meena and it’s a pleasure to hang out with you today Nick how are
you is it really a pleasure I love it I do know you know because I’ve never
heard you say many people say that you’re like like lip shakes when you’re
lying mine doesn’t I can like honestly look at you and say it’s a pleasure to
be here with you today Nick how’s it going how’s the market weekend it’s not
about me and you the market is great what it is about is that two guests
today is it yes let’s get into that guess let’s go quickly are you gonna do
an amazing introduction these are some very VIP people in here I’m very what
are we talking in the billions today lots of money though I’m officially a
billionaire by the way yes because nobody has as many bills for the record
you guys aren’t the only ones talking billions around here got plenty of bills
myself but I am a hell of a thousandaire introduce our guests why do I even need
to introduce mr. day and Wagner how are you dad you are the best I’m
wonderful I love it do you know why I did that because Dan
came in here and said Carla you’re a beautiful naked you look so cool like
he’s just full of compliments maybe I should learn something you guys have
been doing this for three years everybody knows you carry yours yeah I
just started two years seven months I’m still
learning on the fly we’re getting better and please introduce your guests today
well we aren’t to be here today this is Keith Lampe he’s the CEO of the inland
private capital company that works on the 1031 DST Delaware Statuary trust
program for the inland real estate group of companies love it welcome to the show
thrilled to be here thanks and I haven’t gotten a compliment yet from he’s better-looking than me anytime
somebody tells me they’re gonna teach me how to save money you’re beautiful
like your can some really intricate but it’s all about how to save money and how
to reinvest your money tax defer and of course you know there’s a lot of people
who are flipping properties and thinking oh my gosh can i really take advantage
of this but you’re gonna hear some nuances to the process that may not
allow you to qualify but we do have lots of information and the real reason is
let’s just get start with that just go ahead and tell me why should we take
advantage of a 1031 exchange well a 1031 exchange I think well better yet what is
it what is a 1031 exchange and then we can get into why how much money you’re
saving you’re gonna know why so 1031 is a really on it’s it’s a terrific program
and a part of our tax law for a hundred years the inland real estate group of
companies where we come from we’re the experts in the commercial real
estate world we have four teachers that started our company and they have
purchased about forty four billion dollars worth of commercial real estate
America so they know this stuff inside now so the 1031 is it’s probably one of
the best producers of income for people around for commercial real estate a good
waiting a good example is it’s like the 401 K of real estate okay we’re okay you
put money in yeah and then eventually you pay the tax when you retire same
thing with this you have income producing property and when you would
you go and you buy another intrapreneurship property you can sell
that and put all of the profits of that income producing property into a bigger
property it keeps growing and growing the synergy of that transaction is
incredible for our economy and that’s been a part of what we’ve been doing for
a long time in Washington unfortunately right now that you’re talking about
possibly taking it away and it’s the the whole idea of tax reform their logical
take away the 401 K – exactly they want to do they want to talk about taking
away the 1031 exchange in also a mortgage interest deduction so the
National Association of Realtors is one of the best organizations around to be
able to fight for private property rights as you know with the Illinois
Realtors and Chicago Association Realtors we all work together to fight
every day protect all of these great pieces of
legislation and a 1031 like I said is really the Energizer Bunny for our
economy and the 1031 keith is his company for inland is an expert in how
it helps people deal day in and day out with the 1031 if you want to get into
some of the details Keith I just want you to go ahead and give us an example
like more of a number scenario because a lot of people are listening and they’re
like wait so it’s like a 401k retirement account but as I understand it you don’t
have to wait until retirement it’s just a way to exchange products so that
you’re able to defer it tax so you can reinvest a tax it for can you give me an
example like numbers why like an average person person’s example like yeah you’re
just like novice you know deal here in there sure sure so I usually use the
million dollar example okay from from an example perspective right dan is kind of
underscored how how powerful this segment of the tax code is so property
owner let’s say they buy a property 20 years ago and they pay $100,000 for it
and fast forward to today that same property is worth a million dollars
we’ve got a very major gain to defer and that’s obviously a lot of wealth is
created through real estate and that drives tax that drives retirement income
along the way so I’m and that property owner I’m considering selling but I look
at the amount of taxes I’m gonna have to pay if I do sell right I’m gonna pay
fifteen percent federal gain I’m gonna pay state income tax capital gain I’m
gonna pay the 3.8 percent tax on Medicare and then I’m also going to be
hit with depreciation recaptures so in aggregate sometimes thirty thirty five
forty percent of my sales proceeds are gonna be hit with a capital gains tax
huge so then I take that example and I say you know what I’m selling this
property I want to stay with real estate I think it’s a good income generator for
me you know worth is going up you want to look at it still net worth so you
need income right so I’m gonna take that million dollars in sales proceeds I’m
gonna roll it into another property I might even pay a little more I might buy
a bigger property and by doing that by staying in real estate I’m gonna defer a
hundred percent of that capital gains tax so I’m gonna have that full
million dollars working for me generating income for me throughout that
process and that really speaks to why it’s so powerful so non-taxable if I saw
the property for a million dollars made eight hundred thousand I’m gonna move
all eight hundred thousand no one can do that that is eight hundred thousand okay
yes your real estate fees marketing fees
closing cause your net number is what you’re gonna reinvest into new product
and and you keep doing that currently under the 1031 exchange rules with zero
tax repercussion right it’s a deferral it’s not you’re gonna pay it right but
right now we investing it net numbers into the new acquisition so you’re able
to use more of your money right and it’s a power of tax deferral so if I’m
generating a rate of return on a larger asset I’ve got taxes I’ve got dollars
that would have otherwise been been paid out in capital gains and and in various
taxes that are not working for me to drive my retirement years just like your
401k at work I mean it’s that simple the other aspect of this is inland is an
innovator in this space we could be a good one the Chairman DeLand real estate
group created working with our staff the Delaware statutory trust and Keith is
really an expert in that and this is something that Realtors really should
want to try to do and work with us on and Keith if you want to talk about what
the deal or statutory trust is with the ruling from Treasury that’s a it’s a big
deal well it’s it’s it’s an interesting play on 1031 though that we’ve really
kind of developed and modified and worked with the IRS on so the Delaware
statutory trust is essentially taking a larger piece of real estate and
providing a structure that allows investors to come in and buy fractional
interests in that property so I’ll use a local example we were actually we were
the first buyer of the first Mariano’s that was developed in Arlington Heights
but so yeah that means you get discounts at Marriott I wish but I will say this I
mean the sales velocity that that’s been a great tenant great performer for us so
that the performance is definitely there no discounts unfortunately yeah but but
anyway so that’s a property you know what’s called a 20 million dollar value
you’re talking about investor that may have a hundred thousand two hundred
thousand or a million dollars to reinvest they’re not gonna be able to
buy a Mariano’s through our structure by packaging in a way that allows investors
to buy fractional ownership units essentially they can come in and own a
piece of property and when you say fractional
units what does that mean what does that entail well it really tell more so
there’s there’s no minimum investment so you’re gonna have a wide variety of
investor implements right some people may put in a hundred thousand some
people may put in a million dollars the million dollar investor is going to own
a larger percentage property $100,000 guy obviously smaller percentage but
they’re gonna have all the same ownership rights that they would have
had they own a hundred percent of it that’s me you do get a discount at
Mariano’s so so you could just be a money pool essentially you can it’s
almost like crowdfunding let’s say you’re tired of taking care of that
apartment complex you own and you’re tired of the the trash or the toilets
and all that kind of stuff you make this into a passive investment by doing 1031
exchange into this Dell or essentially trust and you get a fractional share
interest in that Mariano’s or whatever it is and it’s a you that’s uncredible
how am I seeing dividends the rent that Mariano’s pays in that example is
distributed to investors in the form of income so by distribution portion so if
I’m a hundred thousand owned two percent I’ll get two percent of the run flow you
would get two percent of the net operating some of these programs have a
loan in place after you pay debt service and operating expenses the rest is
distributed to investors one with tax and I know someone’s probably watching
it and they’re very curious what’s the average return over the last couple
years it’s it’s ranged and obviously it’s risk reward adjusted but I’d say
anywhere between five and six percent cash on cash is kind of what what works
is pretty cool you’re getting six five to six thousand dollars back over here
right yeah gentlemen before we start getting into the top of the vehicles
that we could go ahead and invest and niggas already taking on his wallet
wants to start writing you a check write you a bill before we go into that
can we just go back a little bit to 1031 exchange and explain like Nick likes to
do these four or five let’s go into like say for like what are the requirements
in order for someone who’s already doing this you know like to start how can I
qualify for my 1031 exchange how do I plan for it would it be the rule number
one for requirement to qualify so if you’re a property owner and it’s a lot
of property owners out there the primary residents consider themselves property
owners 1031 is specific to investment property okay so if you own investment
property you own rental property or all and for investment
purposes that’s an asset you can sell and do a 1031 will qualify so let’s make
that let’s make that you know let’s specify that because a lot of people
think that oh well you know I just saw my two hundred thousand dollar condo and
I made seventy thousand dollars I’m gonna roll that and use it as a 1031
exchange into now a two flat that is incorrect that is only you can only do
apples to apples you can do single family or primary residence right it
doesn’t matter what type of property is just how you’re using it so if you see
your primary residence how about your say beach home or your second home or
your in town can you use it and roll it up and if you sell they’d make proceeds
and use it for can you use it as a 1031 exchange so a second home the only way a
second home would ever qualify as an investment properties if you’re renting
it a substantial portion of the year so a beach home that you just kind of use
periodically and you don’t have kind of a rental income stream attached to would
not qualify either so it does have to it’s very clear it’s investment property
for investment property awesome I love it so let’s go back to the my primary
residence example if I were to have used it and say I moved out and moved in with
my boyfriend and now I’m using it he’s never gonna stop okay so we I have this
property what if I’d like rented it out it’s my primary residence but I no
longer use it because I moved in with someone else can I go ahead in fact use
it the the money that I made on it can I use it it – or can I roll it into a 1031
exchange that’s a great question that that can actually work so there is a
period of time you have to rent it and for it to kind of convert in the IRS his
eyes as going away from a primary right it’s typically a year two years every
tax advisor I’ll kind of give you different counsel on that but but there
that does work we have seen property owners kind of transact that way
love it so if you’re flipping properties and you’re listening to this show and
you got that 90 day or 30 day transaction that you’re changing you
cannot use a 1031 exchange product or tax defer because you have to have held
the asset for a year and I believe a year in two days or something like that
in order for you to qualify so that that’s again one of the requirements
that cannot be used as a primary residence and you have to use it for an
apples-to-apples investment you have to have held it for a certain
amount of time what is the other requirement so outside of that you know
like kind it’s got to be like I’m property investment property for
investment properties more like a income property like a you know investment or
landlord type of product what’s interesting about that is like kind I
think a lot of people think about that and go okay I’ve got a residential asset
I’ve got to buy another residential I said arrive a commercial acid I’ve got
to buy another commercial asset and that’s actually not the case
like kinds fairly broad spanning so you could sell a raw piece of farmland and
roll into a commercial asset conversely you could sell an apartment complex and
go into industrial asset or or a office asset so as long as it’s investment
property for investment property you’re you’re gonna be okay my ten unit
building and going to investing with you guys correct exactly into the fractional
ownership and right now there’s some rules I you know cuz I remember doing
one these a while back where don’t you have to you know the sale of your
property is let’s say it’s around the corner isn’t there like a timeline you
have to identify a new property it’s not like you could just sell it hold the
check at home for a year and then okay now I found a new one so let me do my
1031 exchange isn’t there like timeline requirements between identifying a
property and you have to closer than a certain time frame it’s it’s it’s a lot
more I mean we’re making a sound easy but there’s there’s some there’s some
timing effects details yes can we get into that because I think a lot of
people really don’t understand that in fact I’ve been confused by a couple
different times so you mentioned you know selling your property taking a
check and kind of that’s very important I think that’s a lot of people yeah so
you need constructive receipt is what we’re talking about here you can’t touch
the proceeds so you’ve got to direct those to a qualified account right and
so then those dollars sit in the intermediary’s account while you
navigate your way through the timeline that you described so from the date you
sell you have 45 days to identify replace me wrong who the heck is gonna
find something in 45 days in this market you’re killing me it’s challenging which
by the way is interesting that’s where we come right we have inventory at all
times a menu of options so investors it’s a slick okay so 45 days but if I give you like
20 properties that I’ve identified one of those may come to fruition I qualify
right because I think there’s a six month period or a hundred how many days
there is so you’ve got identify when the 45 okay going back to our menu of
options you’re gonna have that what don’t have to invest in that 45 days
you’ve got the full 180 days or six months as you described you actually
closed on the purchase of your place how would they know if you identified three
properties within 45 days doesn’t just go from well you’re identifying what you
sell your property you have 45 days to identify one of three yes so you write
that contract up within the 45-day window is that what you’re saying no
qualified intermediary that I describe they’ve actually got forms and a process
that creates a paper trail so they’re they’re going to facilitate that
identification process so identifying three properties they’re gonna have a
document that kind of proves in its timestamp that you’ve their Xboxes rules do you have the can you just in Toomer I
see the look in your eye though you’re thinking I’m already going to help you
say okay I’m gonna buy you know 400 in Sinclair or whatever or the other one
and this is where I’m gonna invest the money one of those do not close because
whatever the property didn’t qualify or whatever you don’t qualify for my 1031
exchange so I cannot use that money tax defer I now have to pay income on it and
I have to pay everything that goes against you know taxation for all these
great questions I love it so that’s not entirely so you’ve got three three
properly yeah there is a way out on that one making you money three properties
you don’t have to close on all of them and so a lot of investors maybe have one
in mind that they really want that they want to pursue then there are two or two
backups so if the first one doesn’t doesn’t work out they’re gonna move to
option B or C okay some investors identify three properties or three
assets they they want to diversify across all
three so it’s not entirely it’s not an all-or-nothing proposition you do have
some options within that three property rule will see somebody’s just done right
they’re retired or whatnot they’ve been landlords all their lives
they’re just done with the whole like you know servicing tenants then they
want to do something with their morale oh it’s low key you’re just sending you
money and you guys are investing in you’re giving me a five to six percent
return on my investment why not me can I go through a hypothetical here yeah
definitely can’t find any I sell my property I can’t find anything like I
don’t have three options can I use your fund as the city lows at the Delaware
Delaware statutory trust you don’t can I use a safety valve and just absolutely
go straight over to DeLuise that now I have another question following that
though now six months later I have found some stuff I do want could I sell out of
there and then that gets dicey right so there so you you invest in I mean
Delaware statutory trust interests are like most other real estate investments
it’s a liquid right it’s not something you could just you know click click the
sell button like a stock back right so it is challenging to just get in and out
and so we do kind of discourage parking type scenarios like this but that first
scenario you described is huge right you maybe want to buy something that you’re
going to own entirely but you need these backup options and if that doesn’t work
out the Delaware statutory trust at least put you in a position to the FIR
okay we open up another question and so if I’m buying into the Delaware state
statutory tries to trust is there a timeline that you require me to stand I
mean I can’t just sell when I want to sell out of there yeah me typically we
estimate or we pin the the response to that on a five to seven year time
horizon so the hold period on any property is ultimately dictated by
market conditions you know we’re gonna drive value through property and asset
management so we’re going to kind of think about when it’s the right time to
sell and behalf of our investors and we have completed we’ve sold over over a
billion dollars in real estate over the past ten years we we have about five
billion in assets still under management so we’re very active not only buyers and
and profit our product creators but we’re also completing programs and and
completing the process as an investor in that in that trust
am I getting a return on the equity you are not just a cash flow of the rest
right so all of the benefits of real estate ownership pass through to you so
if to the extent that property appreciates in value that’s something
you’re going to also enjoy as an investor right because initially you
said there’s some investors who are going in with minimum investment and
there’s other investors are going with larger but they everybody gets part of
the equity correct and then the percentage of the investment for
whatever profits breaking down the net worth – so these are these are designed
for high net worth investors it’s high when she’s thinking about so if so
basically the the trust or anything like this Trust is a safe way to still take
advantage of the tax repercussions if you sell the property because I’ve seen
people I don’t want to say horror stories but we’re there rushing to make
something happen and now they’ve they’re there the focus of what they’re buying
has gone delusional they’re so concerned about the tax break versus is this even
a good investment property purchase and they’re in a rush or in a frenzy I got
to do this because I don’t do this by now then I’m gonna be stuck with the tax
implications but then you bought a lemon if you will and it’s it doesn’t make
sense at least if you have the safety valve if you will urea is like a guy
like and I said one of our one of our founders Joe Cosenza he does our
acquisitions he’s from Chicago he is bought the forty four billion
dollars worth American in America so he knows all the people around the country
with Target or Lowe’s or whatever we’re gonna we’re gonna buy he knows all these
people and we get incredible deals on apartments on everything we own forty
thousand apartments own one time in Chicago so we have experts been doing
this for 40 some years totally understand the market and they’re gonna
be the experts to be able identify this is the best investment so you don’t have
a bomb a pop person trying to figure out were the place to get my return this is
why inland is such a terrific place to put your money and so along those lines
a programatic buyers we’re constantly in
the market we kind of leave that that take that leave no rock unturned mindset
so we’re always looking for opportunity across various sectors and going back to
that menu we’re buying the menu before investors need it so we go through that
exhaustive process of deal review analysis we can be very thoughtful
because we’re we’re buying with with it ultimately being a replacement property
in mind so by the time investors get to the point where they’re considering
those options we’ve already thoroughly vetted them we’ve done our exhaust it’s
around the country it’s nationwide but that’s what’s a big deal so I just want
to encourage people to understand that this is something that you can plan on
long-term right you’re talking about people get frustrated because they can’t
identify that property in 45 days in this marketplace is very difficult just
because there is a lack of inventory and everything out there is seeing multiple
offers right and again let me go back and say depending on location there are
some locations that are still kind of stagnant there’s not a lot of movement
but if you’re looking in those like neighborhoods where you’re buying multi
units and there’s no inventory this could be a better option for you of
course you need to grow into that role and understand that you know some people
are worried about cap rates right on for a smaller unit but this is something
where you are actually acquiring commercial property property that has a
lot of research backed I mean you’re looking at location the best location
for Mariano’s and I know that has to do with a lot of traffic and you’re looking
at a lot of details stuff that’s not available to us on a smaller budget
right so somebody were to grow into this you’re saying like to start you’d have
to at least minimum it’s like $100,000 investment or that’s right
hoo-wee let’s do it well I do have a question though if we have an emergency
situation let’s say you have someone do her very well business is great for them
they throw you $500,000 because it was very affordable for them to invest that
way and then something happens business tanks businesses and before bankruptcy
life has gotten tough for them you’re typically there they went in with the
premonition they’re gonna probably waiting five to seven years before they
can get their money back out but there’s emergencies how do we handle a situation
like that like how do my cash is locked up at inland how can I get to it if it’s
an absolute dire emergency no that’s a good question it’s a because it
a real-life example for sure I gave you my example before the show started I
would call you be like give me my money now are you going to share your example
on air no we we do get those calls they’re fairly infrequent I mean I could
count on one hand a number of times we get that call because I think our high
net worth you’ve got that and I think that still happens that’s incredibly a
big part of the narrative that that we describe when when explaining these
products to investors you you should expect to have your money tied up for an
extended period of time it’s illiquid know that going in but if
things happen right so in instances like that what we’ll typically do with the
investors consent is we’ll we’ll provide their contact information to the rest of
the investors in that particular program so they could buy more shares of the
projects they want it to go right so a lot of investors will then call that the
investor that wants to get out and if they’re sitting on extra cash where they
they like the performance of the asset and they’re they’re interested in owning
more they can kind of negotiate that amongst so the four of us bought a
project for a million dollars we each have 250,000 in there Carlos spent
decided to spend all her money something ludicrous unicorns and rainbows talks
about so did the three of us would get a notification that Carla’s out of money
and she absolutely needs her money back so she can purchase more unicorns and
rainbows and we would have that option now it could be where we would what if
all three of us went after well that’s a good problem for her she gets her money
faster but and she probably to drive the price up on us right she’s creative
bidding war oh really does that happen I mean you can write it’s it’s we’ve all
wanted because this is a great return on investment we reach making 7% or 6% a
year or whatever there’s a money on my unicorns now over 250 can come back out
and we could say we’ll give three or we’ll get four or whatever the case is
because we depending on how bad we want it right and wow that’s an above market
regenerating I’m broke any money up right 600 get a seven kick it with our
product wait what typically do you experienced with investors how they
reinvest well so that I mean I mentioned five to seven years and you earlier
mentions cap rates right I mean cab rates are low so I kind of take a
cautious approach and terms of like planning that extended
hold right and when you say lo I mean in some cases cap rates are really high and
they’re healthy I mean we’re looking in some areas in the south side of Chicago
a higher risk you’re gonna have to do diversify your land your tenants where
you’re gonna market tenant and then you have section 8 tenants to kind of get
the most of your money from a rental perspective you have areas with 12% cap
rates and you’re looking at some more you know conservative neighborhoods like
go closing in Lincoln Park with a six-person you’re lucky if you get six
person rights mostly 4% cap rates so you know it’s the higher the risk right the
better the investment but you’re telling me that you have a sound investment
that’s not very risky or is it well I think the point I’d make along those
lines is cap rates across the spectrum have have dropped compared to where they
were three four years ago we’re at a point in the market cycle where we
recognize we’re buying and at values that are higher than they were several
years back and so when I look at our investment thesis whether it’s for the
apartments we purchase the self storage assets we purchased the healthcare
related assets we purchased I like those assets long-term but I don’t look at
them as being a short-term kind of quick flip three four year hold and then we’re
gonna make money kind of proposition because of where we’re buying in the
market cycle so it does affect you as well so you’re seeing because there is
no inventory and there’s bidding Awards the acquisition is gonna be higher so
you’re looking at you know a little cap rate but you guys are but you’re buying
in bulk so are you getting deals we think I would hate to think of getting
bad deals in your investing talking about the marker you know we just buy
whatever whatever that it’s market effects market pricing is always I think
there’s a lot of talking heads you seeing them say hey I’m gonna create
value because of who I am and I’m gonna get this is all that’s why I want to
roll with you because you got the inside scoop like it to me and I think
obviously having the scale in presence we do nationally you’re you’re gonna get
an opportunity to see things that others may not and so I do believe we buy well
we buy better than the the average run-of-the-mill investor
having said that assets we were buying two three years ago we’ve actually taken
full cycle we’ve sold those on and on behalf of investors been tremendous
profit taking opportunities I just wouldn’t set those expectations today I
look at the market was a lot from inside out I bought a lot of stuff
in 2011 and 12 and yet I’m solve it as we speak so I got some 1031 exchange
coming because because you’re a high net worth person this thing is kind of like
a center board for your portfolio okay it’s one of those things that you have
and it’s it’s really mailbox money you get a check every month and people really I know you love you guys yes that sounds like a sitcom waiting to
happen let’s get something very clear though
you have the 1031 exchange is a way to avoid paying taxes on your earnings from
Boyd well I’m gonna keep deferring until I could avoid one day when I’m about to
die so but let’s not misconstrue the situation if you’re if you’re putting
your money into a you know a ten 10:41 exchange 31 1031 exchange and you’re
saving on you’re deferring on your taxes and now you’re getting rental income
every year at that you know for those that are watching that doesn’t mean it
detect the rental income is tax-free that’s income because a lot of people
like oh wait I shouldn’t pay tax on this well that’s a whole different formula
right because we’re talking about getting the proceeds from your recent
sale the net proceeds you know whatever you it costs you to sell the property
marketing fees and closing cause your net number you’re gonna reinvest it into
a like vehicle another to flat or maybe you’re going to attend flat now that’s
gonna be easier to manage your growing up in the world right but if you use
less of that money then you gonna have tax implications with the
money you have to be able to reinvest all of it and you can do multiple sales
but then after you’re carrying that vehicle like you’re ten unit building
the rental income that you’re getting that’s a whole other transaction right
there’s a whole other IRS formula this is just transferring exchanging one
property for the or changing it reinvesting your net proceeds right in
exchange for another product and the other important thing with this for
realtors working with their clients because obviously the realtors are the
professionals that know how to do that all then again the Realtors take care of
this Fran Brody’s birthday today so happy birthday friend Realtors don’t
when you identify three properties and they’re working with their clients if
they put this DST is one of the backups this is the insurance policy because
I’ve known so many Realtors that work with folks that the deal blows up and
they’re so embarrassed because then they have to pay all the capital gains so we
are the insurance policy for the realtor and people are really loving it so about
you know thirty to forty percent of folks are trying to put this down as a
third choice and it works out great right it’s your third options that’s
what people do they put that down as a third option and it’s just make sure to
take care of it now it isn’t it’s a security so a realtor does not get a
commission it’s a it’s that’s what they can do but it’s wonderful to take care
of your client and Realtors want to take care of your clients for sure yeah you
can’t win them all whenever you yeah you know right I hear good Realtors always
backing out of deals which no realtor wants to back out of any deal they wrote
up but then we find something out and they pull it out and they fight for the
client I mean client for life for client for one thing you know there are horses
out there you guys have known people they’ve gone oh yeah I mean if somebody
says oh I don’t want to lose the claim you’re gonna lose the client because the
other deals fell through but then this is a way of saving your clients and so
much money because they’re not gonna get the tax implications of the income they
just made on that property and a whole other aspect of this you have farmers
this is the lifeblood of farming because farmers are usually cash poor and dirt
rich right and when you have a farmer who
intended by Carlos Dan the quip where is causing me to do all these great ways of
thinking that’s why you’re so good but the deal is is that you have farmers
that are able to sell their property and they work with conservation a lot of
conservation people so tons of the conservation stuff out west that’s been
set aside for wonderful for the federal government for conservation easements to
make sure to have clean water and everything that money’s coming from
conservation groups paying to farmers and farmers are able to do 1031 s so
that they can use that money to 1031 back into their income producing program
they can buy more land to be able to grow on so if they have farmland or
something they own right next to the Mississippi River while a conservation
group might say let’s buy this hundred acres and then you’ll be able we’ll be
able to make sure to have a good clean run off into the streams in the river
but you could use that money as a 1031 exchange and put it into buying wordly
and to be able to or you can do it the farmers love our DST program because
that’s how they get get their their passive investment so they cash out they
go in through one of our DST s and it works out great right farmers and the
Realtors Land Institute they’re over at the NA our building they’re phenomenal
they represent all the Realtors that are into farming and it’s huge legislature
is changing and that they want to get rid of these oh my gosh Carla thank God
for the National Association of Realtors we’re working with the federal exchange
accommodators which of the qua faded meaty areas work with the real estate
roundtable International Council of shopping centers all these different
groups are fighting but not more important that the National Association
of Realtors I tell you what when they talk about getting rid the mortgage
interest deduction and it’s in 31 if you ever see you’ve ever seen Lord of the
Rings it’s like the ents going to war we’re gonna go to war oh yeah the
realtors are gonna go because the realtors are boots on the ground and
they understand what’s happening in communities and they know how important
and synergistic these 1031 program we were always saying we’re advocating
renting versus buying why not buy it’s gonna be more affordable I just
read an article saying that the rent the amount of people renting is so high
right now and you wonder what are the you know what are the pluses you know
cheaper doner right now it’s definitely cheaper to own but I mean but we have
incentives like these and they’re getting taken away like how do you the
bedrock of homeownership and it’s a huge deal that we make sure to wake up our
legislators because what their concept is they want to bring the corporate tax
rate down to 15% and we’re saying but don’t do it on the backs of real estate
you know doing tax reform when you hear people say bringing the tax rate real
rollo they’re gonna try to use the mortgage interest deduction the tenth or
do you want to do that and we as realtors have to stand up and get
buckets of cold water and throw it on people and wake them up because every
time they’ve done tax reform in America for over the last hundred years they
look at these things and say oh let’s get rich get rid of these things
and every time they finally wake up and say that will really kill the Golden
Goose my question is then well I mean I really
hate talking politics because I just hate politics in general I don’t care
what side you want to talk about I just hate politics but you would think that
you know the current administration coming from the real estate industry
would actually help keep this in line you would think well that you know we
you would think that and we’re trying to I mean he made his fortune off of real
estate which has been in place for a long time right the speech the talks
about changing this has been in in the works for a long time it’s not just with
the new administrator right right that’s the people that are in charge right now
I mean every bill has to go its lifeline when the Democrats were in charge they
also looked at one of their solutions to tax reform is to look at real estate –
so it’s really a bipartisan effort why to wake people up to say look we and
once we start educating people in Congress I’ve met with a variety of
congressional staff members and a lot of them are about 23 24 they don’t really
know it’s it’s like drinking from a firehose because you deal with Foreign
Affairs all this other stuff and so this is a part of the tax code and you say
you know 1031 I was in meeting where a staff person looked at their watch and
said no it’s 11 o’clock and once people start recognizing the
synergy because when you do a 1031 like he said you’re able to open up that
property that was really stalled because nobody wanted to pay that capital gains
so when you do a property you the realtor makes funny the lawyer makes
funny all the different ideas of renovating the space you know what it’s
like whatever eat something or when inland buys a property through a 1031
we’re putting on a new roof we’re putting on do new HVAC what other stuff
well along those lines I mean we we kind of see things from an investor
perspective and we kind of hear the sound bites in the market I can’t tell
you how many investors I’ve talked to where they’ve they’ve looked at the tax
consequences associated with selling and had there not been an opportunity to
defer that capital gains tax they they just wouldn’t sell they’d sit on their
assets so that’s a big fear factor here is that there this could create a
general freeze in and in liquidity throughout the real estate markets and
then and then tax revenue associated with all the different constituents that
get paid and and all that income is taxed at throughout the transaction you
get transfer taxes sue at the local level and right it’s it’s Pete it’s just
deferred you are gonna pay it will happen someday but eventually it is it
is it is the absolute sparkplug of the economy and this is what it’s been for
years and people want to mess with that our economy’s finally turning around why
are you want to mess with real estate and how we do things they’re talking
about a hundred percent expensing instead of doing the 1031 one hundred
percent expensing if you’re a Keith looked into this you might talk about so
when you own a piece of real estate you could depreciate it okay schedule so
hundred percent expensing is essentially accelerating the depreciation which is
definitely not gonna be as you’re not gonna get the tax savings that you would
if you got the 1031 exchange which you’re getting the discounts from all
from the taxation that you would get if you had to use it now right right and I
think it’ll actually would help the large institutional buyers but it really
hurts the and a little the three flat or the ten flat buyer that was kind of the
challenge that you know with respect to that there been a myriad of proposals
that we’ve looked at and evaluated and I mean Dan does a phenomenal job I think
just staying in front of all of this for I want to thank you so much for coming
on the show just because it is such great information you’re listening to
market overdrive we’re here every Wednesday at 10 a.m.
and we’re definitely here to elevate your real-estate IQ we’re providing you
information that no one’s giving you a lot of agents don’t even have this
information accessible to them so they don’t understand the intricacies of all
these different programs and part of being a realtor you have to be able to
facilitate this kind of information how can we save money now moving on
gentlemen a lot of people are talking about this said correction in the market
right okay so the bubble it’s great is it a bubble is it a mirage there’s not a
lot of job growth so why are people overpaying for these properties looking
at it into this perspective like where some people are saying three-year
correction or four year correction or five year correction they really can’t
tap into it I’m thinking that you know kind of invest now make a lot of cash
and then save it and then invest in vehicles such as what you’re proposing
today what is your take on that I think it’s a general rule of thumb Real
Estate’s always been a longer term minded value proposition mmm-hmm don’t
get me wrong we we focus very much on market cycles and where we are in that
market cycle and and real estate isn’t a one-size-fits-all proposition so it’s
it’s also important to isolate your analysis and buy the the right
properties and the right markets all the right reasons the right reasons right
sectors you know generally I think when you look at the the stock market the
bond market that that’s a segment that’s obviously seen a tremendous run and I
think what we’ve seen is additional growing demand for real estate for hard
assets people are looking for a safe haven to kind of put their money into
because if we are if we are at this point in the market cycle words get a
little long in the tooth I want to be I want to be flight to safety flight to
quality in a hard asset that I can kind of touch and feel and understand the
tangibility of and then I think that carries us through a market downturn so
back to my original point even if we see ourselves ride through a cycle here if
we see some cyclical pressures on cap rates if you as a real estate operator
can continue to drive rents upward you’re going to come out the other side
in a healthy fashion and globally look everybody wants to invest in America
right yeah it’s wonderful you love what people of us in Chicago it’s one of the
good I mean that’s where people want to invest and again real estate is like the
center border of your portfolio because you can’t all of a sudden say oh it’s
the dad you’re going bad I’m going to sell real quick I mean it slows you down
so you don’t blow yourself up right look there was a lot of people that made
a lot of money in 2010 and 2011 in real estate yeah so you got to know how to
navigate the system as well there’s you know there’s people that are taking
advantage of situation when everyone else is going in the same direction and
just jump on the train and you’re gonna follow and make some money that way and
there’s people that just decide to watch a train go by and eventually wait for it
to stop and figure out a way to loot the Train if you will so really rich people
that did a lot of buying when everyone else was losing homes right so you just
kind of you know like like are we there where a lot of people are asking is that
the right time to buy is that the right time to sell like where are we in the
market where there’s always a shit or we keep it what do you what do you
recommend what do you what are your thoughts on that what we’ve we’ve been
fairly dynamic and in the way we evaluate real estate opportunities so
back in the 2010 era we were buying a lot of triple net leases that’s what we
bought Mariano’s long-term lease get behind credit the rental income stream
is relatively fixed but we were buying a great cap rates and that was the right
time to buy those today when I look at where we are in the market cycle in and
you know a lot of a lot of economists will use the innings right where we are
where we at I got you man okay so we’re at the top of the what does that mean
how much more time do we have this cuz I gotta go i showing touchdown baby
touchdown and i’ll layer one more thing on there then you hear some economists
say well we may be in the eighth inning but this this series this cycle may go
into extra and i would say generally where we’ve shifted focus because we are
at the you know maybe the second half of the ballgame is we’re looking at
operating assets we’re looking at buying properties that we feel like we can
create value as a property manager we could drive rents we can keep occupancy
healthy we can manage our expenses and that’s really the fundamental you know
roll-up-your-sleeves way to make money in real estate it’s not it’s like gaming
market cycles it’s not trying to time the market it’s it’s by with a strategy
hole through a market cycle and if you’ve got
a an asset manager that knows how to create value that way it’s a good it’s a
good time to buy I mean it’d be a national I mean Keith wears a great
state right now to go buy we’ve been very active in Denver on the residential
side obviously population growth is we legalized that’s a good you know that’s
great dialogue because you have people who are listening or watching the show
now and Facebook live or have you but they’re thinking okay I’m gonna get a
higher rate of return we’re talking about five to six percent we talked
about the higher there is the higher the return so a lot of people gonna be like
forget that I’m gonna stay within my vehicles where I’m you know I’m flipping
properties per se and I know you can’t do a 1031 exchange in a flip but what
I’m saying is like you’re making money say thirty one and forty one percent
return on investment for some flips that I’m seeing out there for the people who
are able to buy low right so these people are stashing their cash they’re
saying why am I going to go into a vehicle that’s gonna be I don’t have
control of it it’s everything’s picked from me all the work is done for me so I
don’t get my hands dirty I mean we have flipped chick in the show just some time
back and she’s advocating start flipping women empowering women to flip so what
would you say to someone like that I think it’s just a different risk profile
different I mean every investors has to kind of evaluate that and and figure out
what what risk tolerance they have I mean the one comment I’d make if you’re
thinking along those lines and maybe sidelines in cash and by the way there’s
a lot of cash still on the sidelines and crazy in a maritime eeen it is it’s it’s
incredible but if you if you wait too long you miss like four dollars over
there dollars take you sitting in cash for three years and you’re missing out
in five six percent returns there’s there’s fifteen twenty percent return on
your investment that you’re not receiving by sitting in the sidelines so
you know 1031 dynamics I think shape the decision to go in
and the timing associated with going into a particular real estate holding so
that’s a little bit less of what we’re we’re thinking about day to day but but
i but back to my original comment i think i think it’s always a good time to
buy the right asset and the right cycle for the right reason we come to an end
great for me I just realized what WG instance for today you listen to WGN
news it stands for Wagner’s got news you
don’t believe me watch this show the playback Wagner’s got news you’re like
there’s like smoke coming what you talking about the minute I leave you I
got plenty of love okay you look like a metrosexual to me three minute mark this
is like a record long show you got some Metro terminology okay Keith thank you
so much for coming to help us understand the intricacies of a 1031 exchange if
you somebody had questions I wanted to get a hold of you where can we find you
we call our our general number six three zero two one eight eight thousand and
ask for in the private capital corporation and you’d be directed to any
one of our any one of our associates that’d be happy to answer questions and
and take it further Nick you need to start burning your billions I’m gonna
get out of here and go get my bills in a little bit but with that all being said
fun is unfortunately coming to an end you will be able to watch this show on
1031 exchange via market overdrive on YouTube or you can of course catch it on
our WGN podcast it will also still be stored here on our
Facebook account the website will have it up as well I want to thank Dan Wagner
and Keith Lampe from inland for coming in and giving us all this information
and a lot of is gonna live on for a while so I’m gonna be reusing his things
for quite some time I wanna I want to thank you guys from inland for coming in
and educating us on all things related to 1031 exchange obviously the show is
brought to you today by inland as well as Carla me Nicole Baker and myself Nick
MIDI from I loan home mortgage you can see us here next week at the market over
Facebook at market overdrive live 10 a.m. next Wednesday
thanks again see you next week guys

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