The Major Hurdles and Benefits of 1031 Exchanges with Brandon Burns, Ep 108

Welcome to another value-packed episode of The Journey to Multifamily Millions podcast! 

In this episode, we are joined by Brandon Burns, a seasoned real estate tax advisor and senior leader for a 1031 Exchange Qualified Intermediary (QI). Brandon has successfully guided over 4,000 1031 exchange transactions, helping investors defer taxes and maximize their real estate wealth.

Tune in as Brandon reveals the power of 1031 exchanges and how they can be a game-changer for real estate investors. From navigating the complexities of tax code sections to overcoming common hurdles, 

Brandon offers actionable insights to help you leverage 1031 exchanges for exponential financial growth.

Episode Topics

[01:12] Meet our guest, Brandon Burns
[04:18] Tax Code Sections 1031 and 121
[06:40] Combining Tax Code Sections for Maximum Benefit
[10:36] Four Major Hurdles in 1031 Exchanges
[16:49] Delaware Statutory Trusts and Tenant in Common Structures
[33:07] Complex 1031 Exchange Types
[33:41] What is one red flag every investor should look out for?
[34:19] What is a myth about the real estate business?
[36:04] Connecting with Brandon

Notable Quotes

• "With good data, people can make good decisions. And with a lack of data, the decision might be random." - Brandon Burns
• "Real estate, you can win through appreciation, income, tax benefits, depreciation, and having a tenant pay down your loan." - Brandon Burns
• "It's all about solving problems that investors have and getting them top dollar and saving them on taxes." - Tim Little
• "If they haven't started touring and finding exactly what they want, they might find themselves in a position where they're like, oh crap, I need to get something right away." - Tim Little
• "Any market that's a little bit fragmented and has barriers to entry, that's where wealth is created." - Brandon Burns

👉Connect with  Brandon Burns

• LinkedIn: Brandon Burns
• Website: https://www.vanguard1031exchange.com/ 
• Email: brandon@Vanguard1031x.com 
• Telephone: 858 331 1031

👉 Connect with Tim

• Linkedin: Tim Little
• Instagram: @tim_at_zana
• Email: tim@zanainvestments.com
• Visit www.ZANAinvestments.com for more info on Tim and how you can passively invest in multifamily real estate
• Get your Passive Investor's Cheat Sheet FREE

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Transcript

[00:00:00] Brandon Burns: One of the things I found about real estate is, even though I spent 20 years on the financial side of real estate, I still learn things, because there are other areas of real estate that I, don't constantly  interact in and if I have the ability to learn from people and I also hopefully have the ability to share information that they don't have, that's so powerful. So love to connect with people and, you just make sure they're equipped to make whatever the right decision is for them that they're able to functionally do that in the best way.

[00:01:05] Tim Little: Hello everyone and welcome to the journey to multifamily millions. I'm your host, founder and CEO of ZANA Investments, Tim Little. And on today's show, we have with us Brandon Burns. Brandon is a real estate tax advisor and is a senior leader for a 1031 qualified intermediary. He has worked in excess of 4, 000 1031 exchanges, both large and small. Brandon, welcome to the show.

[00:01:30] Brandon Burns: Tim, a pleasure to be here. I'm excited to have this time to chat with you and chat with all the future listeners. One of the things that I think is interesting is, it's not often that we get to delve into these things outside of our day to day. So really excited about being able to do that with you. And, it's going to be a good day.

[00:01:49] Tim Little: Yeah, I'm looking forward to it. I'm pretty sure that there's at least one or two people that are listening right now who have no idea what a 1031 exchange is, and that's okay. I promise we'll get into that. but before we do Brandon, please tell us more about your background and how you got started on your real estate journey.

[00:02:08] Brandon Burns: Yeah. And actually I think those two things might intertwine a little bit. So there's 119, 1031 exchange accommodators. The tax code calls us a qualified intermediary. So there's not, a ton of companies like there are with a CPA firm, right? There's, a significant amount of CPA firms in the country and so in, in our space, I'm one of the only people that, gosh, I hate to use the word foolish, but I'm one of the only people that started on the investment side of real estate and came over to the transaction side of real estate, right? So most people who are in the 1031 exchange accommodator or qualified intermediary space, tend to come from a background of title or escrow or something that's in the transactional side of the real estate business. My background originally was real estate, private equity, and investment banking. And I've come over to the transactional side of real estate. For me, it's very personally fulfilling. So I'm really grateful to be here. Now that I'm in my forties, I've been in a senior leadership role for a little bit over six years andI feel really grateful to have found my spot, because I think sometimes people don't always find their niche in the world. And this is certainly mine. I've had that kind of a little bit of unique background. And because of that, then it really makes it more fun for me to be able to work on some complex 1031 exchanges. So our company actually does a little bit of special specialization and tenants in common or partnership issues or, joint ventures, some of the more complicated things we have someone on staff that just focuses on reverse exchanges.  That makes it fun when you can work on things that aren't. as a cookie cutter all the time. so that's been really fun for me. and also being able to win every single day. I'm able to help people. I think with good data, people can make good decisions. And with a lack of data, the decision might be random, right? It could be good, or it could be bad. You just don't know because you don't have enough data. So the reason for this 1031 exchange,and I think you made a great point, and I want to get into that a little bit. is because of the section of the tax code. It's section 1031. there's actually two sections.

[00:04:31] Tim Little: that gives tax breaks or tax advantages to people that are selling real estate. And that's so powerful when you compare investing across different types of assets, the traditional stocks and bonds, real estate, then, Bitcoin and crypto has become something here in the last few years.

[00:04:51] Brandon Burns: But from a multiplicity standpoint, real estate has so many ways you can win, right? So one thing I'm going to do whenever I have a child, which I haven't had yet, but, what,and I'm going to do this because one of my friend's dads did this growing up, but instead of investing in a stock account. What I'm going to do is I'm going to find a starter home, I'm going to put a down payment on it. I'm going to try to put it on a 15 year note and have a situation where the worst case, the tenant hopefully is paying the mortgage. So you know, real estate, you can win through appreciation. you can win through income, you can win through tax benefits, depreciation, and you can win by having a tenant pay down your loan. if none of those end up working, if, by golly, the property doesn't depreciate, it doesn't produce income. the tax benefits go away at the very least, the tenant will pay it off over that 15 years and I'll have a pretty strong legacy to be able to leave. and that's one of the things I really love about real estate. So the two sections of the tax code that give tax breaks or tax advantages to people selling real estate. Section 1031 is for someone who's selling an investment property, selling a property they use for business or investment purposes and buying a property they're intending to use long term for business or investment purposes. Section 121 of the tax code, and I know you know this and a lot of people do, but that gives a tax break to someone who's selling their primary residence. If you've lived in a home 24 out of the previous 60 months, Even if it's non consecutive and you sell that property, you get 250, 000 tax free, 500, 000,if you're married, 250, 000 if you're single. Now, what some people don't realize is there are times you can combine both of those. especially in places like coastal California or other places where, you know, single family or small multifamily has had a significant rise in value. If you've lived in the property or a unit of the property and then, you no longer live in it, it's an investment property today, but you've lived in it two out of the last five years, then you can sell that property, put some money in your pocket tax free and roll the rest using section 1031 into new investment properties. A new investment property or, sometimes even joint ventures. That's really where else can, so a clear example of that, in San Diego where we're headquartered, there was a gentleman who had bought a fourplex 15 or 20 years ago, close to the water. And,the value had gone up really dramatically. He lived in one of the units he's married to. And rented out the other three. So he was able to take 500, 000 at the time of sale tax free, and he was able to roll the rest of his three of the three units out of the fourplex over into other investment properties. And that's where I spend all day. Every day I work on exchanges, making sure people know what the rules are. because there's really four major things that the IRS is going to look at, outside of it being a like kind exchange and a like kind exchange is often misunderstood because intuitively if you sell a single family, A like kind might intuitively mean you need to buy a single family, right? the IRS doesn't define it that way. The way the IRS defines it is, selling real property where you're on title. And then buying real property where you're on title. So a lot of times if somebody's, asking me if they say, Hey, gosh, I want to buy this mobile home. Do you, my, my question to them would be, are you going to pay property taxes on it? Or, are you gonna take it to the DMV to get it registered? So essentially, as long as you pay property taxes on it. A vast majority of the time it will work for a 1031 exchange. So you can sell a single family, buy a hotel, sell a hotel, buy land, sell land, buy multifamily, sell multifamily, buy a shopping center, or triple net, so on and so forth. That's really nice. and there's two, and before I get into these kinds of four IRS is going to look at, there's. As I look back at these several thousand transactions that I've been a part of, a vast majority of the time, people are trying to accomplish one of two things when they're doing a 1031 exchange. The first is that they're trying to reposition their assets. Let's use the coastal California that I mentioned. Coastal California can be a great place to get appreciation, but it's typically not a great place for income. So as you move through your life and you accumulate some wealth, it can be nice to turn that into income, right?  So a 10 31 exchange can allow you to sell a highly appreciated property. And without having to pay any taxes, put it in a property or multiple properties where you have some better income or vice versa. Repositioning is one and then diversification is the other. if somebody says, Hey, I've done really well owning a couple of condos In Dallas, right? Maybe they don't believe that condos in Dallas are going to continue to be the best investment. Maybe they want to buy industrial warehouses in, in, on the East coast, right? Or whatever it may be. So typically diversification or repositioning. are the two reasons that somebody will do a 1031 exchange. but there are four things that people need to be aware of. and the first one, most people already know, not everyone knows, but it's probably the most commonly known hurdle. And that's a time component, a time hurdle. So once a property sells, The IRS doesn't want you to sit back and relax and have a year or two to try to figure out what you're going to do. they want you, they have two deadlines in place and both start on the day that you no longer own that property. So the first one is a 45 day identification period. you have 45 days to come up with a plan, write down a number of properties that someone may or may not buy. And then there's a 180 day closing period, the exchange period. So the IRS is gonna, if they audit someone, they're going to look at the settlement statements and the dates on those settlement statements. And say, is that within 180 days? So the first hurdle is a time component or a time hurdle. Not as many people know the second hurdle. So I always like to talk about it to everyone. And it's a value hurdle. So the IRS essentially wants the same amount of money to stay in the economy. So you can't exchange 1031 for something you already own. You can't pay off debt, right? You have to sell business or investment property where you're on title and buy property that you intend to use for business or investment purposes. And the IRS wants that value. to be congruent. So a way I like to think about it is, let's say that I bought Apple stock the day it iPod and I put 10 grand in just because I had a crystal ball and I knew Apple was gonna be amazing, right? And then fast forward to today, maybe my 10,000 is now 10 million Apple stock dollars worth of Apple stock. And maybe I don't believe in Apple anymore. Steve Jobs has passed away. The last couple of iPhones haven't really been any different. Max still doesn't have touchscreens, which blows my mind. and so maybe I want to swap that over for Google. So if I sell 10 million of Apple stock and buy 10 million of Google. I can't do that tax free in the stock market, but I can do that in real estate. So the IRS, it doesn't matter what your basis is, what you paid for a property, what you owe on a property. The IRS is going to look at what it calls your net sales value, which is simply the gross sales price minus. Permissible costs, which are really just the costs of the people that work on your sales. So that's your closer, that's your realtor, that's 1031. so it's really important to know and a lot of people don't know that. And they're saying, Hey, I've got this great asset. Maybe I paid 500, 000 for it to be worth a million. I'm going to sell it and buy something else for 500, 000. If they do that, they're going to get taxed on the variance that they didn't reinvest. So if you sell for a million, you essentially have to buy for a million. Now you can buy multiple properties. you could buy three. 350, 000 properties. the IRS doesn't care how many you buy. They simply want the same amount of money to stay in the economy. So that second hurdle is a value hurdle. And very few people that I talked to were aware of that before our conversation. The third hurdle is a financial hurdle. So the tax code says that as you're doing this exchange, The seller or exchanger cannot take possession of the funds. They have to use a 1031 exchange accommodator and they cannot have receipt or even constructive receipt of the funds. So it is important to note that a 1031 exchange is not an all or nothing fund. thing. often people do take some money out, especially right now. there's still these great asset values that remain. but the economy maybe isn't quite as strong as it was a couple of years ago. So people are often saying, okay, I've made a good amount of money in this real estate. But I'm going to take 50 or a hundred grand off the table. I'm going to pay off some debt. I'm going to buy that nice car I've always wanted to buy. I'm going to pay for some college for a child or whatever it may be. In that circumstance, that's called a partial exchange and an exchanger is only taxed on what they take possession of. So it's not an all or nothing thing. And if somebody wants to put some money in their pocket, they can. As long as they know they're going to pay taxes on it. So the third hurdle is the financial hurdle and the fourth and last major hurdle is an ownership hurdle. So if you change who's on title, the taxpayer that's on title prior to or after the transaction is complete, there's a clear record of it, right? There's a deed that's notarized. It's publicly filed with the county. The IRS can track what happened. If you change the taxpayer on title. In the middle of the exchange, the IRS struggles to follow the chain of events, and so they disallow the exchange. So it's very important that if you need to change ownership, especially with some complicated partnership issues, if you want to separate from or join up with a partner, that needs to be done either before or after the exchange is done. And there's no time constraints in section 1031 of the tax code, but it does talk about your intent. So if you're going to make a significant change, the earlier in the process, you can do that. If you're going to do it before an exchange, the better off you are just because, again, it doesn't talk about time. It talks about intent. And there are occasional circumstances where the intent can be a little difficult to define. So time can be a part of that intent definition. But if your listeners remember those four things, they're going to be way better off than most people. There's one thing that is good to mention. So a kind exchange is where you sell real property. where you're on title and you buy real property where you're on title. There's one exception to that. In 2004, the IRS said, hey, there may be circumstances where somebody may not be able to replace the debt, especially if you're older, or maybe they don't want to take on as much risk. And so they allowed one fund structure called the Delaware Statutory Trust or DST. We all know about REITs or real estate investment trusts,and other types of ownership structures. The IRS has said that the only fund type structure is a Delaware statutory trust. That's the only one you can go into tax free with those dollars. so a lot of times,but it's really restrictive. It's not a good wealth accumulation vehicle tends to be more of a good wealth preservation vehicle. So a lot of times the way that people will partner up is through a tenant in a common structure. That's how they'll join a syndication or join a group if they do a 1031 exchange and they'll become. They'll go by title of the syndication or the joint venture, as a tenant in common and that affords a lot more flexibility because Inside those DST funds, you can't move any structural walls. You can't refinance. There's a lot of camps. So if you're part of a tenant in common, that allows you to be a part of a group, be a part of a syndication or what have you, but you're, you have a lot more flexibility. so that's something we're seeing more and more of, especially in this low inventory environment. somebody says, Hey, I've got a great single family home. It's probably appreciated about as much as it's going to appreciate for the area that it's in at least for a while. And so they're saying, let me sell that. And then, if somebody else. is putting a deal together. I'd love to go be a part of it as a tenant common. Those are a lot of the key things. I feel like I've said a lot here,

[00:18:35] Tim Little: you have, you, you have given us the overview of the entire 1031 ecosystem. so that's a lot, it's a lot to unpack. I do appreciate you going over the different types and then also hitting on some of those hurdles. Cause I think, like you said, people are usually aware of the time piece, Cause it's the biggest thing that people complain about. When it comes to 1031s and I can attest to that, it bears on you a little bit, especially as time is running out. You're like, and sometimes that puts people in a bad place because if they haven't looked at the market, if they haven't started touring and finding exactly what they want. And if they're waiting too long, then they might find themselves in a position where they're like, oh crap, I need to get something right away. And then they wind up something that is not a great deal. and I think that's an important point too. If,listen. If it comes down to whether you're going to get taxed on that property that you just sold, or you're going to buy a bad deal, just take the tax hit and find some other way to offset it. I don't know if you agree because this is your job, but that would be my argument to someone. Who's thinking about it, but in the first place, go about it, if you do your due diligence, you look for what you want, et cetera, you can certainly make it happen, but, make sure that those deals are out there for what you're looking for.

[00:20:12] Brandon Burns: Yeah. No, I fully agree with everything that you said. There's one thing I think I would add, I'm an investor, I scratch my pennies together and try to buy one or two deals a year. I would never want to buy a bad deal, that would bother my soul.  And you never want to own something you don't like, whether it's a car, an investment or otherwise. Now, however, when I was in grad school, I had a professor that really harped on one mathematical principle and it's the opposite side of compounding interest. So it's called a geometric average and it's, the math isn't too intense. have 50 cents. If you then gain half, you do not have a dollar, you have 75 cents. As you look at your wealth over time, if you're able to avoid having a 25 to 40 percent tax hit on your gains, Over time, that can be really dramatic, right? I had this one older lady client and she 10 31 exchanged into,, a, a 20 million multifamily property. And she told me, she said, Brandon, real estate really changed my life. That's great. Me too. don't tell me why. And she said, I was a teacher. And when I was in my late twenties, someone talked me into taking a summer vacation and instead of partying with my friends, in between school semesters, I went and I got a boring job as a clerk at a retail store and I saved up enough money to buy a duplex. Thanks. and about every 8 to 10 years, I've 1031 exchanged it and because she didn't have to pay those tax bills along the way, she was able to maximize the compounding interest. And today she gets 25, 000 a month of income from her property, I believe. and she told me, she said, Brandon, it's so life changing for me. She said, as a teacher, I wouldn't be able to live the life that I live today that I simply got by taking one summer and saving enough for a down payment. she said, I've been able to take my family on exotic vacations, the entire family. I've been able to provide excellent holidays,and I have a better quality of life now. That I would have been able to have a teacher's pension. So, that would, I would never want to buy a bad deal if you can avoid having these massive gaps or wealth destruction events along the way, your income is going to be really dramatically higher. And in the values that you're potentially leaving, as part of your legacy, sometimes people ask me and they say, Brandon. If a 1031 exchange just pushes a tax event off, why would I want to do that? Let's sell something, do cost segregation, do something else to offset all or most of those. And while at times it makes sense,if you're able to grow your wealth. and you pass away, your heirs receive that real estate with a step up in basis. So whatever the value is when it passes away, that's where their taxes start for the next generation. So it allows you to leave a really strong legacy. It potentially allows you to accumulate a lot of wealth that you can then generate some great income from. so I think if I was to answer your question, should you pay taxes or not pay taxes? I'm in the middle. There are times where it makes sense to pay taxes. And there are times where, gosh, if you don't and you get 40 percent more income on the next property, that's dramatic. Right?

[00:24:23] Tim Little: And it's all a matter of the individual situation. Do they need that cash in hand right then? okay. then maybe you have to sell and take the tax. I call it a tax hit, but there again, you understand taxes, it's a taxable event. there's other things like you talked about where you could do to help offset that. For whatever taxes you're going to pay for that year. But I think the important point that you talked about was that, that compounding basically of the property itself. And I think about it like the Monopoly game, right? once you get those. For four greenhouses, you can upgrade to that big red apartment building, and 1031 exchanges are not so different. And to your point about the older client that you had, the earlier you get started, and keep that going, the better,if I could, go back in time and Smack my 21 year old self upside the head and say, Hey, use your VA loan that you just got from your, a couple of years of active duty to actually buy a house instead of, paying rent the whole time you're in college and beyond. And not only that, but by a fourplex, because you are able to do that with your VA loan. Then I could have done exactly what you were talking about earlier Which is living in it, then later doing a 1031 exchange. Maybe taking that four plex and putting it into an eight plex And who knows where it could go from there. I might have been in that old lady's shoes, you know by now where I'm collecting 25, 000 And, sipping Mai Tais, who knows? But, it's that long term, that time in the market, beats timing the market every time, that whole thing. The sooner you get started, the better and you can keep leveling up, which is why I thought it was a little weird that you said people don't understand the financial side and that's a hurdle because to me it's the biggest advantage. Like it forces you to invest that much money into the next one. But as a quick, easy example for people who haven't done this at all. Say you bought that first property. And in my case, it was a 85, 000 duplex. a little rough, point being, I put in 25, 000 down payment, bought it. And then a couple of years down the road, it appreciated to say, I think it was like $130,000.  I just took the proceeds from that sale and used that as the down payment for a, 385, 000 triplex. And I had zero money out of pocket. In order to do that, because the thing is with these investment properties, most banks, if not all, require a 20 to 25 percent down payment. And that can get pretty painful, especially as move up in the value of those properties move up. So to be able to put a down payment down in the form of the previous property and not have to come out of pocket is a huge aspect that I think a lot of people just don't think about. 

[00:27:32] Brandon Burns: you're 100 percent right. And I don't know that I've ever thought about it that way specifically, but you're absolutely right. There is a barrier to entry, right? mathematically, the less efficient a market is, the easier it is to create wealth, right? So the more barriers there are to entry. now with stocks, everybody sees the same information. You can go on E Trade, trade for one cent or whatever, or free on Robinhood, whatever it may be. and any market that's a little bit fragmented,and has barriers to entry, that's where wealth is created. And it is a huge barrier to entry to have to come up with 20, 25%, but you're right. If you just plan it right and start a little earlier. You can eliminate that for yourself and then that keeps you from having to compete with everyone and allows more wealth creation to occur.

[00:28:21] Tim Little: Yeah. And, you foreshadowed some of these more complex 1031 transactions, but let's get into some of those a little bit more. I know in the multi family syndication space specifically, I have talked to DST, with other guests. it's a little rare. I don't hear as much about it. But the tenant in common is something that's brought up a lot and yes, it can be done. But honestly, a lot of syndicators don't feel like dealing with it. It is more onerous, from a legal perspective,there's costs associated. so I think it's important for people to understand it can be done. You were also talking about JV. And please tell me more about that. Cause my initial thought is it might be better if you can do it in the JV structure, then the syndication, just because it's a more simplified legal structure, if that makes sense.

[00:29:19] Brandon Burns: Yeah. So when, so essentially a syndication, a JV. Those are really at the end of the day partnerships, right? You have a group of people coming together and marching towards the same goal. in a syndication, you have your processes, your paperwork, subscription agreements,all of that already established. And because a tenant in common has to go on title, it's a whole different process. there's different rules. You're clearly right. There's different legal documents that are involved. for a syndicator to go outside of their process and hire an attorney and do this really one off thing, if somebody has 50,000, it probably wouldn't make sense to do that. If they have 5 million, then the conversation might be a little bit different.

[00:30:06] Tim Little: We'll talk.

[00:30:08] Brandon Burns: but yes. so I would say there's really two, two things were more of a JV can make sense or sometimes even more of, even with the syndicators. in two,in the tax code in section 10 31, when you do a tenant in common. Technically, according to the tax code, you can have up to 35 people on title. However, in 2008, there were some vulture funds that would go out and they would find these large syndications where they would have 35 people on title as tenants in common, and they would buy out the smallest partner and they would come to the partnership table and say, Hey guys, Our goal here is to screw with you. you have to buy us out at 200 percent of what we paid for this, or we're just going to vote against you and try to cause problems. So after 2008, Most lenders said, Hey, we don't ever want to be in that situation again. So it's very rare to find a lender that will lend if there's more than four or five entities on title. So in a syndication where there's a strong,a dip, a strong value add, or maybe some significant construction, if you're able to buy that property and close on it. and then afterwards, if you need some additional,a lot of times you have to get permits or, wait,and instead of raising all that money up front, if you have a 1031 exchange, a larger 1031 exchange come in after the fact,if you have a private closing, on a property that you already own.   Then, there's a lot of flexibility, especially with timing and other things. And you can really, as an indicator really take care of your construction equity needs and as a 1031 exchanger come into a deal that is already,along the way. So that, that I see a lot of, and that's, that can be really powerful. a joint venture where you have an operator who. is really good at finding properties, managing prop properties, one thing that's been really enlightening for me and my investment journey is, real estate's a lot of work. and if you can find somebody who's willing to do that work and you can be the financial partner in a joint venture, that can be really powerful.   If you can take all the headaches out of making, creating all this wealth, pass that off onto somebody else. Share the wealth as a part of that, that can be a great opportunity for somebody who is willing to take all that pain and who's good at that, potentially and,and taking that off the table of the financial partner. That's something we see a lot of too. I've seen a lot of wealth created in joint ventures where you have almost a pain partner and operating partner, and then you have a financial partner. and if you do things right, A lot of times you can put yourself in a position to have an extraordinary risk adjusted return as a financial partner, without having to take on that pain.  That, that can be powerful. while we're talking about complicated structures, just quickly want to mention there are three types of exchanges. Most people when they think of a normal exchange, they're thinking of a forward exchange, which is what's typically done. Sell a property, buy a property, one day or 180 days or some combination in between. you can also do a build to suit or construction exchange. or a reverse exchange. I'm going to quickly touch on those. A reverse exchange allows you to buy a property before selling what you have, which takes all the risk off the table, takes a lot of the timelines off the table. and every coin has two sides to it, right? So it's phenomenal to be able to take the risk of closing and take those timelines that can be nerve racking off the table, but the flip side of that is it's a lot more difficult to structure. So not every 1031 exchange accommodator will do that. The IRS came out about 14 or 15 years ago and said the way they want it structured. is for the 1031 exchange accommodator to create a special purpose entity called an exchange accommodation titleholder to temporarily warehouse or temporarily park title. So clearly the previous owner doesn't own the property, but technically the new owner is not on title. So then once they sell what they have, they can 1031 exchange into this property.  It's been warehoused or parked. The title has been parked for them. However, as a 1031 exchange accommodator, my firm doesn't want to be in charge of signing anything. I certainly don't want to personally guarantee a loan. I don't know what's going on with your property. So as a part of that, there's about 50 to 60. page custom legal agreement that's drawn up. It has a lease for 0. 0 for the exchanger as an exchanger loaning the money to themselves. So on and so forth. And, because there's this entity creation, taking an on title, off title, creating these fairly complex agreements that effectively makes the exchange or the owner even though technically they're a member of the entity rather than the manager of the entity all rights are assigned to them. it costs a bit more than a normal exchange or forward exchange. We charge per closing 995 when you sell 295 when you buy, for a reverse exchange is 8, 000. frankly, we make about the same amount of money on it. it just costs more because there's a lot more costs and a lot more moving parts. And then lastly, that construction exchange is a hybrid between a forward and a reverse. Okay. So an exchange ends whenever you either take title to the property or you reach the deadline. So in a construction or build to suit exchange, typically that's where someone has a significant amount of equity and they either want to buy a property that's a bit of a fixer upper, or they want to buy a property that's less valuable than what they sold. So when they purchase it, instead of going on title, the IRS is okay. You can take this special purpose entity, this exchange accommodation, title holder, this eat, put it on title. Then the exchanger can invest the remainder of the equity or more equity, or however they want to do it into the property.

And then when either they've spent all the funds or they've reached the timeline allocated. Then the title gets changed to how it should be taken out of the eat. and invested correctly, but that allows someone to spend more money or have a higher value,and create some wealth kind of day one using an exchange. So those are the three different types of exchanges that someone can do, but nine, 80 to 90 percent of people do forward exchanges. So

[00:37:00] Tim Little: Yeah. It's those unique circumstances that call for those more complex solutions. It sounds like, all right, I was glad we were able to at least touch on some of those, more complex situations. Cause I think that's important too, right? This is all about solving problems that investors have and getting them top dollar and saving them on taxes. Right now we do need to transition to the turbo round.

[00:37:26] Brandon Burns: turbo.

[00:37:26] Tim Little: I'm going to ask you three questions that I ask every guest. That's. Yeah, I'm going to ask you three questions. I ask every guest that I have on the show. I just asked for a quick, honest answer. Are you ready to go?

[00:37:35] Brandon Burns: Ready?

[00:37:36] Tim Little: All right. What is one red flag every investor should look out for?

[00:37:40] Brandon Burns: A red flag on a property they own or something they want to buy. I have both.

[00:37:44] Tim Little: you can pick, it's a red flag, within a 1031 context. I don't know.

[00:37:48] Brandon Burns: gotcha. Fair. a red flag within a 10 31 con, sometimes people think they can get around the ownership hurdle by buying something in an entity that they're a small part of that owns an entity that owns an entity that goes on title. Cool. The IRS is smarter than that. So that's something that I definitely would watch out for. I wouldn't do it, we see a lot of people today as they're buying properties, the insurance cost is really changing dramatically, especially depending on where you are. So make sure you factor in the cost of insurance. because the assumptions that were true six, 12, 18 months ago might not be true today and it might be drastically different today. So that's something that I'd look at really closely as you're doing your underwriting, is make sure you have your insurance person or an insurance person in the conversation while you're doing your due diligence.

[00:38:38] Tim Little: Yeah. Amen to that. As someone who lives in Florida, I can attest

[00:38:43] Brandon Burns: Florida, California, there's. There's other states. Florida is probably the biggest, but there are a lot of states that have insurance problems right now.

[00:38:50] Tim Little: Yep, absolutely. All right. Second question. What is a myth about this business? You would like to set straight.

[00:38:55] Brandon Burns: a myth that I've discovered in the last five years. There is no such thing as passive income. Unless you're able to offload that work onto someone else, whether it's a syndication, a joint venture, there is no such thing as passive income. I have a very good friend who owns some triple net medical office buildings, and that is as close to passive income as you can get. And it is not, it is still not passive income. in their situation is a multi tenant. property. There were three surgery centers. That seems like a great sticky tenant, right? they're paying all the bills. They're paying all the repairs. Surely that's passive income until one of them says, I might move out when my lease is done. suddenly it's not passive anymore. So the biggest myth is that real estate is passive. If you want real estate to be passive, You have to have somebody else to do the work, a partner, an indicator, or whatever it might be. But if it's just you in a deal, I do not believe it will, it can be fully passive.

[00:39:51] Tim Little: Absolutely. All right. Last question. What does success look like to you?

[00:39:55] Brandon Burns: Yeah, I think that's part of why I'm in this business, right? In the past I worked for a large, family office developer ,and they would put You know, 30 percent of the equity in, and I would syndicate the rest. As part of that, I worked as an analyst in a real estate investment. fund in a private equity shop,today I'm in a much less lucrative side of the real estate business, right? We charge 1200 bucks for an exchange, essentially all in. And the reason that I like that, though, is because for me, success is being able to help people being able to have consistent wins every day. We have three to six clients a day that are either coming on board or selling a property or there's something moving. And it's just very personally fulfilling to be able to say, Hey, I was able to help tip the scales in their favor here. So sometimes people ask you, why would you use it?" one 1031 exchange company over another, and the biggest thing is, if an exchange goes perfectly, it might not matter who you used. But as you well know, there are often things in real estate that are unexpected. And if you're able to have someone on your side who can put their thumb on the scale and tilt things in your favor a little bit, that can make a wild difference. And for me, I think being able to make sure that people are informed, they have good data to make good decisions and that, if they run into a unique situation, I'm potentially able to help put my finger on their side of the, on their side of the scale and,and that's really personally fulfilling for me. So for me, 41,I found a girl who's fantastic, and, we're moving toward potentially getting married, I don't have kids. I don't have, the difference for me between 200, 000 and 2 million is,is, would really be the size of your toys, right? So you're going out and saying, Oh, I, I made an extra million dollars here or 10 million there. That for me is that, while those are amazing things for me, I love being able to help and make a difference for people. And to me that success, if I can do that on a day to day basis,

[00:41:52] Tim Little: Yeah, that, that's awesome. It's all about helping others. All right.Brandon, this has been awesome. I really appreciate you coming on and educating everyone, including myself on 1031 exchanges. Is there any other information that you'd like to share with them? Please go ahead and put it out there now.

[00:42:10] Brandon Burns: yeah. At this point I don't have a wife, a kid, a dog, a 1031 exchange are what I live and breathe. Yeah. So if someone is considering doing a 1031 exchange, it doesn't matter to me if they might do one, they're in the process of doing one, they might never do one, but if they want to be more informed, let's chat,you can find me, you can call the office. Our main office line is 858 331 1031. you can email me brandon@Vanguard1031x.com or you can find me on social media, LinkedIn, Brandon Burns. Or if you like real estate memes on my Instagram, I share a lot of real estate memes. I like to laugh with my friends. It's brandon. the T H E 1 0 3 1 guy. brandon.the1031guy follow me. Let's connect. I try to scratch my pennies together and buy a deal when I can. I think we're all in this investment journey together. And one of the things I found about real estate is, even though I spent 20 years on the financial side of real estate, I still learn things, because there are other areas of real estate that I, Don't constantly interact in. and if I have the ability to learn from people and I also hopefully have the ability to share information that they don't have, that's so powerful. So love to connect with people, and you just make sure they're equipped to make whatever the right decision is for them. that they're able to functionally do that in the best way.

[00:43:38] Tim Little: All right. I am definitely a sucker for a good meme, so I will check you out on Instagram. but either way, we are going to have All that information in the show notes so that people can find you again, Brandon. I appreciate you coming on and I look forward to continuing to see you do big things on your journey to multifamily millions.

[00:43:58] Brandon Burns: Thank you. I'm going to leave you with one meme I posted today. It was a picture of a bunch of logs on the side of the road, and it says, I just bought a house off of Ikea.

[00:44:06] Tim Little: Awesome. All right. Have a good one, Brandon.

[00:44:09] Brandon Burns: It's a pleasure.