The 1031 Exchange Explained | A Faster Way to Build Wealth
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- Опубліковано 21 лип 2024
- Need the 1031 exchange explained in a simple way? With so many conditions and caveats surrounding 1031 exchanges, it’s easy to understand why many investors don’t bother with them. But, this could be to their detriment, as 1031 exchanges can help you grow cash flow, portfolio size, and property value quicker, without the tax implications of a traditional home sale.
James Dainard from Heaton Dainard Real Estate used the 1031 exchange to take his portfolio from twelve units, all the way up to three hundred! He answers some key questions that may be confusing investors, such as: what is a 1031 exchange, how does a 1031 exchange work, and what are the benefits to a 1031 exchange?
Have you ever done a 1031 exchange? If so, did it work smoothly, were you able to hit the deadlines, and would you do it again? Let us know in the comments!
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00:00 Scaling from 12 to 300 Units!
00:36 What is a 1031 Exchange?
01:57 When is The Right Time to 1031?
05:05 Factors to Consider Before You 1031 a Property
08:53 How Does it Work?
16:13 Before You 1031 Your Property
Finishing my first property at 23 just talked to my lender and agent about a 1031 exchange and didn't realize that it has to be an investment property not a primary residence. This is a big point I haven't heard until I was ready to execute and sell. Make sure you plan ahead!!
You still get the hone owner tax exception!!!
@@ProjectRE Can I sell my primary residence in one state and buy another primary residence and investment property in other states?
121 instead
@@thedude8009 Yes or just buy investment in another state or visa versa.
@@thedude8009 yes you can. You will save a ton in taxes if it’s your primary’s
I had to listen to this a couple of times. I understand so much more now. I had a very good foundation but this has help so much. I see things much more clearly now. Thanks.
Thanks Stanley!
I appreciate you sharing this useful information with us.
Thanks Lu :)
Time to exchange again buddy. Seattle prices are dropping like a rock. Great info!
Great explaination James. This info is so so valuable
Hey BiggerPockets community, James here! I'm back to share my first personal experience with 1031 Exchanges and how YOU can fast track your wealth in real estate 👊
What methods do you use to find value add properties?
Whats up Pro Rogen lol Great articulation on the 1031 exchange! Let's just hope 🙏 Biden doesn't cap it's head off at a max 500k trade up... it's literally how the majority of American families have become wealthy since America's founding! I'm trying to believe There is no way Biden is able to take away our 1031 exchange. It became a damn tax code for a reason!
@@pcbatlthere's many great apps that help but I recommend you get every real estate agent within a 20 -50 Mike radius to help you find a property. It's literally their job to work for you because if you don't buy, they don't get paid so get as many real estate agents as possible in your area to help you find properties. Also I still constantly find good deals on the MLS contrary to what other investors will tell you. (Either they want to steer you away from the MLS BECAUSE THEY'RE GREEDY or they're lazy and actually believe it.
Awesome job, James!
@@seekdiscomfort4746 thank you very much for the great response. I've looked at Drive for Dollars but haven't pulled the trigger on it yet. I never really thought of that but will definitely run with it. I've spoke with a few wholesellers but the numbers didn't add up favorably. It's still good to network regardless. Thanks for your help!
Great video Jimmy!
Thanks Keane!!!
Thank this was a good video!
Thank you!!!!
Does this work in high inflation, interest rate, arguably overpriced environments? Tech disposable income of Seattle could support higher rents. Hard to command after job losses. Can rents/appraisals go any higher if wages don't follow?
I am a total newbie to this but selling my rental property and considering doing the 1031. The reason I'm selling the rental property is it's in California San Diego terrible landlord state.
Please do a video on value-added property
WILL DO!
Do have to use the full amount of the equity, is there a percentage?
The upleg needs to be the same price or higher than the sale price.
Selling a rental property I owned with a multi member LLC. Other members are keeping the LLC and I’m branching off. Is there any way I can 1031 if without using the that LLC
When you buy over 300 units do you buy them under your personal name or an entity?
As far as I know I cannot borrow from Banks under LLC name or an entity.
LLCs use a local business bank in your market. They understand it a lot more and will typically work with you.
@@ProjectRE thank you so much for the reply!
Several thoughts on James Dainard
1. Heaton is very lucky to have a highly energetic and experienced partner like Dainard. Since Real Estate is very hard to do alone the ideal three way partnership would be for separation in responsibilities between-
a. Sales and New Deal flow
b. Financing, Accounting, permits, Legal and fund raising.
c. Construction
2. Dainard was buying real estate at the age of 22 while working a full time job while most kids at that age were sleeping in till noon, getting high and playing video games.
3. Unfortunately the cheap deals that Dainard is referring to do not exist anymore.
Thanks for the shout David! It’s all the rockstar 😛 . My long term partner Will grinds too, we divide and conquer. You can still find them, just have to be Diligent and sort through the duds. It’s more about the equity position that makes a big impact on these.
Great presentation
Thank you!
this was hard to do when homes were hot, is it a good time now to do this because interest rates are so high?
we actually were doing more of it with the high appreciation, great time to trade out equity positions. Always a good time, just have to get the right math behind it.
Wouldn't the BRRRR method have worked better to avoid the lost cash flow during the 1031 exchange?
Both are great, but this gives you the sudden equity grab and keeps your properties with lower leverage positions. I personally got hammered in 2008 because I carried to much leverage.
@@ProjectRE Ah, I understand.
Is it legal to refinance the equity out of a property before selling to avoid the gains?
Gains on basis not loan balance. You pay the same tax regardless.
Is this path better than keeping the cash-flowing properties and using the equity to purchase more properties? 🤔
It’s good to reset the depreciation and it gives creates a way to increase cash flow no new money added. Also helps you keep a low LTV if the market slips.
@@ProjectRE Thanks for the insight
What does it mean to stabilize the property? He mentions that he built the 4th unit from the original triplex which stabilized the other three units. Can someone explain that to me?
He’s referring to him receiving rent from the building. When he was renovating it, it was not stabilized because he wasn’t getting cash from the property
Anyone know if I can do a 1031 exchange to a live aboard sail boat? Aka retirement plan!
I want to buy some vacant land to build my home and live not to sell but the buying terms is 1031 exchange will that affect me and if 20 years later I would want to sell I can’t??
1031 is for investment property
im confused when you say your equity was at 475K at ~11:00. The equity total between all 3 properties was only 325K (atleast thats what you mentioned). unless the first property also had 150K of equity gained.
Never heard it explained this clearly.. I appreciate you! God bless.
Thanks Dalila!!
How long should you hold the property before doing 1031 exchange?
At least 1 year
@@ProjectRE So what do you do when you flip a property and it takes you less than 6 months or 6-12 months?
When you first said 36k / month a had to rewind a few times like yo I need to do whatever he did asap
Total mistake my man, that is annual ha!
ha! typo!
How long do you have to buy another property before you have to pay taxes on the equity gained?
you have to identify in 45 days.
Hi James! I’m new to rental investment. I have a primary residence in one state and want to sell it to purchase, a rental property and a primary residence or two rental properties. What would be the best strategy to use 1031 exchange? Another question- Whom should I consult regarding this? My real estate agent or lender?
Thank you in advance!!
Hello! how much of a gain is there? if its your owner occupied property you can sell it and get a tax break after 12 and 24 months. Might not make sense to do 1031
Primary cannot be 1031. Exchange doesn’t apply to your residence at all. Has to be an investment property.
You sold all 3 condos individually or did you have to sell the 3 condos as a portfolio to 1031 exchange? Thank you
I had to sell them all simultaneously but I just need to identify the property 45 days from the first sale.
@@ProjectRE Did you have to sell your 3 condos to the same buyer?
no@@Seanwong03
If I 1031 exchange into a second property and then decide to sell that second property without 1031 exchanging it, do I have to pay capital gains tax on the FIRST property and the the second one?
Yes you do. Its differed. you still are on the hook.
@@jamesdainard4242 well then that's not as good a benefit as I thought
@@PistolStar21 It’s fine. When you die the deferred taxes go away and you can gift the property at a stepped up basis to your kids.
Very cool
thanks!
Thanks Boss
Thanks!
how do you qulify for more than one loan?
Due to Covid-19
GRAND is still giving out $500 daily for the first 500 people who loves (GRAND) to partake drop a note .
Sponsored by quest world.
Amazing info! I’m in a very similar situation as your 3 condos and this would be amazing to accomplish, thank you!
Thanks!
Confusing math with using the words cash flow for the gross and the net.
That’s great feedback, I will keep that in mind next time!
Thank you for the great explanation and HOW/WHEN to use the 1031 exchange. At what ROE do you decide its probably time to find a value add property to even do a 1031?
I run the cash on cash return on equity.
@@ProjectRE can you put that into an equation form? Thank you in advance!!
If I have 500K in equity cant I use that equity to purchase me a bigger deal and also is that safe doing ?
Yes, get a HELOC or do a cash-out refi. Both are safe as long as you can come up with the minimum payment each month.
yes you can
Anything like this for Canadians?
Not sure on that one..
Bottom line: Have a good agent who brings you deals. Have a good CPA who advises you on impact. Have a good attorney who handles 1013 Exchanges. Have a good developer who can do upgrades for you. Have a good friend who is smarter than you.
Make sure all of these people know each other and are paid accordingly. Take them out to dinner and pay their invoices quickly. Your team is everything.
Exactly.. people don't know this. This is how i handle my business network, paying their bill when you set up a meeting with them at the steakhouse is the biggest upside you can have
We had record equity gains too. Like never before.
From a novice point of view this sounds like Charlie brown teacher talking to me
haha! let me know if you have any questions.
Thank you for explaining that it makes more sense now
Thanks for watching David!
I’m confused by him saying a month when I think he meant a year. I believe he was cashflowing $1,000 a month on the 3 condos, not $3,100 a month.
That’s my mistake - $3,100 annual to $36k annual. Said monthly for some reason…
@@ProjectRE Would you 1031 exchange out of the 36k annual property for more units with less cash flow ? I have a 4 unit with 25k annual cash flow but it’s in a non desirable area. The cash flow is what keeps me from selling even though I’m about 200k in equity over a 2 year span. I would like more units but I know i won’t be able to find the same or near cash flow here in California where my current property is located.
@@trayniners3439 As long as the trade is equal or greater in value and are you living off the reduced cashflow. Is the projection of the new cashflow increase over a short period of time?
@@keithfreitas2983 it would always be greater value meaning, more units and higher valued property. I would only do a 1031 exchange if I identified that property. My question is more about the cash flow which is harder to project when taking over another property. Do I want to take that risk of giving up a cash cow to take on a bigger project that could or could not be more profitable as far as cash flow.
I wouldn't 1031 in your situation. I would do a cash out refi , pull out the equity, and buy a new prop at foreclosure
You left out the BIGGEST consideration.... property taxes. If you sell a property at $500k (that you are into at $250k), 1031 then purchase $500k different unit you are already starting out with a BIG hit to your property taxes
You will, but we factor that in our UWing. Also the larger property allows us to cost seg.
Holy shit this is real game 🤯
Please do a video for stupid beginners like me on value-added property how to determine???
Not stupid! just learning. YES WE WILL
1031 exchange vs cash out refinance?
Some do both
Both work depending on the property. This allows you to reset deprecation and keep your leverage low per property
@@stevenroshni1228 indeed!
$3,600 a month or year. You said both in the video. Thx!
My dyslexia was kicking in 😂 I went from $3,100 annual to $36,000 annual. Not monthly… but that would be nice 😊
No worries! Thanks for the update!
💯💯
💪
Wow..
The best decision I ever made in my life was investing in financial market. Trust me guys, it pays alot. And I have come to realize that investing in Digital Assets is more profitable than holding it and waiting for it to skyrocket.
Can I do a 1031 on a residential property I would live in or can in only be on an investment property?
You can do it on your residentil property but won't be able to resell the asset you'll purchase after selling yourcurrent residential property for 2 years minimum.
@@neoncat3546 Does the residential property I'm living in have to be completely paid off?
This seemed more like bragging and less about the details of the 1031 exchange.
So 1 person has 300 homes that could belong to homeowners, but instead pays for more homes that will never go to owners? Got it.
Not really... we sell our SFRs for apartments which in turn sends the SFR that is remodeled back to the public to buy.
Zero value add info in this video.
Too much useless information. Not to the point. Sorry.