Epic Real Estate Investing - The Hidden Truths About 1031 Exchanges That Could Cost You Thousands | 1320

Episode Date: July 27, 2024

Ever wondered if you’re missing out on the hidden potential of 1031 Exchanges? Tune in to this episode where we uncover the secrets of how 1031 Exchanges can transform your real estate investments. Learn how these exchanges do more than just defer taxes—they can actually help you build substantial wealth over time. We’ll debunk common myths, such as the belief that only similar types of properties qualify and that only large investors can benefit. Plus, discover how 1031 Exchanges can play a crucial role in your estate planning, saving your heirs from hefty capital gains taxes. Whether you're looking to grow your portfolio or strategically plan for the future, this episode is packed with actionable insights and expert tips. Don’t miss out on these powerful strategies to protect and enhance your wealth. 👉 Press play to uncover these estate planning secrets and start maximizing your real estate investments today! 🎙️ ‌ P.S. Whenever you're ready to go deeper and further with your real estate investing, looking into my partner program to help you get your first deal might be the move... take the first step here for free 👉 Here’s the deal, I’ll partner with you on your first real estate deal, and we’ll split the profits. It’s that simple. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. Hey, strap in. It's time for the Epic Real Estate Investing Show. We'll be your guides as we navigate the housing market, the landscape of creative financing strategies, and everything you need to swap that office chair for a beach chair. If you're looking for some one-on-one help, meet us at rei-aise.com. Let's go, let's go, let's go, let's go, let's go, let's go.

Let's go. Hello and welcome. Welcome to the Epic Real Estate. estate investing podcast. My name is Mercedes Torres, and I am lucky enough to be partners in crime with Mr. Matt Terrio, the guy who created the epic real estate empire. Are you looking for a way to defer your taxes? Are you considering a 1031 exchange in the near future? How you've done a ton of digging into 1031 exchanges, and maybe you think you know everything you need to know about a 1031 exchange, think again, misconceptions and misunderstandings

could cost you big time. So in this episode, let's clear up the confusion and uncover the truth behind 1031 exchanges. But wait, first a word from our sponsor, want to quit your day job? Here's a way the rich swear by. This strategy is used. by today's wealthiest to enjoy life without financial stress. And Matt Terrio, the brilliant author, lays it all out in details in his new book called Escape. If you grab a copy right now, he will give you the course that Robert Kiyosaki asked him to make for his rich dad community called Creative Cashflow. This course is yours for free. When you grab a copy of Matt Terrio's new book called Escape, to get your free copy, go to myescapebook.com.

That's myescapebook.com. All right. Let's dive into the world of 1031 exchanges. Now, if you're in real estate, you've probably heard of it, but do you really know how it works? Today, I'm busting some of the biggest myths out there because, sadly, I've made a mistake or two in the past with these 1031 exchanges, and they cost me big time. So first, many folks think a 1031 exchange is just about deferring taxes. And while that is true, it's not the whole story. So first, let me explain the true definition. of a 1031 exchange because the IRS is very specific and detailed about the true definition of an exchange and how to successfully complete one. So a 1031 exchange is actually named after section

1031 of the U.S. Internal Revenue Code. It is a tax deferred strategy used in real estate. It allows an investor to sell a property and reinvest the proceeds into a new, like-kind property while deferring your capital gain taxes. Now, here are the key requirements for a 1031 exchange. Number one, like-kind properties. The properties involved in this transaction must be similar in nature, similar in character, and similar in class. However, they do not have to be identical. I'll dive into this in a moment because this is really, really important. Number two, the 1031 exchange includes timing rules. So you, the investor, must identify the replacement property within 45 days of selling the original property, and you must

complete the purchase of the new property within 180 days. Very, very important. If you go past this 180 day mark, if you close on the 181st day, that is no longer an exchange, a 1031 exchange, and a true violation of it. So you will have to pay taxes. They'll no longer be deferred. Okay. Number three, qualified intermediary companies must be involved. This is critical.

So what does this mean? This means that a third party company must be involved outside of the escrow company and the lender. Okay. So the funds from the sale of. your initial property must be handled by a qualified intermediary company who holds the proceeds until they're used to buy the new property. Now, remember, you have a total of 180 days and you must identify the new property within 45 days. During this time, the funds must be held by this third-party

qualified company in order for your 1031 exchange to be valid. Moving on. Number four, equal or greater value. So the new property that you purchase must be of equal or greater value of the one that you sold to defer all the capital gains. Okay? Very, very important. Number five, title investing. So the same taxpayer who sold the relinquish property must purchase the replacement property. So if the property that you sold was owned by an LLC, call it happy LLC, the new property, the purchase of the new property must be purchased by the same LLC. Happy LLC. If you sold it as Mr. and Mrs. Smith, that is how you must take title of the new property, Mr. and Mrs. Smith. Okay. So by adhering to these rules, an investor can defer paying capital gain taxes, allowing you to reinvest more capital into new properties, thereby potentially growing your real estate portfolio more efficiently.

On that same note, a 1031 exchange can also help you build wealth over time. This happens by allowing you to reinvest your full proceeds into the new property. So this means more cash flow and better long-term growth. To clarify, another common misconception is that you have to exchange properties of the same type. Actually, the IRS allows properties that are held for business or investment purposes that are considered like kind. So be very, very cognizant of that when you're making your exchange. And what that means is you can swap an apartment building for a strip mall, for example, or you can swap a piece of raw land for a rental property.

Keep that in mind because this is very important. as you're growing your real estate portfolio. Now, one of the biggest myths is that the 1031 exchange are only for big time investors. This is not true. Even if you're a small investor, even if you only have one or two properties, you can benefit from using a 1031 exchange to grow your portfolio without getting hit by that hefty capital gain tax. Now, let's talk about estate planning. Many people don't realize that 1031 exchanges can be a powerful tool here, too.

If you pass a property onto your errors, they get a step-up basis, which means they can sell the property if it's current market value without paying capital gain tax on the appreciation during your lifetime. This can save your family a significant amount in taxes. Huge. Now, one more thing. Did you know that you can use a 1031 exchange for new construction or improvements on a property? This is called the Build to Suit Exchange. Build to suit. It allows you to exchange funds to build or renovate a replacement property. Now, here's the key.

here is where many people get bamboozled. Make sure that all the improvements are done before you take title. That's huge. All right. That's a wrap on some of the top misconceptions about 1031 exchanges. Remember, this strategy isn't just for deferring taxes. Yes, that's huge. However, it's a powerful tool for building wealth and planning your estates. For private real estate investors, 1031 exchange offers a fantastic opportunity to not only maximize your investment, but it allows you to leverage these exchanges to grow your portfolio, deferred taxes, and strategically plan for your future. If you're serious about real estate and understanding and utilizing 1031 exchange,

It is a true game changer. So please do your research or feel free to reach out to us. We've done our share of exchanges and I will be happy to connect you with all of the parties that could give you detailed information about how to execute a successful exchange for your world. Once again, ladies and gentlemen, my name is Mercedes-Torres and I am happy to give you any information. Should you want to reach out to myself or to my partner, Matt Terrio, feel free to do so at cashflow savvy.com, that's savvy with Chuvies. Hit the contact us, and we will be more than happy to have a conversation with you. Have a great day, and hey,

if you think this will benefit someone, hit the share button, share us with someone, and we will be more than happy to help spread the knowledge. Have a great day. Until next time. And that wraps up the epic show. If you found this episode valuable, who else do you know that might too?

There's a really good chance you know someone else who would. And when their name comes to mind, please share it with them. And ask them to click the subscribe button when they get here and I'll take great care of them. God loves you and so do I. Health, peace, blessings and success to you. I'm Matt Terrio. Living the dream. Yeah, yeah, we got the cash flow.

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