Business Innovators Radio - Interview with Jon Hilley, Founder of 1031 Specialists

Episode Date: September 3, 2025

Jon Hilley started his career at Goldman Sachs. 3 years ago, he founded 1031 Specialists, a Qualified Intermediary that facilitates 1031 exchanges for real estate investors across the country. They are growing rapidly and are already a top 10 firm in the industry.Learn more: https://www.1031specialists.com/Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-jon-hilley-founder-of-1031-specialists

Welcome to influential entrepreneurs, bringing you interviews with elite business leaders and experts, sharing tips and strategies for elevating your business to the next level. Here's your host, Mike Saunders. Hello and welcome to this episode of Influential Entrepreneurs. This is Mike Saunders, the authority positioning coach. Today we have with us John Hilly, who's the founder of 1031 specialists. John, welcome to the program. Mike, awesome to be here. I'm looking forward to chatting with you because I always like when someone has a niche that they focus in.

If you were just all things real estate, then who do you really serve? But 1031 specialists, now we're talking. So I want to learn all about what you do and how you do it. But get started first with a little bit of your story. How did you get started in the industry? And what made you pick this niche? Well, I think some people have a straight line industry. career, I certainly do not. It's more of a me and the line. But I started, I sort of look at my

career in these phases. I started at Goldman Sachs as an analyst and then I worked as an investor for about 10 years. Really enjoyed that, but at the end of the 10 years, it was the end of the great financial crisis. And I decided I wanted to start operating and be an operator. And so that sort of kicked off phase two of my career where I became CFO and the CEO of all things, a handful of cannabis businesses. And so did that, that brought us from South Florida to Denver. And the end of the 10 years there, I said, okay, I'm not doing that business anymore. I am out of the Canada's market. And so I had a year to really just sort of evaluate what was next. Started working with the venture capital buddy line and, yeah, started kicking around this idea in real estate.

That's not what 1031 specialist is, but was a different idea. And spent six months working on it, decided that wasn't for me, but part of that exploration led me to these firms called qualified intermediaries. And so qualified intermediary is an independent third party required by the IRS to facilitate exchanges. So while we were working on this much different and sort of larger idea in real estate, I just, my conclusion was I don't want to do that. But this little niche down here, that is really interesting. And so that thing sort of kicked off than 301 specialists. Neat.

You know, I love that. You say meandering, but really it is just a progression of you finding your way and kind of like constantly a never-ending improvement of what you're doing and how you're doing. And then you just land on something. dive right in. So I think that that's really, really amazing. Tell us, I know that many people might not know right off really what's a 1031 exchange. So let's define what that is so that we can now dive in deeper on why you are a specialist in that. Sure. So you own an investment property. Okay. You go in and sell that investment property. You have one or two choices to make. Okay. You're going to just sell it and you're going to pay the tax. Or you can do a 1031.

and defer your tax. Now, this is not for your primary house that you live in or personal use property. This is just for investment properties only, okay? But if you sell it and you say, I don't want to pay the tax, I'd like to defer it, then you're going to do something called a 1031 exchange. Okay. And to do a 1031 exchange, you are required to hire a qualified intermediary to facilitate that exchange for you. And really, our role as 1031 specialists is, you know, your transaction when you go in and sell will happen just like any other you've done. It's just that you now bring a different party to the table. So you'll have title and escrow, you'll have a realtor typically or a broker,

and then you'll just introduce a qualified intermediary. And our job really is to consult with you to make sure you know what to do to be successful as an investor at your exchange to produce the exchange documentation that gets you the tax benefit. And then the third thing we do is we protect your funds during the exchange period because one of the other rules is you're not allowed to, once the sale closes, you're not allowed to take those funds into your bank account. And so for investors that are looking to compound their wealth faster to save on those taxes and reinvest a greater amount to buy larger, higher cash flow producing properties, access more depreciation, they will do a 1031 exchange to compound their wealth faster. And I'm glad you brought up that point about qualified entity because as you were describing it, I was like, well, if you're just rolling, you know, the transaction into the next transaction

and not, you know, incurring capital gains, can anybody do that or isn't that just a form to fill out or isn't that a real estate agent that can do it for you? But talk a little bit more about the legality side of it can't just be anybody. you can't just Google, here's the form, and I'm doing my own 1031 exchange. That's right. That would be a big mistake because you would end up thinking you're going to get the tax deferral, probably spending the money, and then pay the tax next year, much to your chagrins. And maybe a penalty on top of that, potentially, right?

So you can get into a 1031 exchange and not be successful at it, and there is no penalty. Okay. If you decide to drop out of your 1031 exchange. That's why I say, you know, the 1031 exchange is a no-brainer. But to answer your question, Mike, you have to hire a qualified intermediary as defined by the IRS, okay? And that cannot be a disqualified party. Who are disqualified parties? Well, there are people that do work for you that are not independent.

So, for example, your CPA that does your taxes, your attorney that is helping you into contract negotiations, your broker, none of these parties can be qualified infamidiary. because by definition they are disqualified. So there is this small niche of qualified intermediaries that cropped up over the last few generations to serve the 1031 exchanges because 1031 have been around for more than 100 years, but in their modern form more like 50 years. And so when the real rules were codified in the sort of late 70s, early 80s, that's when these qualified intermediary firms really, really started and then started educating folks about the sort of modern form of the 1031 exchange.

And what would you say, and I'm sure maybe there's a statistic, but just from a broad stroke, if there is a real estate investor that is getting ready to sell their property, what percentage of them actually know that this is available? Or is there a large percentage that just sell it, incur the penalty or the tax, not the penalty, but incur the tax and then take their resulting profit and buy another property. How many people just don't know that this is available? I think there are far too few that know it's available and then take action and do this. I think what surprises most real estate investors in the U.S. is you are not just subject to the federal capital gains tax rate of 15 or 20% when you sell a property. You are subject

to as many as four layers of tax. It's both federal as well as state tax. If you live in a state that has high taxes, that's hugely punitive, like California is 13.3 right now as an example. There is this thing called net investment income tax. If you make over a certain amount of money, you're going to pay another 3.8%. And then finally, the one most people forget about is this thing called depreciation recapture tax. And that is 25% of whatever you depreciated on your property. So if you depreciated a property by a million dollars, even if you don't make money, you're going to pay $250,000 on that depreciation that you took. But these four levels of tax can add up to 40% of your, can take up to 40% of your gains through tax. Okay. We typically use

just, you know, 30% is a general rule of thumb. But it is a huge hit. And what deferring those taxes allows you to do is it's you keep the equity right so you're deferring that tax allows you to buy a bigger property and the really really smart and sophisticated investors that we work with they will here here's the roadmap to their wealth okay I'm going to go buy an investment property this is my first investment property everyone I'm going to buy it then I'm going to use these bonus depreciation rules, and these rules have been reinforced now with the big, beautiful bill that was passed recently. So I'm going to take as much depreciation as can as quickly as I can on this new investment property I just bought. And I'm going to use that to shield

my income from other sources. Okay. I'm going to depreciate it as far as I can go, and then I'm going to 1031 it into a higher basis, bigger, better, higher cash flowing property. and I'm going to run the depreciation schedule again, and I'm going to keep rolling and keep doing this until I have amass a very large portfolio of cash selling properties. And the 1031, there are no rules to how many times you can 1031 exchange. So you can just keep doing it and keep doing it and keep doing it. And you're deferring your tax all the way.

Now, importantly, the 1031 exchange is not a tax elimination tool. it is a tax deferral tool. But if you keep doing it and then you turn, you know, 80 years old, then you're going to have a choice to make. Either, hey, I want to sell my portfolio and just pay all the tax that I'll do the catch up and all the taxes. And so then it looks more like an interest-free loan from the government. So it looks like the government just gave you a zero-cost loan for the decades that you were 10-30-win exchanging. or you can continue to exchange and at your death, those properties will pass to your heirs

and they will get a step up and basis and it will eliminate all of the taxes that you deferred throughout your life. That's interesting. At death, it becomes a tax elimination tool. Okay, but you have to die first, which is pretty morbid. Yeah, but for the investor that goes,

this is my entire source of income, entire retirement. I'm going to 1031 it. I'm making, you know, rental income off of these. So there's my cash flow. And I don't need to sell it and take a chunk of change. I don't want the money. I want the cash flow. And I don't want to incur the taxes. So I'm going to let it go into my legacy planning, my, you know, distribution to airs. And if there is that step up and elimination, wonderful, because you don't feel the guilt of, okay, I dodged the taxes all these many decades. but I'm going to just hand this over to my family and they're going to get hit and socked in the chin with that. I think that's a really interesting aha revelation.

Yeah, and, you know, think about the day before your death and the day after your death. Okay, let's say the day before you die, you give all of these properties to your kids. Well, the basis transfers to them. So then if they sold it, they would pay all those taxes. taxes. So that's if you give these properties to your kids before you die. But if you give it to them and it's in your will and it passes to them the day after you die, they can sell it that day and it'll eliminate all of those taxes. Wow. So it is a it is a wonderful, wonderful tool. But here here's a sprinkling of you know people like, oh, you know, all the rich people are

using this for the taxes. But but no, actually what the data shows you is. about 90% of people that are deferring their tax with 1031, eventually before they die, end up paying that tax. So, and, you know, life hits you,

right? You got medical bills. Yeah. You need cash for whatever. And so, but it is a great way while you're actively investing to, it's an option. It's just like many of the financial advisors I interview.

This topic comes up many times, which is this strategy that we just, that we just discussed is not the one and only strategy for every single person on the face of the earth. It's just out there. It's just an option. So it's good to know. So here's a question for you. When I'm hearing about the exchange and I look on your website and I see, oh, here's the timeline. First, you execute this and then all of these things. It makes me think about the process. And when you're thinking about doing a 1031 in relation to a real estate transaction, talk about the timing and is there potential delays of closing are the things that you need

to make sure you have in place well beforehand so that you're not doing this at the last minute because you don't want to have, you know, that domino effect of, oops, I didn't do this in time and now it's going to delay my closing. Right. So 1030, let me just sort of demystify this. 1031 exchanges are relatively easy. They do require some planning and preparation. And the way I'll start explaining this, Mike, is let's assume you live in a house,

okay, so the primary house you live in or apartment you live in, and you sell it on Tuesday. Does that mean on Wednesday you're homeless? No. I mean, probably not, right? I mean, you've planned ahead, I'm sure, and you're going to know where to go. You get the moving truck. You're going to figure out where you're going to live next.

Well, in investment properties in 1031, the same thing is required, some planning and foresight. Okay. So you have to hire the qualified intermediator prior to the close of the sale of your investment property. Okay. So we'll get involved typically when an investor is under contract. And that's when we're going to engage with them. We're going to start our work. The clock on the exchange doesn't start until the day that the property is.

actually sold. Okay. Okay. That's the day the title is transferred. And that's when the clock starts. So not when you sign the contract to sell it, but actually when you close on that, right? And so we would have been engaged before then. We would have encouraged you as our client to start planning and thinking about what you're going to buy next because once the clock starts, you've got 45 days to identify what you're going to buy next and what does that actually mean it means we're going to send you a form to fill out and you're going to fill it out with three addresses of properties that you want to that you want to purchase and then from day 45 you've got an additional 135 days so it's 180 day total period but up between the 45-day ID period and the additional

135 days thereafter, you've got that time to successfully complete your exchange. Okay, good. That means you have to close on one or more of the properties you identified. Yes. You cannot go by something that is not on your ID form. So really what's on that ID form really, really, really matters. And so you can think about the timeline. He's got this investment property.

You're thinking about selling it. Then you go hire the broker to sell it. Then you get under contract eventually, and then 30, 45, 60 days later, you close. You can use all of that time before the clock even starts to start preparing for what you want to buy next. And you can de-rits. These timelines are totally reasonable, but you can further de-risk them by even getting under contract prior to closing. Like, you can do a contingent contract on the sale of the investment property to purchase the other one. Yeah.

And so some of our clients that are really savvy that have done over, bunch of these. They'll close on Monday on the sale and buy on Wednesday on the purchase. And their exchange is like two days long. It just requires the plan. But knowing that you don't have to have all of these moving parts done to close concurrently at the same time, like you think about, you know, I'm selling my house. I'm buying the next house that I need to move into and the moving van is running out in the parking lot. We better have all the money in and all the documents in. Well, that's not the case here. So you have some. of these things. The only thing is you better have it narrowed down to three properties you're

going to buy. Then you better buy one of those three. Well, that to me sounds like pretty easy thing because you already know you're going to turn the profit from property one into the next property. So that was a really good, helpful explanation. It takes the pressure off. And I know that many times people these days in any industry are impacted positively by AI. How is AI impacting the 1031 industry as you see it. So I can talk about how we're using AI to be more efficient, but a lot of everyone in this, you know, every, every listener has heard the term, you know, software as a service, right? The way that I think about technology as we apply it here at 1031 specialists is we are more

like a service as a software. And the way that we're using the AI and new tools and tech is to get all of the tedium done without a human having to do it. And what does that do then? It releases my processing team away from the sort of day-to-day data entry nonsense stuff that a human shouldn't do that robots are way better at and allows them to not do it anymore and then spend more time on the client service experience. And so there is a whole new set of business models getting created these days that leverage AI and new technology to allow the client's experience to be far better than it was before. And that is the way that we're using these tools. Yeah, and I think that these days we have to realize that AI never is just this blind copy paste send.

It's a tool, and it can help the right human get work done quicker, more efficiently, you know, more effectively. So that's wonderful. And I'm confident that AI can help find this and expedite that. So that's really, really powerful. So that's awesome that you guys are doing that. Well, who is the, how do people find you? So, yeah, you've got your website, but what typically, what's the trigger for someone to go, hey, I'm thinking of selling my investment property.

I wonder if a 1031 is right for me. What is that point in their thought process? So I think it starts with, oh, I've heard about a 1031. Let me learn what this is. Okay. And let me ask some questions. And so if you go to my website, a 1031 specialist within us at the end of, You can, number one, call us.

We're humans. We're experts at what we do, and probably 95% of our days are doing free consultations with prospective clients about what to do. We don't sell anything. We are just here to answer questions. If you choose to do a 1031 exchange, you have to hire someone like us, and you'll like us, so you'll hire us. And we don't charge very much for our service.

Okay, we charge $1,200 to do the exchange. money back guarantee. So if you don't actually complete your exchange, you get that $1,200 back. Or you can go in, if you just ask some quick questions, you can test out the AI tool that we build. You know, if you ask 1031 questions to something like chat GPT, it'll answer the couple main questions, right, but then you start getting into more nuance and it sort of falls apart. RAI was trained specifically on the million words of IRS policy, technical memorandum, revenue rulings, opinion letters, all of these things that sort of form the foundational knowledge level of 10-301 exchanges, that's where RAI was trained on. And so you can go on

the website on the bottom right, you can pop over in the chat, and just ask away. Just ask any question that you want relative to 10301 exchanges, and it'll hit it'll hit it out of the park. It'll give you the right answer. But yeah, calling us is obviously is a first natural step. call 631, 438, 1031, and we'll answer. Perfect. Well, John, thank you so much for coming on. It's been a real pleasure chatting with you today. Thank you, Mike.

Yeah, thank you. You've been listening to Influential Entrepreneurs with Mike Saunders. To learn more about the resources mentioned on today's show or listen to past episodes, visit www.com.