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 Welcome back to part two of the 1031 Exchange interview with Rick Wittstock Today he's gonna impart even more knowledge that he has in regards to 1031 exchanges. He does have a couple of little things that are totally new to me, and I'm sure it'll be new to you. So pay attention. He talks about how to use your 1031 exchange monies to actually pay for the improvements on your property.

After you've closed on the property again, the whole conversation about 1031 exchange is to kick the can down the road in regards to paying capital gains, like and subscribe below and continue to get more information that's helpful to you.

So when someone is looking at selling an investment property, any rental property, they should start talking to a 1031 exchange person as soon as possible when they're thinking about it, and also their tax person once it's on the market and it's sold. Now it's under contract. What do they need to do next?

At that point, that's when we just need a copy. 'cause now we're getting into the mechanic. So we're assuming that they made the choice that they wanna do an exchange. They understand? Yes. We have assumed that yes, we're doing a 1031 exchange. We're in it. So what I would need is a copy of that contract.

The one that they're selling, we call that the relinquished property on the sale of the property. So we need that, their contact information. If there's a trust on the property, we'd need those documents as well. And then the contact information for the attorney or the escrow, depending on where it is in the country.

We know on the East Coast, attorneys do a lot of their transactions. And on the west coast we have escrow that, a title that handles a lot of those transactions. And then it's on autopilot. We would take it from there, get everything all set up, send our documents out to the client, and then we just wait for the close of escrow for the money to transfer.

So that's the big difference. Talk about the money. What can we not do with the money? So the money is not gonna go to the client. It goes to us, it goes to the qi, the intermediary of the property or doing exchange. So the money goes to us because the IRS doesn't trust you. They want somebody that's third party to hold those funds to make sure that it's gonna go to the replacement property.

So we hold those funds. And when you say hold those funds, and I'm just being devil's advocate because I know you talked about it in the class, but I know people will ask. Will think because they're trying to work around. Well, what do you mean we're gonna take it to you? How does it get to you? No.

So exact thing would happen at escrow. We give them instructions. So you know, when you open up escrow, escrow sends out their documents on where to send the money, what checking account, Where does this go? Where's the wire go when this closes? So the difference when you're doing an exchange is we give those instructions to escrow and we say, here's where the wire goes.

And those funds go to what we call that exchange account. So it's held in the Qi's name and it's referenced to the exchanger or the taxpayer. And then those funds are 100% available at a day's notice. Just like it was in their own account, but it can only go to replacement properties. So they cannot take an envelope with a check in it and give it to you?

No, no. They cannot do that. Don't touch the money. cash anymore. So we get that wire, everything goes in that wire, and the next day, oh wait, Rick, I just found that replacement property in Arizona. Can you send me the earnest money for $5,000 or whatever? Okay. So then they would reach out, you'd release the, they don't have to write a check for the earnest money.

It's like it comes right out of the exchange. I love it. I love it. The exchange. Yeah. Okay. Okay. So all that money's tax free and it's utilized for the replacement. Okay. Yeah, so, and then of course you just run the course. You got the 45 days that you identify up the three properties. Or you use, if you wanna buy multiple properties, there's a couple ways to do that too, which we can get into.

But most people use the three property rule and then they just pick one of those three properties. Okay? And then you get close on it within 180 days from the close of your current property. Forward. A good qi like us, we will remind the client every time that there's a different timeline coming up.

You're on day 15. Hey Mr. Smith. We don't have anything from you yet. You are you out there looking? And then they'll be like, oh, I'm having a hard time. Can't find anything that I like. We'll try to help with that as much as we can. If we have other clients that I know of that maybe have a property that's coming up, I'll share that.

If not, there's other replacement properties that they can go into that are more autopilot. I think we touched on that a little bit Yeah, I was gonna, I was gonna ask you about that, because some people are at that point in their life where they're like, I want to. I don't wanna do any investment properties anymore.

And you know, the funny thing is, is that I'm thinking about, you know, there are a lot of older people that do have investment properties, And they are getting older and they're like, you know, I just don't wanna mess with property management. I don't wanna get a call saying, I mean, they may be having it managed by a property management company, but they don't want to.

Be getting that call saying, Hey, the toilet's plugged. What do you want us to do? The roof is, needs to, you know, they just don't wanna spend any more money on this and have that headache. So what are some other real property options where you don't have to, it's like invest the money and you just, what did you say?

Checks in the mail kind of money. Mailbox money checks in the mail. Mailbox. That's what it is. Mailbox money. It's. I mean, that's where I'm gonna put my investment properties when I'm at that point where I don't wanna have that phone call from my right on saying the toilet's leaking. Do you wanna send the plumber out?

What do you wanna do? Because that eats into what your monthly income's gonna be when you have to do this. And if you're like, say, older investor, a lot of their properties are probably older too. Which means you're gonna have more chances of that phone call or that breakdown. And so the best way, I mean, and this is just a little bit of education that people don't know about either.

There is a product that's called Delaware Statute Trust. That's what they're under this Delaware Statute Trust, umbrella. And under that umbrella, there is a sponsor. So kind of like a property manager, but a sponsor that is managing the property under the Delaware Statute Trust entity. And so some of them, for example, Amazon Warehouse is under that structure.

So Great tenant. Amazon, you know, they're gonna pay their bills, right? Hopefully that's a pretty solid tenant. So you could take your 500,000, so your client that out of Minnesota has a $500,000. And he's on day 40. Can't find anything in Arizona. Probably impossible. He probably will find something, but we'll say he can't find anything.

So what's he gonna do with that $500,000? He can put it into one of these Delaware statute Trust properties, and maybe it's the Amazon warehouse and he can have a percentage of ownership of that Amazon warehouse. So now giving whatever his percentage of return is, I think that was around six and a half percent that the Amazon warehouse was returning.

Now he's got, he's got this income, maybe the same amount of income that he was making on his rental property, but now it's coming to him without the headaches and the phone calls from the tenants saying that this broke down, this broke down. He's getting that funds coming to him directly.

So that's amazing and it's a great way to go. You could take all those properties and put 'em into these products. And not have to pay capital gains tax and still have that monthly residual income coming in without the headaches and drop that off. It can go to your heirs with that stepped up basis that they don't have to pay the capital gains tax on either.

So they can keep that income or they could sell them when they receive 'em. Okay. Okay. And is there any security in that? I mean, yeah, so there's a few different types out there. There's ones that are. The Delaware Statue Trust, which is the ones that we like because they're regulated. Okay? You can only get them, you can't buy 'em from me.

You can't buy 'em from you unless you have a series seven's license or you're financial planner. So they're regulated as much as a buying a stock through Fidelity or buying it through Morgan Stanley or whatever. So you're, you're protected. And their job as the ones that are offering the, is their fund fiducial responsibility is that these are legit properties.

There's still due diligence that you would wanna take because there's hundreds of these Delaware statute trust properties out there, and some of the tenants that are in them you may not recognize. So you'd wanna do a little bit of homework on some of 'em. But for the most part, they're regulated and they're safe.

There are other ones that are not. Okay. Okay. There's always copycats with everything, so there's what they call tenants in common or tip properties that may be under very similar structure, but they don't have the DST or the Delaware statue name on them. They have, it's in common name on them and some other name that they created.

These are not regulated. They might be legit, but then you have to do double the due diligence on these properties, and sometimes the returns are a lot higher than 6%. They might be 10, 9% or even higher than that. Okay? So if it looks too good to be true. Exploring your options so you don't have to deal with some of those headaches.

But I personally, that's the direction I will go when I decide that I'm done dealing with tenants and done dealing with that. I'm gonna sell my properties and you don't have to worry about the timelines because these properties are available right now. Like if I open up my exchange tomorrow, there's hundreds that I can pick from.

And you don't put all into one property. You can put a hundred thousand into this one, a hundred thousand into that one, 200 thou whatever. Whatever your numbers are, you can put up, spread it out. I like that. I like that. and I like it for the simple fact that, you know, one of my things I'd like to do eventually is be able to travel to Mexico and be with my family that's down there a little more.

And if I'm out of country for months at a time, I don't wanna be getting calls on the rentals going, Hey. Something's going on. It's like, it's like Uhuh, but what was I gonna say? So DST is for short, right? Right. Delaware Statute Trust is the long version. Who or how do you find out about those?

Well, you could go first to your financial planner and see if they offer them. So that, that's your person that you would trust initially. So if you have a financial planner, you have a Edward Jones or Morgan Stanley account. Talk to your broker first. See if he has offers them or he has somebody that does offer them.

Okay? If not. I have a list of clients or a list of financial advisors that do offer them, and I can get that list and a lot of 1031 exchange companies do work with them pretty closely because it helps us out too as well. If they're in that 45 days, they can't find anything, this is a great alternative for them to save their exchange and replace into something that's gonna continue with that tax deferment.

Is there a required amount of time they have to leave it in the DST? Because I wasn't able to find a property, I eventually want to, but can I pull that money back out in 60 days? We, you wanna park it somewhere so you can find something later? Yes. Okay. Okay. There is timelines though. There's not, from the IRS, there's no restrictions.

There is though, from the DST side. There is only so many that are two, they start at two years and majority of them are around five to 10 years. You're, you're locked in a minimum two, but you can find ones that are five and 10 if you wanna go a little longer. You can sell them at any point.

So within the two years, even six months down the road, you could sell them. But it's a hard sale because you're gonna be selling .06% ownership in an Amazon warehouse, right? You're who you're gonna sell it to is very limited, but you can go back to the original broker and say, look, I wanna sell my property or my shares in Amazon.

Can you do that? And they can try to facilitate that for you. So it's possible, but for the most part, you're not that liquid. You're kind of at least a two year commitment that you have to be in. Okay. And that's good for people to know when you said like it's an option. But it's better. If you really do want that actual rental investment property for standard rental income, then you better get out there and find a house,

Find a property. Doesn't have to be a house. It could be property, it could be a duplex, it could be a real, yeah, anything that's real property. and we talked about other things that are considered real property, obviously apartments, buildings, commercial properties, anything that's like a tangible building on dirt.

real property DSTs count. It sounds like this gentleman's the dirt where the easements were, and he put the billboards that counted because he owned the easement. Correct? Correct. And then he put the billboard on there. He put, well, the company, he had a company that he was working with, the marketing company.

So they put the billboard on and then they paid him the residual income from the market. Oh, okay. Got it. Got it. So he didn't even have to deal with the billboards or nothing. He was just dealing with the dirt that the billboard sat on. They were great investments. He, like I say, he was motivated to sell those for estate planning.

'cause he was making less money going, buying single family than he would on the billboards. But yes, billboards are good. There's some, some of the unusual ones are billboards, cell phone towers that own the land, mineral rights, gold mine claims. Anything that has a 30 year option.

So you might own a property on a contract and a 30 year contract or greater, those qualify to do a 1031 exchange, so the list goes on. I have clients that do a lot of, a little bit of everything that might do a little bit of mineral oil and gas out of Texas that they wanna put a portion into, and then they wanna buy maybe some cell phone towers.

And then they wanna buy some land or some commercial properties or residential properties. You, you can mix it all up, whatever you want. Okay. So you have a kind of diverse portfolio and honestly, anybody that has rental properties knows there's a lot of work involved. Often, often. And so by investing in things like mineral rights or a cell phone tower and things like that, there's not gonna be the maintenance.

There's not gonna be the calls in the middle of the night that the toilet clogged or the lights won't work, or God knows those kind of things, which means those are viable things to think about as well. It's like. I have, I actually have clients right now that are going to list their house to sell it.

And the wife is like, well, why don't we rent it out? And the husband's like, I don't wanna be a landlord. Even though I'm like, Hey, I think it'd be great. It's not that big a deal. He is like, I don't wanna be a landlord. So they're gonna use the money and roll it into a new property and, and they'll be fine.

And they won't max out the 500 in the capital gains. But you know. It is nice to have that little extra money coming in, you know? You know, it really is. But your client that said that they don't wanna be a landlord. That I hear a lot. I mean, it's, I mean there's that elderly couple. They're just like, I'm done.

And they don't even, sometimes they have their blinders on, they don't wanna look at anything else. And that's when you asked me earlier, when should you have these conversations? The earlier the better because once somebody's got it under contract on their, taxable property and they're like, oh, I don't wanna be a landlord, they already got their path set.

They may not be open to anything else because they're already kind of got stressed out a little bit about what they're doing because it is a stressful sometimes when you, so they add that extra layer in there, they may wanna deal with it, but if they had a conversation with somebody like me six months prior.

They have a different game plan going into it. And then it might be a lot easier to digest when it does come to the function part. Yeah. Right, right. So question, can you buy into DST without doing an exchange? Yes. I mean, they're just like available people can just go to a financial advisor, credit investor.

So you just have to have some investment properties. Net worth at least four, say 400,000. As long as you have net worth and have some other investment properties and you're a credit investor, you can invest. And the minimum amount that I've seen is just 50,000 that you can invest in one of these. Yeah.

Nice, nice. I mean, I'm just thinking streams of income, the more, yeah. The I, I've learned through all the coaching and everything, and you know, it's the more streams of income you have. If one stream like lightens up or shuts down, you have another stream of income coming in, you know, and it's just another way of having some money, you know?

Yeah. It's like, who doesn't want more money? They're rich too. They might be in a different ballpark. They're rich. They might have multiple businesses that bring in those streams, but we all average person can do that. You can have these streams just with a little bit of knowledge that you have a couple thousand coming here, a couple thousand there, maybe 500 here, whatever.

I mean, I That's great way to go. Yeah. I love it. I love it. watching our time is winding up here and so, I mean, I have so many more things I would like to learn. And I guess the thing is, is that. We may come back and depending on how people respond and how I'm sharing the information out there, circle back and have yet another conversation because I just think there's so many nuances to this, Rick.

Yeah, that's, that's just, you know, people are gonna have probably when we're done talking to them, more questions than answers, and I just wanna get it out there so people understand that. Number one, if you have an investment property or you have a home. That you've been living in and you don't wanna sell it, but you want to buy another one.

You could take equity out, go buy the other one and make this a rental to pay off the loan, and now you've got an investment property. But eventually you're gonna have to make a decision, you know, at 90 years old, do you wanna keep maintaining this? So what do you wanna do? And I would hope people would say, I don't wanna pay capital gains, or I'm 30 years old and I'd like to make it a rental property and buy another property for my primary residence.

So there's just a great way of leveraging, and you got me thinking, I have a property. That. I'm like, well, if I sell it, I could buy two more, but I don't want two. I'd rather have like a duplex. So as you say, then you have income on one side always something. It's not gonna be a hundred percent empty.

Hopefully, no. Yeah, and that, and that's like I said during the class, I'm pretty sure I said that is with the residential, their goal as investors, a lot of them wanna get into like a duplex to start. Then they jump to maybe a fourplex, multifamily, because all those commercial properties are less work in theory because you can have a property manager on site that deals with that, and then you have more money coming in and less headaches.

So, right. And when the, when they are in transition, you're not down while you are waiting for the next tenant to come in. Right. You know, which instead of money outta your income, which could affect a lot. Yeah, absolutely. Right, right, right. So again, I, it would be nice for people to really understand how this works, and I think that the thing that people struggle with is that the really wealthy people that got there through real estate and they wonder why don't they pay taxes on X, Y, and Z because they kick the can down the

road and they can do it legally. And they use the investment property they have. They buy and hold, let the, you know, value increase, do some, you know, stuff to increase the value. They sell it, they do a 1031 exchange. You kick that taxes down the road. You buy a bigger property, maybe a duplex. Maybe a fourplex,

And then you're like, okay, this is great. And. Maybe you take some equity out of the fourplex, you buy another property, but then you're like, you know, I'm gonna sell the fourplex and I'm gonna buy an apartment complex. And kick that tax down the road because I did another 1031 exchange. Yeah. And I think that people don't understand, that's legal.

They're not doing anything illegal. They're just not tax people paying themselves instead of Uncle Sam. Right. And that's the other thing is that we've done studies on this and this kind of gets me excited because the IRS loves 1031 exchange because they make more money when you do a 1031 exchange than if they just collected a tax because, so speak to that, all the people that are involved, like if you have this incentive for them to sell the property, which is a tax deferral.

You got at least two transactions. You got commissions on both sides. You got appraisers, you got inspectors, you've got 1031 title escrow. Everybody's making money, which means there's more income tax that they have to pay to Uncle Sam in the long run, so Got it. It stimulates the economy versus the other way.

They just took the tax and they were done. They wouldn't make as much money in the long haul, so because that is awesome. People would just, yeah. See that's the best selling point of 1031 exchanges and answers the question, well, they need to pay. We all are paying that. They get more money this way because everybody's paying more taxes on their income because we had to involve all these people to do a 1031 exchange versus sell and pay your capital gains one and done.

Right. Like, okay, well that was nice. Thanks. But we sure would've liked to see all that other money come in here. Yeah. We don't see it personally, but it go, I was just gonna say that they love this app doing 1031 exchange because it's something that they make more money on the long run. We just don't see it individually, but everybody else is making more income and that's, I love it.

I love it. That's, that's great. That's a great selling point. When people say, well, we should pay, they should be paying. Everybody's paying now. We're helping everybody pay more. Exactly. Everybody's happier when they have more money. They spend more money. I mean, you know, simply all the way around. It's a, it's a win win, win all the way around.

I love it. I love it. Well, I appreciate your time today very much, and I know I have many more questions and things and we're just starting to open this can of worms, but I really do want people to know there are ways to, so to speak. Not pay capital gains on investment properties. Even if you only have one for goodness sakes, don't pay all that money to Uncle Sam.

Leverage it. Buy another investment property. If you don't want an actual property, do DST. That's money that's coming in every month. Mailbox money. I love it. It's no headache. You just invest it and let it go. It goes to your heirs when you die, or if you wanted to sell it at some point before you die. If it's been in there 10, 20 years, it's like, well, okay, sell it.

And. Yeah, then you have to pay. Then you have to pay capital on it. Right. Yeah. I mean, but you know, it just, knowledge is power. So as an investor, every investor should at least have this knowledge. They can make a decision if they don't have to, one, if they don't wanna, but at least they made a decision based on the facts.

Absolutely. Well, Rick, where can people find you? That's what they always ask. Where can they find you? Yeah, absolutely. Best way, uh, I don't know if we can put it in the chat or anything, but my number, my cell number, text me, call  me. (602) 793-1558.   📍 Okay. And you are located in Phoenix, Arizona. I'm located in Phoenix, but I cover the whole state of Arizona and New Mexico and I can handle exchanges anywhere in the United States.

Wonderful. My company is national, so we have people everywhere. Okay, sweet. Yeah. Now, do you have a website or any kind of Facebook page, YouTube channel, anything else where they can go and learn more about you? Our website's the easiest because I got a bunch of videos on there on some of these topics.  So it's IPX India, Peter x-ray zero three one.com.

 Okay. So you go on there and just, it's a national company, so when you go on there, you might get. National information, but if you, whatever state you're in, plug in that zip code. If you wanna reach me, plug in Arizona, New Mexico zip code, and you'll get me as your contact on there. And I have been loading in 30 second little videos on some of the timelines and some of the things that we just talked about today.

So that people can brush up on their skills, but absolutely. And then there's online submission forms there or online inquiries so they can send to you as well. Okay, awesome. Awesome. And we will have all your information below on the YouTube so people can click on it and whatever. But again, thank you for your time and I'm sure we'll be chatting again in not too distant future.

Sounds good. Thanks so much. Thanks Rick. Have a great day. You too.

 Well, like I said, Rick is full of knowledge. Thank you for watching both parts of the 1031 exchange interview that I did with Rick Wittstock. His information is listed below, so please reach out to him directly by email, text, or his website and or call him to ask your questions about 1031 exchanges. I don't know about you, but now I feel much more confident.

When I'm dealing with investment properties or rental properties and encouraging people to not have to pay capital gains, how can you not pay Uncle Sam all that hard earned money when you've paid so much into your investment properties? Thank you for watching. Again, I'm Judith Barnett with Judith Barnett Sells Homes and My Home Group Realty.

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