3 Questions Seniors With Long Held Investment Properties Should Ask When Considering a 1031 Exchange

本站添加: 2026-05-09

[00:00:01]Hello and welcome to the Three Questions podcast where we dive deep into the world of wealth management and connect you with industry experts. I'm your host Wayne Baxter, senior executive manager at One Capital Management. Now, if you are someone close to a senior who has owned investment real estate for 20 plus years and is now considering a 1031 exchange to defer taxes while planning for retirement or legacy goals, stay tuned. This week's topic is definitely for you. What is it? The three questions seniors with longheld investment property should ask before considering a 1031 exchange. Thank you for taking time to check us out. And if you enjoy this episode of the three questions podcast, please consider liking this [music] video and subscribing to our podcast and YouTube channels.

[00:00:48]In 2026, 1031 exchanges remain one of the most powerful tools for seniors who have held investment properties for decades. with ongoing real estate market volatility, potential capital gain rate adjustments under recent tax reforms, and the critical intersection of retirement planning and estate strategies, a well-timed exchange can defer substantial taxes and preserve wealth for the next generation. Who better to address the three questions seniors with long-held investment property should ask before considering a 1031 exchange than my friend James Bean.

[00:01:23]is founder of best 1031 online, a website and YouTube channel dedicated to 1031 education.

[00:01:32]James, a VP with SVN, a national brokerage, guides investors through seamless 1031 tax deferred exchanges nationwide, all across the country. With deep expertise in investment brokerage and 1031 strategies, James helps his clients maximize their builtup equity while aligning exchanges with their long-term financial goals. James, I want to thank you for coming back on the podcast. I cannot believe it's been three years almost to the month that you've been on with us. So, great to see you again.

[00:02:04]Thank you for making time for us.

[00:02:06]>> Hey, thank you, Wayne. Yeah, you know, time flies when you're having fun, but I am so appreciative of you having me back on. Thanks.

[00:02:14]>> I'm I'm I'm looking forward to got a lot to cover here today and it's a great topic. But before we get to the questions, let's set the stage here for seniors in this situation.

[00:02:28]Many longtime property owners are now in their 70s or even their 80s and they're sitting on significant equities after 20 years of appreciation. Uh now they're realizing that their kids don't want these assets. Uh what they don't realize is how little of a return they're getting on their buildup equity. So for those who have been holding on to these properties to pass on to their kids, what's keeping them from selling the and exchanging for a passive asset? what what's what's holding them up?

[00:02:59]>> You know, what's really keeping them from making a move isn't a lack of opportunity. It's a combination of comfort, uncertainty, and misunderstanding.

[00:03:08]A lot of these owners that have had these properties for 20, 30 years, it's familiar. It's worked. And change feels unnecessary.

[00:03:17]They're often underestimating how inefficient their equity has become. And when you really break it down, measure the return against today's value. Many of them are earning two to 4% on their on that equity, >> you know, >> they're barely beating inflation. And if you factor in the taxes they're going to pay on the income, they're maybe not even breaking even.

[00:03:38]>> Correct. You know, and that equity could be redeployed into something far more productive and far more passive. The misunderstanding comes from not understanding, not knowing that they can sell and defer those taxes through a 1031 exchange and move into something completely passive. What I've found is that many are confused by the like kind requirement, thinking that they have to replace their unwanted asset with the same type of asset like a forplex or another forplex. So, they're not holding because it's the best option. they're holding because no one has shown them a better one yet.

[00:04:15]>> So, so what are they missing out on here in regards to that overall wealth and legacy planning from your perspective? I know I look at it from a financial advisory perspective, but from your what what are they missing out on?

[00:04:26]>> Really missing out on two things. Number one, efficiency of their wealth and control of their legacy. On the wealth side, a lot of these owners that are sitting on these long held assets are producing very low returns by not repositioning. They're leaving income and growth on the table that could be achieved through a properly structured 1031 into more efficient passive investments. On the legacy side, they're holding assets that their kids don't want and they can actually create, you know, and they can actually create stress instead of opportunity for that next generation. A 1031 exchange gives them the ability to reshape their portfolio into something that's easier to manage, more predictable, and actually aligned with how they want to pass wealth on.

[00:05:15]So, what they're really missing is the opportunity to turn a great asset they've outgrown into a better strategy for both income today and legacy tomorrow.

[00:05:25]>> Okay, so that's the perfect segue. Now, we go back almost like nine years here, so uh I do know you. who doesn't like we have history here.

[00:05:33]>> We do.

[00:05:34]>> Uh so, but for the folks who maybe didn't see the episode that we did 3 years ago, which we'll call 1031 Exchange 101 basically, >> right?

[00:05:46]>> Um and I would encourage those who who, you know, have the website or Apple or Spotify, you can actually scroll back and find that episode. It's there. Um I can't remember the number of it, but it's there. Just go back to April 2023.

[00:06:00]Uh, so I encourage you to do that. But just for the sake of the folks listening, how do you help your clients not just defer taxes? We've talked about that, but actually improve their lifestyle uh through the utilization of a 1031 exchange. So just walk us through all that you do.

[00:06:19]>> Yeah. Well, this is where a 1031 becomes more than just a tax strategy. The way I help clients is starting with looking at their lifestyle first, not the property.

[00:06:30]What do they want their dayto-day to look like? Less management, more income, more freedom. Chances are they want a little of all of that. Then I go out and source replacement properties nationwide that will match that vision, whether it's an absolute net lease or another truly passive option while still meeting all those 1031 requirements. So yes, we are deferring taxes, but more importantly, we're re repositioning their equity into something that's more passive, more predictable, and better aligned with where they are in life today. And at the end of the day, it's not just about completing an exchange.

[00:07:09]It's about turning a transaction into a lifestyle upgrade.

[00:07:14]>> I just saw something. This is just off the charts here. Um, but why not? We know each other well enough that we can throw a curveball here. I don't think you'll mind too much. We were just talking a few minutes ago about how you first of all, James and I are both members of a great organization called Provisors and uh it's been a great benefit for both of us. No question. And you were just mentioning you were in a provisors meeting. I I believe you said it was in New York I believe. Uh >> so when you're when reason I'm bringing this up and I'm just curious. So let's say you you know we're here in Los Angeles. So, let's say you have a client here has a a property that they want to sell. Is there anything that would stop them from wanting to buy or switch it with a property or doing an exchange with a property outside of the state of California, even as far away? I know it's extreme, but even as far away as as New York State, or does that not work?

[00:08:09]>> No, actually it does work.

[00:08:12]And n 100% of the time with my clients here in California, we're exchanging outside of California.

[00:08:20]>> Interesting. Well, that segus I will say this. This is again off the off the charts, but I I'm going to put it up here now. We just tal So I'm a member of Provises. I'm a member of a group here in Southern California, and I'm also a member of a group in in Miami, Florida.

[00:08:34]So again, I'm going to on officially invite you to attend because I'm sure Florida will be a popular destination for some of your clients. So uh I definitely want to invite you to join my friends at my my provisor's group in Miami, officially known as Miami 5. So >> love to see you there. So a lot of great context. Uh, so James, let's get get right to our three questions seniors with longheld investment property should ask before considering a 1031 exchange.

[00:09:04]And let's get right to our questions.

[00:09:06]Question number one, I've learned my kids do not want the property that I the property I have and I want to sell it.

[00:09:15]My CPA has informed me that of the capital gains tax I will owe if I do not exchange.

[00:09:22]What are the rules of the 1031 exchange that I c need to know before I decide to execute on an exchange? This is like right down your wheelhouse, James. So, take it away.

[00:09:33]>> Yes, thank you. And so there's five main rules. And I'll touch on the rules and I'll kind of highlight quickly each rule and and how that kind of parallels with what we just talked about of why some of these seniors that have held these properties for so long are still holding on to them is because, you know, the education around the 1031 exchange is is really quite poor. And I really blame the real estate community for that because at the end of the day, a 1031 is is triggered by a real estate transaction. Somebody has to sell a longheld investment property in order to qualify for a 1031 exchange. So, and real quick, the part of the reason why, one of the main reasons why I've chosen this niche that I have is because I learned back in 2018 that more than 60% of exchanges fail every year. And we're going to touch on some of the reasons why that is. So the five rules, rule number one is and and again this is keeping in mind that the the taxpayer/investor wants to defer 100% of their capital gains tax. So rule number one is you have to have a replacement property that is equal to or greater than the selling price of the relinquish property. So, >> so mean if you're selling your current property for $5 million, you you have to buy one worth at least five million, if not more.

[00:11:16]>> Correct. It >> has nothing to do with the physical size of the property. It has to do with the value of the property.

[00:11:21]>> Correct. Yep. Rule number two is that you must engage a qualified intermediary to be the goeteen during your exchange. So said in layman's terms, when you put your property up for sale, it goes into escrow, it closes. Escrow must take your proceeds from that sale and wire them to a qualified intermediary. The QI holds those funds until I find you that replacement property and we buy that replacement property. The QI handles the money the whole time because if you take any constructive receipt of those funds, you automatically void the opportunity for the exchange.

[00:12:15]>> Rule number three.

[00:12:16]>> Okay. I do have a question though. I knew this was going to happen.

[00:12:19]>> Go ahead.

[00:12:20]>> So, um, this is why I wanted to have you on here because I know we could have free form conversation, James. Uh, okay.

[00:12:27]So, it is not out of the question though that I could be in in this context that there could be a willing seller of the other property waiting to go. It doesn't have to be a matter of having to go start from scratch searching. Correct.

[00:12:40]In other words, it can be a a building for sale and a building ready to purchase. You still have to go through the intermediary, but both can be ready at the same time. Correct.

[00:12:49]>> That is correct. And we'll actually touch on that a little later.

[00:12:52]>> Sorry. I had I had I bring that up. I'm sorry.

[00:12:55]>> It's okay.

[00:12:58]So rule number three is the it must be the replacement property must be a like kind property. Here's where our seniors get really confused.

[00:13:15]So in the word of the tax code and the way the IRS looks at it, it's basically we're talking investment property for investment property.

[00:13:26]A lot of people here like kind and it's really alarming how often I cross this bridge with somebody who's 65, 70 or older is they know about the 1031 exchange. They've heard people talk about it and they hear like kind exchange. Oh, you want to do a 1031 like kind exchange? They have it in their head that if I own that forplex that I mentioned earlier that if I want to sell it and get out of it, I have to exchange into another forplex.

[00:13:52]>> Mhm. you know, or if I owned a single family home rental, I have to exchange into another single family home rental.

[00:14:00]Well, the people that have owned those properties for 20, 30 years, they don't want that same property. That's one of the reasons why they want to sell.

[00:14:06]They're tired of it.

[00:14:08]>> Makes sense.

[00:14:09]>> The whole comment about tenants, toilets, taxes, and termites, you know, they just they don't want to deal with all that stuff anymore. So, it's investment property for investment property. You can own a single family home rental and exchange into a handsoff commercial absolute net lease property that requires no management from you.

[00:14:33]So that's rule number three. Rule number four is you have 45 days to identify that replacement property from the day of close. That clock starts ticking the day after you close on your relinquished property. And then rule number five is you have 180 days from that same day after close to close on the replacement property. The 180 days is never a problem. I have never in more than >> the 45 day the 45day rule seems to be the big one. Again, that is 45 days to identify.

[00:15:08]>> Yes.

[00:15:09]>> So So how does that Sorry. Again, getting into the weeds here. So that means it has to be documented obviously isn't just some kind of >> That's correct. Yes. There is a form that you have to fill out and it has to be executed by you and the and the QI because there are some identification rules that also need to be uh adhereed to. We won't get into those today because that's a whole another conversation. But um in that 45 days you do have to you know fill out a form the ID form and it has to be executed before that 45th day otherwise your exchange fails which is one of the main reasons why exchanges fail. It's very because people wait. You know, I have uh on my YouTube channel, I do a QI corner episode a couple times a month and uh Greg Burns with IPX 1031, we talk about this where somebody he says, "Yeah, people will close. They'll open a file with me and they're like, you know, if we find something great, if we don't, that's okay, too." Which just, you know, if there's not a lot to lose as far as what they're going to pay in capital gains tax, then that might work for them. But it's alarming how many people think that 45 days I should be able to find something. Well, depending on what you're looking for, that might be a challenge. So, again, we'll talk on this more, but to your point that Yeah. with my clients, I'm typically out looking for deals before they even close on their replacement.

[00:16:44]>> I was just going to [laughter] Exactly. Many times, I would say more than 75% of the cases I work on, um, my clients are actually closing on their replacement property within that 45day window.

[00:16:58]>> That's what I was going to get. Yeah.

[00:16:59]Okay. So, that was what I was thinking.

[00:17:02]>> Yeah.

[00:17:02]>> Air on the side of caution. Okay. So, I know we talked about this a bit and you talk about back in 2018, you discovered that 60% of of 1031 exchange transactions fail. which segus me into okay what are the biggest mistakes that you see investors make when trying to complete one of these 1031 exchanges and you know obviously how can they avoid them so we've talked a little bit about the you know procrastination maybe I don't you want to call it that but um I'll turn it over to you what do what what would you say are the biggest mistakes you're seeing >> yeah so again we could do a whole episode on the top three mistakes made [laughter] but they all have a common denominator.

[00:17:44]I'm going to let you guess. What do you think the common denominator is? Why?

[00:17:48]>> Probably had to something to do with timing. Well, I would suspect of the failure of planning would be mine. It's always >> bingo.

[00:17:55]>> The those who fail to plan, James, plan to fail. This has been my mantra going back almost 30 years. So, >> yeah, they don't plan to fail, they fail to plan.

[00:18:05]>> Yeah. And so again, my QI buddy Greg and I talk about this all the time is that you know people they'll and it's amazing how often this happens. They'll put their property on the market. It'll okay now it's under contract. It's in escrow.

[00:18:23]Maybe it's a 45 or a 60-day escrow.

[00:18:26]And then somebody said, you know, you should talk to your CPA. Do you have any idea what you're looking at in a capital gains tax when you do sell that property that you've held for more than 20 years?

[00:18:37]And many times they'll get on the phone, the CPA will tell them, "Yeah, you're going to be looking at, you know, 300, 400, $800,000 in capital gains tax." And people freak out. And that's when the CPA calls me and says, "James, they're already in escrow. They want to do an exchange now because I am so talented and wellversed in that space.

[00:19:04]Shameless plug there.

[00:19:05]>> Shameless self-promotion there >> that I can easily handle that. But >> it actually is the common reason why that exchanges fail is that they get into putting that property they wish to relinquish on the market without having a plan of their 1031 exchange. So, you know, I tell people the first thing you should do when you decide you want to sell that relinqu the property that you've held for 20 years, your first call should be to your CPA. Be long before you put it on the market, the first call should be to the CPA.

[00:19:40]>> Your second call should be to me. I I honest to God, I'm I'm I'm standing here listening to you and I'm thinking to myself, it is almost just unbelievable that anyone who owns a property that's been they've held it for like, you know, we're talking in some instances, I I realize it isn't always timesensitive, but you know, people have long held properties, you know, we're looking 15, 20 plus years that they would realize that they're probably sitting on quite the capital gain. And uh I find it shocking that they would jump ahead and get into escrow before talking to their CPA about the tax implications. It seems >> well many times what happen James between you and me it seems so unlikely and unprobable that when I hear it from you I'm going you have got I guess it's my Canadian naivee you know what I say it's like I can't believe that could be the case but >> yeah it's actually one of the common things that I hear happen is you know somebody that has you know it's a nice asset you know it's a good piece of property and they've held it for more than 20 years and chances are very good that they get a lot of calls calls from uh brokers saying, "Hey, do you want to sell your property?" And they say, "No, we want to pass it to the kids." And when I have that conversation, I love to ask, "When's the last time you had that conversation with the kids?" Because I find most times the kids don't want it.

[00:21:01]But anyways, >> the headache. Yeah.

[00:21:03]>> What happens is is that somebody will get an unsolicited offer and they're like, "Wow, at that price, I'll sell it." So, the next thing you know, they're in escrow and then they find out after the fact. And so yeah, that again the first call they should make to their CPA. John, we're thinking about selling our property. What am I look what's my tax it if I sell this property for4 million or $6 million?

[00:21:30]What am I looking at?

[00:21:31]>> Yeah. And that's when they have the uh rude awakening as opposed to the spiritual awakening. Um >> yeah, if I can share a quick story.

[00:21:38]>> Go ahead.

[00:21:39]>> Um the last time this happened was um just two years ago. I have a CPA pal, his name is Scott, and he refers me a number of clients, but in this particular case, he calls me and he says, "James, um, I need you to call my client, David. I just got off the phone with him and he is hot." And I said, "Okay, what's the problem?" And he said, "Well, um, he called me to find out what his tax bill would be on this, and it's going to be almost $300,000."

[00:22:11]and he ripped my head off through the phone and I was like, "Yeah, cuz that's your fault that he made money on his property." But, um, he had hold held a piece of land that they were going to develop and turned out that he wasn't going to do it after all. And was already in escrow, in fact, was closing in a week.

[00:22:32]And again, you can't close without a QI.

[00:22:35]If you close without a QI, you're done.

[00:22:37]>> Yeah.

[00:22:38]>> I actually hear that happen a lot.

[00:22:40]People don't realize, you know, I have people that refer me and they're like, "Yeah, we have a client. They want to do a 1031 exchange. Uh, they closed on their property last week." And I'm like, "Ah, I hope they had a QI." And they asked me, they hope they had [laughter] >> Exactly.

[00:22:56]>> Oopsie. So, >> so I get on the phone with David and sure enough, Yeah. he's like, "Just tell me what I got to do, James. I do not want to write a check for $300,000. What do I got to do?" and I ended up handling him and getting it done. But it's just alarming on how often that scenario happens.

[00:23:14]>> Okay. I got to go back to your initial description here just to make sure I heard right. You said he had a piece of land.

[00:23:21]>> Yeah.

[00:23:22]>> Like with no buildings.

[00:23:24]>> Correct.

[00:23:25]>> Okay. So, how does that qualify? Sorry.

[00:23:28]I'm >> No, that's actually a great question. I love how well you listen, Wayne.

[00:23:34]>> I'm Yeah, thank you. I was like, >> "Yeah." So, as long as the property that you own is held for investment. So, he bought a piece of land with the intent of he was actually going to build a winery on it. Um, it was land in Tmacula. He was going to open a winery.

[00:23:56]Um, he's got a very successful winery in Paso Robos and he was going to do that.

[00:24:01]But when after COVID and everything, he's like he just shelved the whole thing. He's like, I'm not doing it. But he had held it for I think it was 15 16 years that he had and >> the land in >> the land had appreciated.

[00:24:14]>> But for those outside of Southern California, we call that the Inland Empire.

[00:24:19]>> Yeah.

[00:24:20]>> Yeah.

[00:24:20]>> So it was so it qualified because it was held for and and to be clear the the code says business, trade or investment.

[00:24:32]So the qualifier or the distinction is that you can't sell your house >> in exchange out of your house >> if it's a primary or even a secondary residence. No, it's got to be held for business, trade, or investment. And it's actually amazing how many business owners own their property, sell their property, don't realize they could have qualified for a 1031 exchange. So, you know, if you're a doctor and you've got an office where you own the office and it's, you know, your medical office and you want to retire.

[00:25:07]I've heard this too. They sell it and they get nicked for taxes like, "Oh, this tax bill was crazy. Do you know you could do a 1031 exchange?" No, I thought that was only investment property. Well, it's also business or trade.

[00:25:20]>> Well, no, no. So, our topic today is the three questions seniors with long-h held investment property should ask before considering a 1031 exchange. Joining me again is James Bean. He is the founder of de Best 1031 online. It's a website and YouTube channel that is dedicated to 1031 exchange education. James, let's move on to question number one.

[00:25:45]Pardon me. Question number two, counting. Right, James? Uh question number two, I am a senior who has owned an investment property for many years.

[00:25:56]When when actually should I start planning a 1031 exchange? It would seem appropriate question given what we just discussed. So over to you.

[00:26:06]>> Right. So again, you should start planning that exchange prior to putting the property you wish to sell on the market. So the first call should be to your CPA.

[00:26:20]call your CPA.

[00:26:22]They have all your tax records.

[00:26:26]They they should know, you know, how long you've held it, when you bought it, what your basis is going to be. Um, you know, and it's really how the IRS look at it. It's pretty simple. I mean, if you bought a property 20 years ago for a million dollar and today it's worth $4 million, that's a $3 million gain. Now, I'm not a CPA, so I'm not going to give tax advice or anything like that here.

[00:26:52]However, there's that $3 million gain, and a lot of people say, "Well, I put a million dollars into it, and so that should come off, and you know, blah, blah, blah."

[00:27:02]So, yes, the CPA is going to be able to figure out what the actual gain is, but what a lot of people don't realize is that you also depreciated it for 20 years. Right. So, if you have investment property, it's you get a depreciation schedule. If it's a single family home that you've rented out for that long, uh residential properties are on a 29-year depreciation schedule. Commercial properties on a 39 12year depreciation schedule. So the bummer is is that when you go to sell that, the IRS wants all that depreciation recapture.

[00:27:47]So all that money you depreciated over 20 years, that's also going to get taxed. So whatever that amount is, there's an additional 25% tax on that dollar amount in addition to whatever your, you know, the capital gains, the federal capital gains right now is 20%.

[00:28:05]And That's also deferred. That's also deferred if you do the 1031, right?

[00:28:10]>> Correct. Yes. Everything gets deferred.

[00:28:13]Yes.

[00:28:14]>> So, >> however, the depreciation schedule does go with you to the next property. But again, that's a whole another >> fair enough. Fair enough.

[00:28:22]>> We always say deferring tax. That's what this the game here is, >> right?

[00:28:26]>> Um until until you can't or doesn't make sense anymore.

[00:28:30]>> Yeah. Going back to when they should plan, the the easy answer is soon as you decide you want to sell that property you wish to get rid of, that's when you should start planning. You call the CPA, he'll tell you. And then you get to decide, you know what, and this happens a lot. People say, "Yeah, I'm going to I'm going to get Nick 200 grand in capital gains tax, but I don't want to deal with it anymore." And again, this has to do with a lot of lack of knowledge.

[00:29:00]in what options are available.

[00:29:04]But I do have people I had a client last year was looking at a $1.5 million tax bill and elected to pay the tax. Um I don't know why you would do that. I don't know really why he did it, but so once you get that, then the next move is call your broker. If you don't have a broker, you call me and we get an idea of what's your property going to actually sell for. And if you say, you know what, yeah, I'm looking at a half a million or more in capital gains tax. I don't want to pay that. What are my options? And I know we're going to talk about that next, but um we just start planning out, mapping out and planning. So, we have a pretty good idea, roadmap if you will, before we put your property on the market.

[00:29:54]>> So, yeah, I guess that kind of segus into my question a bit because I was going to ask you know what, you know, once a decision has been made, right?

[00:30:05]Are like are there anything they should do before they even list the property?

[00:30:09]Is there some steps in between there?

[00:30:11]like I decide between deciding and listing, is there an order of operations?

[00:30:19]>> Yeah. So again, outside of talking to the CPA, you want to talk to maybe talk to the broker that sold you that property initially or um somebody that's an investment broker because you want to go in and if you haven't listed the property yet, then this is an opportunity for you to, you know, maybe tweak some things with the property to make sure that you price.

[00:30:42]>> That's what I was thinking about. Like there's got to be some uh some maybe like just like when you sell your house, right? you want to go in maybe and spruce it up a bit. So, there are some there are some >> some fundamental things that you would do with any real estate property, but it gives you a chance, but you do that before you do that before you list it because of that 45day window. You don't want to be messing around with that stuff afterwards, >> right? You know, especially if you're selling your property and you're dealing with a buyer who's going to be all cash and so there's little due diligence period and he's going to close quick.

[00:31:17]There's no financing involved, so you don't have to worry about loan docks and all that kind of stuff. That all of a sudden, wow, we're closing next week is the thing about the 45 days that I failed to mention before is it's 45 consecutive days. It's not business days.

[00:31:34]>> I just want to say not 45 business days, it's 45 days.

[00:31:38]>> Yeah. Weekends, holidays, they all count.

[00:31:41]>> Yeah. Okay. Well, James, great information. Let's let's move on to question. One other thing, one other point I wanted to make on this because we're >> we're talking about, you know, people that are, you know, north of 60, 65 years old and they've held these properties for a long time.

[00:32:00]>> People don't realize that, you know, assets are assets. You know, Wayne, you manage assets for people. How often do you look at their assets and how often do you talk to them about things that they're currently holding?

[00:32:13]>> Well, frequently, >> right? Well, people don't do that with their real estate.

[00:32:19]>> Yeah. They look at them differently.

[00:32:20]Exactly. 100% correct. You don't make >> So, I have a an issue right now, a case in front of me that a woman who is 82 years old uh through a divorce got a couple of brand new Jack-in-the-Box restaurants that are leased by Jack in the Box Corporate. And she got them.

[00:32:40]They were brand new when she got them.

[00:32:43]Uh she got them 16 years ago and they both were brand new stores with brand new 20-year leases.

[00:32:52]Great issue is is that the in the net lease world, they're not really meant to be a long-term hold. And so what happened was because nobody was looking at those every 3 to 5 years that now one of them has gone dark. Jack in the Box went dark on it. They still paying the rent. They're on a guaranteed lease. So, she's getting she's got four more years of income, but the store is dark and >> there's no activity.

[00:33:21]>> Yeah. And so, there's a lot of things that happen with real estate that sits vacant for a long time, but as soon as that as soon as that lease runs out, now she's going to try to sell a doors stop basically. Um because net lease assets are priced based on their income. If there's no income, then your value just the bottom fell out. So, the point is is that for anybody listening to this, if you have those long-term assets, please have somebody take a look at them. Get a broker opinion of value every couple years. If nothing else, to update your insurance.

[00:33:58]So, for a that's curious. So, the situation, I get this straight again.

[00:34:01]She had two properties that she inherited that were basically retail out entities. They were Jack in a Box stores.

[00:34:07]>> Mhm.

[00:34:08]>> One of the stores no longer is operational. It's a building that she is actually earning income from still because of the lease. So, she's getting payments.

[00:34:17]>> Okay. So, here's my what they say. Uh I'm not being I would not be a very good attorney. My our litigator friends would be listening now going Wayne.

[00:34:25]>> So, I'm going to ask a question I don't know the answer to. Shame on me. So, can she sell that property before that before that lease comes to an end? Of course.

[00:34:35]>> Okay. I just I don't assume anything.

[00:34:37]So, I thought I would So, she could say I don't want to wait until the like, you know, 6 months.

[00:34:44]>> Yeah. The the best buyer for it right now is probably a merchant developer or another uh restaurant that has a drive-thru concept that they would take it and they would get the income.

[00:34:57]Chances are they would negotiate with Jack in a Box on a buyout uh where they get, you know, two years worth of that income upfront and use that to repurpose the building for their own concept.

[00:35:11]>> Interesting.

[00:35:12]>> What should have happened is in a perfect world, she would have had somebody like myself looking at it every 3 years and in 2021 when the QSR market was white hot, she could have sold both of them. uh with a little over 10 years of term left um and made a significant profit on both of them and exchanged into new properties with new 20-year leases, which is one of my strategies.

[00:35:41]And this is kind of a strategy I I show my clients in how to build that multi-generational wealth is that you get these assets and you you've heard this term, continue to kick the can down the road, >> down the road. Well, I think your Congress does that a little bit. What's Okay, never I guess that's off topic a bit. Um, okay, James, let's move on to question number three here. Here we go. My wife and I are now retired and have owned an investment property since the 1990s. My kids don't want it and we're ready to do something different with the equity. If we decided to complete a 1031 exchange, what are our options for replacement properties? We'd like to improve our cash flow, reduce management headaches, and better support our lifestyle and legacy planning goals. I know we've kind of touched on some of this, but I'm going to hand this one over to you as the final question of the day.

[00:36:34]>> Right. So, the properties that I specialize in are what's known as net lease and they're commonly referred to as the triple nets, which um it's it's an outdated term. Now, although triple net leases do still exist, the problem with a true triple net lease is that there's still responsibility carveouts in the lease that point towards the landlord.

[00:37:05]Typically, they they're responsible for the roof and the structure, uh the parking lot, exterior elements. It really depends on how the lease is written. Some leases are only roof and structure and that's it. Other ones are roof, structure, walkways, driveways, internal components like HVAC, plumbing, electrical, the signage. It just really depends on the lease.

[00:37:29]The assets I specialize in are what on a lease term known as absolute net lease.

[00:37:36]The difference is is that there are no responsibility carveouts to the landlord. The tenants are 100% responsible for the building, the real estate, the upkeep, the maintenance, 100% of the operating expenses, including having the landlord as the additional assured and all the required insuranceances.

[00:37:59]It's mailbox money. That's how we refer to a net leased asset. It's mailbox money.

[00:38:06]And you're seeing that's becoming the the the more the more uh the more common structure today compared to the old triple nets.

[00:38:15]>> Yes. Yeah. A lot more uses, you know, 10, 15 years ago. The only really you would see are the the discount stores, the drugstores, and the fast foods. Now, they're very common. The the absolute net lease term are very common. And the so a lot of people will say, "Well, James, why would a tenant sign a lease like that?"

[00:38:37]>> You're taking the words out of my mouth.

[00:38:38]That was going to be my next question.

[00:38:40]>> Yeah. So, the the answer number one answer or the simple answer is because those tenants, which again, we're talking about national credit tenants, tenants that have hundreds if not thousands of locations.

[00:38:54]And so, they don't want to own the real estate because they don't want that real estate on their balance sheet. Mhm.

[00:39:01]>> That's main reason in addition to they don't want to be in the real estate business. It's too volatile and leases are a tax write off.

[00:39:13]So that's the simple answer.

[00:39:17]All right. Okay. I got you got me on that one. So as we're wrapping up here and again as great guest, great conversation.

[00:39:26]Um, but just as we read, what's one step, an actionable step that a senior property owner could take right now if they're even just thinking about considering a 1031 exchange? What What's the sort of something they could do now?

[00:39:43]They don't have to wait.

[00:39:47]Well, probably reach out and get a broker opinion of value on their property because if you have that then the that make a call to your CPA. You tell your CPA, hey, we bought this property for 1.2 million. I just got a broker opinion of value. He's telling me that it's worth $3.5 million.

[00:40:08]What am I looking at if I sell the property for $4 million?

[00:40:14]so that they can just get an idea and then, you know, have a conversation with me.

[00:40:21]Because the thing is, I'm really the only broker in the whole country that really focuses on representing exchange buyers the way I do. I know that seems odd, but most investment brokers are focused on getting listings and, you know, selling properties.

[00:40:39]I'm out to correct that failure rate.

[00:40:43]That's why my YouTube channel, my website are purely focused on the 1031 education because the overall education is just really poor and the people who are really losing the most are our seniors.

[00:41:02]Interesting.

[00:41:04]So, well, you know, on MySpace, I'm I'm I'm big on the planning aspect. So when I think about, you know, listeners, clients of yours, clients of mine who want to integrate a potential 1031 decision with some capital forecasting and we talked about this yesterday actually, you know, which is really a process where we really look at all aspects of income, taxation, expenses, liquid assets, hard assets, all of that to try to figure out, you know, how much liquidity someone has. Uh this is something we do. Uh this is something I do with all my clients. So with that being the case, we're going to like kind of combine what you do with what I do.

[00:41:55]So what do you think is kind of an act?

[00:41:58]Is there from that standpoint if the client's coming to you saying, "Well, I want to figure out how that this is all going to work." Would you say is it the valuation process? is that's kind of where we need to know what that we need to know what you think the value of the property is. We need to know what the taxation's going to be. Would you say that's the first step and then we could do a forecast based on those numbers?

[00:42:20]>> Yes. The answer is yes. So I I and I get a number of referrals from wealth management people as well.

[00:42:28]>> Would I expect so >> because most people that have that are high net worth have real estate in their portfolio somewhere. So, um, that's really a perfect world is that, you know, they decide, you know what, we just had this conversation with our kids. We learned they don't want it. And our broker tells us that we've got, you know, $4 million worth of equity sitting there and I'm just not getting a great return on that equity right now. You made a great return on your investment, but your return on equity is. [snorts] So, I know what it's worth. I don't want to pay the capital gains. I'm clear now after talking with my CPA what I'm looking at as a tax hit. And James has told me some options of how I could not only uh get something passive and even increase my annual income from what I've been getting and increase my quality of life because I'm not going to have to deal with the tenants. I don't have to take calls from anybody and I'm getting mailbox money. The next move is okay, let's sit down with your wealth manager and your estate attorney so you can update your trust, do the estate plan so that the the property is going to pass in the right fashion. So there's a succession plan involved, but get the wealth manager involved. So now because now the wealth manager before maybe you were dealing with, you know, $60,000 a year in this income that they were getting from the real estate where now all of a sudden you got $160,000 a year. What are we going to do with that income to help solidify their retirement plan and the the long-term financial goals?

[00:44:13]>> One last question. I just thought of as we're standing here one more one more time. What percentage of these properties are being held inside inside of an LLC? Is that the most common place they're being held, James? Is it or as opposed to being just held?

[00:44:26]>> Well, the ownership entity is an LLC and then they're held within their trust.

[00:44:29]>> Right. Exactly. That's what I meant.

[00:44:31]Like there's >> L LLC element.

[00:44:34]>> Yep.

[00:44:35]>> That's what I thought. Okay. So, for the folks that are watching us, we're running this on video on our website. Uh they can see your contact information.

[00:44:44]We've got it all underneath your screen, but we have a lot of people listening in on Apple, on Spotify, they're maybe out for a walk, driving their car, whatever.

[00:44:52]Uh for those folks that are listening, what is the best way for them to contact you? How can they get a hold of you?

[00:44:59]>> Uh the best way is to call me at 8057791031.

[00:45:07]>> All right.

[00:45:08]>> And they can also visit the website best1031online.com.

[00:45:14]and you can contact me through there or my email address which is james.bean sbvn.com.

[00:45:23]I am a investment broker with SVN brokered here in LA. I am able to transact in all 50 states because SVN is a national brokerage and those are the best ways.

[00:45:37]>> Perfect. James, I want to thank you.

[00:45:39]This has been awesome and uh yeah, we'll have to definitely have you back for sure. So, thank you so much for making time for us today. Uh James Bean is the founder of Best 1031 online and that Best 1031 online is a specialized firm that guides investors through seamless 1031 test preferred exchanges and he said nationwide whether you're up in Washington state down in Florida up in New York here in LA or somewhere in the Midwest or Kansas City Missouri wherever you can imagine James Old haunting stomping grounds in Arizona.

[00:46:16]regardless, uh, he can be a great resource for you. So, James, thank you very much. I appreciate having you on.

[00:46:21]Okay, we'll be seeing you soon on and offline.

[00:46:26]>> Thank you so much, Wayne. Appreciate you very much, my friend.

[00:46:29]>> Yeah, you take care.

[00:46:31]>> Likewise.

[00:46:32]>> Yeah. I look forward to bringing you the Three Questions podcast. I hope you find them educational and informative. Please consider liking this video and subscribing to our podcast and [music] YouTube channels. And to receive a notification of when our latest episode's been posted, please click on the notifications spell. Lastly, to schedule your online Zoom consultation with me to discuss your wealth management needs, please click on the link in the description box below, w.1.com/mewith.

[00:47:02]Thank you, and we will see you soon.