Are you prepared to get strategic with your senior assisted living housing investments? Ready to unlock the power of the 1031 exchange and learn how to defer those pesky capital gain taxes? Our guest, Scott Saunders, Senior Vice President at Asset Preservation Incorporated, will guide us through the complexities of this tax-deferring tool. He'll shed light on the potential benefits, like stimulating job creation and fostering economic self-sufficiency.
We'll dissect the concept of like-kind properties and discuss the role of a qualified intermediary in facilitating a smooth property swap. Scott will also guide us through the pros and cons of a Delaware Statutory Trust (DST). But don't worry, it's not all tax jargon and real estate terms. Scott shares insights into the qualifications of an accredited investor and emphasizes the importance of studying the Private Placement Memorandum to better understand investment opportunities.
In the latter part, we'll embark on a journey through the timeline of a 1031 exchange, navigate the 45-day identification period, and the 180-day closing period. Scott will introduce us to two popular property identification rules, the three property rule and the 200% rule, explaining their significance in a successful 1031 exchange. Lastly, Scott underscores the importance of having a knowledgeable intermediary and a tax advisor alongside to maximize the benefits of your investments in senior living housing. Get ready to enhance your financial literacy and investment savvy in this enlightening episode.
Are you prepared to get strategic with your senior assisted living housing investments? Ready to unlock the power of the 1031 exchange and learn how to defer those pesky capital gain taxes? Our guest, Scott Saunders, Senior Vice President at Asset Preservation Incorporated, will guide us through the complexities of this tax-deferring tool. He'll shed light on the potential benefits, like stimulating job creation and fostering economic self-sufficiency.
We'll dissect the concept of like-kind properties and discuss the role of a qualified intermediary in facilitating a smooth property swap. Scott will also guide us through the pros and cons of a Delaware Statutory Trust (DST). But don't worry, it's not all tax jargon and real estate terms. Scott shares insights into the qualifications of an accredited investor and emphasizes the importance of studying the Private Placement Memorandum to better understand investment opportunities.
In the latter part, we'll embark on a journey through the timeline of a 1031 exchange, navigate the 45-day identification period, and the 180-day closing period. Scott will introduce us to two popular property identification rules, the three property rule and the 200% rule, explaining their significance in a successful 1031 exchange. Lastly, Scott underscores the importance of having a knowledgeable intermediary and a tax advisor alongside to maximize the benefits of your investments in senior living housing. Get ready to enhance your financial literacy and investment savvy in this enlightening episode.
The 1031 exchange has been in the tax code now for over 100 years, so we're talking about something that's been around a long time. What it does is it allows any investor investors in senior assisted living housing to defer paying capital gain taxes when they have an asset that's sold, and instead of taking the money which would make a taxable, they can do a 1031 exchange into other property, and so it's a great tool. It's how people in real estate really grow their portfolios. You don't have to pay taxes every time you dispose of an asset and you just keep that money redeployed, and a lot of times you'll leverage up a little bit to get a better return on investment.
Speaker 2:Welcome to the senior housing investors podcast. If you are an owner operator, investor, developer or buyer of senior housing, you've come to the right place. The best way to stay connected with us is to sign up for our weekly newsletter at havenseniorinvestmentscom. This podcast doesn't exist without you in our community. Thank you for listening and reach out to us anytime.
Speaker 3:Welcome back everyone. Today we have an exciting episode where our host, john Hover, is speaking with Scott Saunders, senior vice president with API. Scott and John have an interesting and very important conversation today about 1031 exchanges. Enjoy the conversation, everyone, john.
Speaker 2:Thanks, kelsey. Today, our guest is Scott Saunders, senior vice president at asset preservation incorporated. Established in 1990, api is a recognized national leader in 1031 exchange companies, having successfully completed over 200,000 1031 exchanges. Scott, welcome to the show.
Speaker 1:Hey, john, it's great to be with you and look forward to talking about all things. 1031. 1031 and tax deferral.
Speaker 2:Yeah, awesome, let us get to know each other a little bit. Tell me about your background and what got you into the 1031 exchange market.
Speaker 1:Great question. I actually stumbled into the 1031 market right after college, believe it or not. I graduated UC Santa Barbara with a business economics background and a friend of mine connected me with a real estate investor who owned a qualified intermediary company. That was way back in 1988. Before we had treasury regulations and guidance, the industry was just taken off then. Then, finally, a couple of years later into 1990, we got the proposed treasury regs, which were finalized in 91. From there on out, 1031s became much more popular. I'm a one-trick pony. I've been in the 1031 space my whole career, doing that for 34 years or so now for a long time.
Speaker 2:Awesome. What do you do outside of 1031? I know you've been with that company for so long and you've been in this business for so long. Who is Scott on the outside of 1031 exchange?
Speaker 1:Yeah, great question. I'm an outdoorsman. I enjoy the outdoors. I live here in Colorado, just a little bit north of Colorado Springs. I enjoy fishing, hiking. Last weekend I was up with my daughter down in the San Juan Mountains. We were just fishing and going for hikes. I saw a bunch of moose. I enjoy getting out and doing that in the wintertime. I'm a skier. I go up to Keystone and get a season pass for there. I like being outside, being active, enjoying our beautiful mountains that we've got. We've got so much great scenery Then, john, I also enjoy travel. I like to travel over a few months and get around and just see different places. I just got back from St Lucia. My next trip is with my son. We're going to Morocco.
Speaker 2:Oh, that's sweet. I was watching a show the other day on, I think, better Feed Phil on Netflix. He was in Madrid, spain. I'm like, oh, I've got to go to Madrid. I love to travel myself. Let's just jump right in. As you know, haven Senior Investments and our sister companies, haven Co Capital and others really focus on the senior housing space. Tell us why investors and owners of senior housing should be aware of the 1031 exchange and its rules.
Speaker 1:Yeah, the 1031 exchange, john, has been in the tax code now for over 100 years. We're talking about something that's been around a long time. What it does is it allows any investor investors in senior assisted living housing to defer paying capital gain taxes when they have an asset that's sold. Instead of taking the money which would make it taxable, they can do a 1031 exchange into other property. It's a powerful tool for people to really grow and scale their portfolios. You go from one property and you're going to go up to a larger property rather than selling it and having to pay all of the taxes.
Speaker 1:There are a lot of taxes. People think of just capital gain taxes. When you sell an asset, you've got generally, especially on a commercial property, four different levels of taxes. You've got depreciation recapture at 25% federal capital gain, which will typically be 20 for higher earners. You've got what's called the net investment income tax. That's an additional 3.8% tax. Then you've got to add in the state tax. If you're on a high state tax rate like California, that's an additional 13.3%. Your choice is pay all those taxes and then have a lot less money after tax to redeploy or take all of that gross equity.
Speaker 1:Do a 1031 exchange. We can talk about the rules and process and go out and buy either a larger asset or maybe you're going to split it up and buy two more properties. It's split it up and diversify. It's a great tool. It's how people in real estate really grow their portfolios. You don't have to pay taxes every time you dispose of an asset and you just keep that money redeployed. A lot of times you'll leverage up a little bit to get a better return on investment.
Speaker 2:Yeah, I've been in real estate for over 21 years and 1031 exchanges are everyone from those who own a gas station all the way up to individuals who own very large buildings. It's not just for the old wealthy, correct. It is for anyone to benefit from this tax code.
Speaker 1:John, that's a great point. A lot of people have that misperception that it's just the big players right, the shopping centers and the big apartment complexes and big assisted living. I've been doing this for many decades. Most of our exchanges are smaller properties. Somebody starts out with a single family and they're going to go to two. Now they might go from two single families into four, maybe they go into eight and maybe they move up and go into commercial over time. But single family investors farmers, ranchers, business owners that own their building it really applies. I spend quite a bit of time now in DC just educating people in Congress that 1031 exchanges help create jobs. They're a job creation tool. They help create transactional activity. We just had a study done recently by Ernst and Young and they came out with a figure of $98 billion every year as the impact of section 1031 on the economy. It helps out investors small, medium-sized and big. Anybody that owns any type of property held for investment can qualify.
Speaker 2:So that brings up a great question and that is in the budget bill of the current administration that tried to get past getting rid of the 1031 exchange. What would that do to the real-state market if the 1031 exchange was taken away?
Speaker 1:Boy, it would really lock up transactions. We call it the lock-in effect, anybody that had significant gain. They're now really faced with a choice Sell the property and pay a lot of taxes or just sit on the property. So that would be a really big negative. That would affect people, certainly on the commercial market, because the commercial market, all those properties are held for investment. But even in the residential market it would have an impact. Think of all the vacation home markets where they're rented, short-term rentals, airbnb. A lot of those are 1031 properties. So we really spend quite a bit of time educating people in Congress on both sides of the aisle. So this was President Biden proposed capping it at half a million per person, not realizing that that would really have a big negative impact on real estate.
Speaker 1:We all know real estate drives the US economy. If real estate slows down or comes to a screeching halt, that has a ripple effect as we saw with the big great recession years ago on the whole rest of the economy. It has really a lot of implications for banks, for lenders, for people that work in the real estate industry. So fortunately the good news is right now we've got 1031 and National Association of Realtors, our trade association in the 1031 industry is called the Federation of Exchange Accommodators. We team up and we really spent a lot of time just educating people on both parties of how this helps create jobs.
Speaker 1:Most people when they realize that they go, I had no idea. They kind of had this misperception it was just a rich person's loophole, not realizing that it's a really powerful tool used by people all over. Think of a school teacher. Right, they bought an investment property years ago in California and it may have gone up to be worth a million dollars, but that's all their retirement income and kind of their retirement cash flow. So, in essence, as we help people do exchanges, we're really helping people come a little bit more economically self-sufficient, which means they're not as dependent on the government, and that's a great thing all the way around.
Speaker 2:So that brings up a good point, and that is why would someone need to use a company like yours as a qualified intermediary?
Speaker 1:Yeah, when exchanges first came about back in the 1920s, they were typically a swap. A farmer might have a corn farm and they wanted to go to a wheat farm and they know each other and they would swap properties, so they went from one property to another. Today, 99.9% of all exchanges are not like that anymore. You sell your property to a buyer. Now, if you sell it and you receive the money or in any way have access to the money, it becomes a taxable sale. So what happens is we have this middle man or this middle entity. It's called by the IRS a qualified intermediary. Sometimes you'll hear that middle entity called an intermediary, an accommodator, a facilitator, a QI those are all synonymous terms. But the IRS calls us a qualified intermediary. What we do is we are assigned into the purchase and sale agreement, so that agreement to sell a property is assigned over to the qualified intermediary, the intermediary. Then the qualified intermediary steps into the shoes as the seller. So technically, on the settlement statement you'll see the name of the qualified intermediary selling the property to the buyer and because they're the seller, the qualified intermediary receives the funds from the sale. And that really is. It insulates that investor from actually having access to the funds. That's a really critical component and it all stems out of a 1979, starker decision, a tax court decision up in the Northwest, where a taxpayer looked at the code and came up with this creative strategy. It was held up in the tax courts and later on Congress blessed it. So almost all exchanges today involve a qualified intermediary holding those funds as a custodian and then putting the right paperwork, the right documents in place prior to closing. And that's really important.
Speaker 1:John, you can't set up an exchange after you close on a property. You got to do it before you close. So that's the hardest phone call I take is where somebody said oh I just closed a few days ago, what can I do? And there's nothing really I can do to help them out. So just kind of a pro tip there to your listeners. If you're on the fence, you know, I'd first recommend contacting your CPA. Find out what you'll owe in taxes. Most of the time people are shocked at how much they're going to owe in taxes. So find out that number and then, if you want the option, you can set it up and set up a 1031 exchange, and if you don't complete it for some reason, you just are going to have a taxable sale, you're in no worse off position. You pay a modest fee to the qualified intermediary. Generally that's going to be somewhere between a thousand thirteen hundred bucks, something along those lines. That's just a fee for them to do the paperwork and that's kind of your opportunity cost, so to speak.
Speaker 2:Awesome. So our clients typically many of them know about the 1031, but we have many mom and pops, and what we call mom and pops are really the husband and wife or whomever, and maybe family members. They're ready to retire, they're ready to get out and have no idea what a 1031 exchange is. So one of those areas that is always questioned is what does it mean by a like-kind property?
Speaker 1:Yeah, like-kind property is simply any property that's either A held for investment or B used in a business. So any property that's used in a business or held for investment can qualify. And it's really broad, right. It can be bare land, it can be commercial, it can be apartments, it can be assisted living facility, it can be what's called a triple net property. There is a whole wide spectrum. So probably the easier way to maybe flip this around would be to look at what doesn't qualify for an exchange and then that'll leave everything else. So really simply, you can't exchange the property you live in. So if you're a resident, it doesn't qualify for an exchange because you live there. It's not held for investment. The only other category that doesn't qualify is property that is held for sale. So think of maybe a developer they put something up, they're going to sell it off, or maybe somebody that does a fix and flip or gets an undervalued asset. If it's not rented out or used in a business, then it doesn't qualify. So you can't exchange your home. You can't exchange property held for sale. Other than that, any type of real estate qualifies.
Speaker 1:And, john, I'll go off the rails a little bit. Let me share with you just quickly some exciting things. We do exchanges on air, literally called a transferable development right. If I'm in New York City and I've got a 20-story hotel building but I've got the right to add five stories, it's literally what's called an air right and you can exchange that for a commercial property. In Colorado and some of the drier Western states we do exchanges on water rights because they're considered real property or real estate. We do exchanges on easements conservation easements, agricultural easements and one that I think is a great planning opportunity is what's called a perpetual communication easement kind of a mouthful. It's a cell tower. So you've got a big ranch and you've got your cell tower there. You can exchange out of that perpetual communication easement, keep the ranch land and go into another property. There are things called Delaware statutory trusts, referred to as a DST, where you get a slice of a larger commercial building, a vacation home held for investment. In Colorado we've got a lot of vacation homes and a lot of states have that.
Speaker 1:That can qualify. So maybe that just peels back the curtains a little bit. You can see like kinds very broad. Certain oil, gas and energy programs can qualify. You can actually go into mineral rights and oil and gas that meet certain requirements. So very, very, very broad. The only thing to keep in mind is it's got to be real property, or what you and I call real estate. You can't exchange personal property, you can't exchange business assets, things of that nature, so it's got to be real estate held for investment or used in a business. For any other real estate held for investment or used in a business, Excellent.
Speaker 2:So you mentioned the 1031 DST and we have many individuals reaching out to us via our website at havenseniorinvestmentscom and they say you know, I just want to passively invest. I really do not want to have to 1031 into another building that I have to maintain or hold or go visit or someone breaks in. I just want to go into a passive investment with 1031 DST. Can you describe what the pros and cons of a DST are and have you seen any issues with a DST fund? So let's say, a senior housing 1031 DST fund that holds some money and then invests. Can you give us pros and cons of the DST? Sure?
Speaker 1:So a DST refers to what is called a Delaware statutory trust. So it's this interesting hybrid of a type of property that you can exchange into the Securities and Exchange Commission. The SEC considers it as security and yet it also qualifies as real property. We got guidance on this back in 2004. And prior to that, somebody will be familiar with what are called tenant and common or tick investments those we received guidance on back in 2002, actually quite a while back, so 21 years ago. Both of those are what we call fractional ownership. So here's what happens A sponsor purchases a larger property and typically it's going to be a nicer property, you know class A or a nicer B type asset, and let's say it's a fairly significant price.
Speaker 1:Let's say they buy it for $50 million. Then as an investor, you can exchange into a piece of that a slice of it. So if you've got five million that you need to reinvest, you go into five million of that and there are a bunch of other co-owners. Now the big advantage and you hit the nail on the head, john these are relatively passive. They're put together by a sponsor who manages it. You have different types of DSTs that are out there. You can go into shopping centers, you could go into assisted living facilities, you could go into student housing. The list goes on and on. There are a lot of different types of assets to qualify, but the big benefit for you, the investor, is you don't have to actively manage it anymore. So it's a wonderful exit strategy for people that want to get out of active management.
Speaker 1:Now you've got a few caveats. First of all, you have to be what is considered an accredited investor, so you've got to be a higher net worth individual, which I think most of your clients certainly are going to fit that category of meeting those requirements. Things to look at so I think there are a really good strategy for people, especially if your choices pay a lot in taxes or exchange into a DST this fractional ownership. But things you want to look at, you know. Number one you want to look at the sponsor. What's their track record? How long have they been around? Are they only been in business for a few months or have they been around for 10, 20 years and maybe gone through a few economic cycles? So I think that's a really critical one. There are some excellent sponsors out there that have been around for a while, but that's a really important piece.
Speaker 1:The other thing you want to do is you're going to get what's called a PPM, a private placement memorandum. You want to study that and read it. I've gotten into investments with PPMs. I've read them from front to back and it's not exciting reading. John, you probably know that there's a lot of a CYA fine print in there to protect the sponsor. But review that and review it with your tax advisor or maybe a financial advisor, whoever's giving you input.
Speaker 1:But you want to look at that and you want to look at things like what type of investment I'm making. You know, is this a part of the country that I want to invest in? Some states are doing really, really well economically States like Texas and Florida and Tennessee, a lot of growth and economic opportunity. Some states are not doing as well, so that you want to look at that. You want to look at who are your tenants, who are you leasing to? Do you have rent escalators built into that, all sorts of things. And just so you want to look at what are the reserves that that sponsor has? Can they go through maybe a downturn or maybe a situation where the market goes through a bit of a shift? Does that sponsor have the stain power, the financial reserves to weather that storm well. So those are some things to look at as you evaluate these.
Speaker 1:And remember, at any given time they're going to be different, what we call offerings on the market. So you've got a sponsor and they're going to have an offering in this particular DST asset. Well, a few months later it'll be the same sponsor but a different offering. So what I always recommend to people is you want to look at your specific offering, look at your private placement memorandum and what's being offered today. You know, if somebody has 30 offerings, most of them might be good, but there might be one or two that aren't quite as good as other ones. So look at what you're going to invest in. But I'm glad you brought this up.
Speaker 1:It's a great exit strategy, particularly for people that are nearing retirement that don't want that active management of you know, an assisted living facility.
Speaker 1:They've done it, they've made a lot of money, they've built up a lot of profit, but they don't want the hassle, they don't want to kind of offload that, step back and relax a little bit and not have that active management.
Speaker 1:I think it's a great alternative and option for those types of investors and it's also a great option for people that may be doing exchange and they've got a little bit left over. You know a couple hundred thousand that would otherwise be taxable. Sometimes they see people that go from an apartment to an apartment. There's 200,000 left. Instead of paying taxes, maybe invest that into a DST, get a little bit of diversification and now you've got your money and two different investments, which probably, long term, is going to be a better strategy. It's certainly better than paying all the taxes, in my opinion. I'm not a big fan of paying taxes unless you totally want out of real estate. I think you can be creative and look at hey, one of the things I can exchange into that maybe are active management things like a DST or what's known as a triple net property. You know that's another one that you go into.
Speaker 2:Awesome. Let's go back to the very beginning. Here we are, we're about to sell our property and we want to do a 1031 exchange. We get a hold of you and you get into the contract. Tell us what that owner timeframes are for identifying properties. Give us the nitty-gritty of what those steps look like, scott.
Speaker 1:What happens is, once you're under contract, you would contact a qualified intermediary. They'll prepare the paperwork. When you actually close on that transaction, when you transfer the burdens of benefits of ownership from you, the owner, over to the buyer, that's going to be day zero of the exchange. When you close, then you have 45 calendar days. They actually end at midnight of that 45th day. We call that the identification period. I'll talk about what that means. Then, after day 45, you have another 135 days, from a maximum of 180 days, to close on what you've identified. Day zero you close 45 days to identify property. You've got to close on something identified within the next 135 days. Something to keep in mind and probably a great tip to people who haven't done an exchange I would recommend they start looking for what they want to purchase and identify early in the process. As you're listing your assisted living facility, your senior care facility, as you're getting that listed, start looking for what you want to identify. Narrow the field. I'm looking for a property in this market. These are my price parameters. Start lining that up as early as possible because where people get into trouble in exchange as they wait to the very last minute, it's statutory that 45 day period. There's no wiggle room. The IRS doesn't make any modifications because we're in a market with very limited inventory. The code just has these requirements. We have seller's markets, buyer's markets. We had the frenzy of COVID a couple of years back where things were nuts. The IRS just said these are the rules. You have to adapt the market conditions and you have to then follow the rules in those market conditions you identify.
Speaker 1:Now there are different ways to identify property. The two most popular ones what's known as the three property rule. I could identify three properties of any value, but I'm limited to three. The other rule is what's known as the 200% rule. I can identify as many properties as I want, but no more than twice what is sold. If I sell for $4 million, I can identify some smaller properties, but not over $8 million in value. The first one you basically have unlimited value, but you're limited to three. That's under the three property rule. Under the 200% rule, I can have an unlimited number, but the value can't exceed twice the value of what I sold. You pick one of those two rules. Typically.
Speaker 1:There's a third rule in the code and I'll mention it, but it's rarely used. Believe it or not, john, I personally did this. I used this rule years ago. It's called the 95% rule. You can identify more than three and more than twice what you sell, but then you have to close on 95% of the value of the properties identified. It's a little more risky. Now one little caveat when we talk about identifying, you can, anywhere in that 45 days, substitute properties. If you find three properties you like on day five and you identify them, but your broker finds some much better investments, you can unidentify A, b and C and then substitute with D, e and F, as long as you do it before midnight of the 45th day. That's the key thing.
Speaker 2:I can't tell you how many times in my career that three properties aren't identified by the 45th day and all of a sudden it becomes a taxable event and tears are flowing and my family's going to be upset with me that I didn't do it right. And so it's so important for individuals to reach out to you, Scott, to really educate them and keep them on that timeline to get midnight to the 45 days of the three properties identified. Are there any instances whatsoever that allow longer than 180 days? Is there any kind of instances that happen?
Speaker 1:So the 180 days is the standard one. I'm going to give you an instance where you can have longer and then I'm going to flip it around, john. I'm giving instance where it's actually shorter. So there's a narrow, narrow exception, which would be if you have property or tax records in what is called a presidentially declared disaster area. So think of a large hurricane is going through. We recently had the tragic fires over in Hawaii. I'm certain that'll be a presidentially declared disaster area.
Speaker 1:So if you've got a property or tax records in a presidentially declared disaster area, you're eligible for a 120 day extension, and so we'll see this commonly with things like hurricanes, wildfires. Here in Colorado we had flooding a number of years back. That was significant. That qualified, but it's only if you're in an affected county, so it doesn't provide an extension for everybody in the country, only if you have property or tax records in an affected county. We probably see one to two of these every month. You know it could be windstorms, tornadoes. We actually keep on our website a running list of these to qualify, so that would be one way to do that.
Speaker 1:Now what we oftentimes get asked is well, what about the IRS? Don't they, when they give you an extension if we've got. You know, if it's just a market where there's a little inventory or it's hard finding things, there's no extension for those types of things. You've got to fit within that 45 day window to identify and 180 days to close. One little caveat you know we're sitting here in late August. For investors that close near the end of the year, if you file your tax return on April 15, then you've actually shortened your exchange period to less than 180 days. So let's just say, I close December 31st, a lot of people close end of the year and I file my tax return on April 15. Well then, I've just shortened my exchange period. So keep in mind, every investor, every business owner has the opportunity to take advantage of that full 180 days. But what they need to do is file an extension on their tax return, complete their exchange in 180 calendar days and then file their tax return. And unfortunately we do see people that aren't aware of that. They just assume it's always 180 days and when you read the fine print it's 180 days or the day you file your tax return, whichever is earlier that applies. So keep that in mind.
Speaker 1:And then one thing I also want to mention I call them calendar days. If your 180 a day close falls on Christmas and nobody's working Christmas, then you want to get it closed before that. So they're calendar days. They go through weekends. They go through holidays.
Speaker 1:Sometimes here in Colorado, john, I'm sure you've seen this we get a big snowstorm and a lot of times businesses will shut down early for the day. Well, if that's right, at the end of your 180 days you're not going to get a break because there's a big blizzard in Colorado Springs, right? It's up to you to make sure you close before the time deadline. So keep that in mind. Doesn't happen that often. But what I recommend is, if you want to do an exchange which I highly recommend you look into doing it do it.
Speaker 1:Try to close before your absolute deadlines. Try to identify before that 45th day. Give yourself some breathing room, try to close and the vast majority of investors that we work with do that and they find an exchange is pretty straightforward and it's not that complicated. And, by the way, a good, qualified intermediary is going to walk you through all these processes. They're going to let you know when you close. Here's your 45 days. Here's your 180 days. Here's a form to identify on. Here's how you identify. So think of a qualified intermediary as partnering with you and kind of walking you through this process and making it very user friendly.
Speaker 2:Thanks for that, scott, and is there any other question that I haven't asked you, that I should have, that you can answer?
Speaker 1:I wanted to share one quick strategy that I think could be a value to your listeners. If you have a really good purchase opportunity, a property is just a really good investment, but it's maybe off market or it's going to sell really quickly, you can do something called a reverse exchange. So a reverse exchange is great. With an off market deal or a really undervalued property Somebody's just listening for less than it's really worth. In a reverse exchange, you actually can now purchase the new property, the new replacement property, today or right away. Then you have 180 days to exchange out of your current property. So realize there are some variations like that. A reverse exchange. That'll give you some planning opportunities.
Speaker 1:Some people may want to add value to a property. They might want to improve it. There's something called an improvement or build a suit exchange where you can improve an asset during that 180 day window. So I just wanted to share those are some things to keep in mind.
Speaker 1:One last thing if you're in a partnership, that's something that can be a little tricky. If you've got different partners and someone to cash out and someone to do an exchange, you want to do some planning because you can't exchange out of or into a partnership interest, it's got to be a direct interest in real estate. I won't get into all the technicalities, but get with a good qualified intermediary, get with a good tax or legal advisor and explore those things well in advance of closing because there are a couple of different approaches that can be done to help you out. But if you're in that partnership or that LLC with different members or partners and people have different exit strategies some just want to pay the taxes, some don't you're going to need to get some good advice well in advance of closing.
Speaker 2:Thanks, scott. I appreciate that For our listeners that want to reach out to you. How would they get a hold of you?
Speaker 1:I got a really easy number to remember. It's 888-531-1031. So that's my phone number. My email is just my name, scott, and then it is at apiexchangecom and I'm here just to be a resource. I appreciate visiting with you a little bit and your listeners, whether you have an exchange coming up or not or you just want to get some input.
Speaker 1:Now, technically, john, I can't give tax or legal advice. The IRS prohibits that. Because I've done this for 34 years and done well over 100,000 of these, I can probably give a whole lot of input on the rules and regulations and maybe some guidance, and then people can go back, take the input from somebody like me or a knowledgeable, qualified intermediary. Run it by your personal tax advisor because they know your tax situation. And it's really important to get your tax advisor involved because they know your specifics. Everybody's situation is a little different. Some people have ownership issues, they purchase assets, they've been through divorces, they've remarried, they've got things titled weird. People might have carry forward suspended losses that they can use to offset gains. So get with your tax advisor I think you know an inter qualified, good, qualified intermediary and a great tax advisor and work with both of them before you close.
Speaker 2:Scott, I've really enjoyed hanging out with you today and learning more about the 1031. And I know our listeners will appreciate you know 34, 35 years of your experience in the 1031 exchanges. I truly appreciate you advocating in Congress and teaching Congress what a 1031 is and why it's beneficial to our national economy and the real estate market. So have a great day. Appreciate you being on the show. Thank you, john.