Welcome to how to retire on time, the show that answers your questions about all things retirement, including income, taxes, Social Security, health care, and more. This show is an extension of the book, How to Retire On Time, which you can grab today on Amazon or by going to www.howtoretireontime.com. My name is Mike Decker. I'm the author of the book, How to Retire On Time, but I'm also a licensed financial adviser, insurance agent, and tax professional, which means when it comes to finance, your money, all of the above, we can pretty much talk about it all. Now that said, please remember this is just a show.

Everything you hear should be considered informational as in not financial advice. If you want financial advice, you can request your wealth analysis from my team by going to www.yourwealthanalysis.com. With me in the studio today is David Franson. David, thanks for being here. Yep.

Glad to be here.

David's gonna read your questions, and I'm gonna do my best to answer them. You can text your questions in to (913) 363-1234, or you can email us at heyMike@howtoretireontime.com. Let's begin.

Hey, Mike. I'm about to sell some rental properties. I want to use it to buy other types of investment real estate, but I'm not sure I'll find the right replacement property in time to do the 10:31 exchange. Any tips?

I wish

I knew how old this person was.

That could make a difference?

Yeah. And and the reason is Tell us. You can take more risks if you're a little bit earlier. K? If you're younger, there's a a high chance that maybe you are selling properties, and there's not much of a capital gain on the properties.

You're just shifting things around. Mhmm. Maybe you've leveraged into the properties, and then you're snowballing up into like bigger properties or less payments. There's a lot of things that you're probably doing if you're a younger person than if you're an older person and and moving things around. So let's assume that you're at the older category.

Let's assume that your assets are fully depreciated. Let's assume that you're you're looking at maybe less landlord responsibilities. Okay?

Okay.

If that's you, here's what you need to understand. If you don't do this right, not only are you gonna pay the capital gains tax on the growth of the asset, you've got the depreciation recapture tax, which is a beast as well. I mean, if you're selling a million dollar house, you're probably gonna pay 300,000 or so in taxes at least. That's a difficult thing to stomach. And if you get this wrong, that's an unfortunate bill.

So ten thirty one exchanges are basically a way that you can sell a property, move assets into a qualified intermediary account, so you can't touch the proceeds.

Alright.

But the million dollars would go into the QI, the qualified intermediary, and then from that point, you can then divide it up into other like kind assets. Many people misunderstand the term like kind. It doesn't mean a residential real estate property to a residential real estate property. It means within certain qualifications of real estate as a whole. So that could be commercial properties, it could be mineral rights, it could be the land rights like farmland, agricultural land.

There's several different types of real estate that would qualify for this.

Okay.

REITs do not qualify, so real estate investment trusts, because you'd be buying shares of a company, not actual real estate property. Delaware statutory trusts qualify.

Okay.

And so the reason why I bring this up is when you put the funds into the QI, you have forty five days to identify the various different properties that you're considering moving the funds into.

Okay. Okay.

And then you have from, again, when you sell a property, hundred and eighty days, so the first forty five days, you have to identify a total time of a hundred and eighty days to then move the assets into the property, or else it's taxed. And so if you want to move the assets into another real estate property, you want to maintain the landlord lifestyle, then great. When you're selling your property, just identify a bunch of properties. Hey. I'm willing to maybe buy this property, this property, this property.

Maybe the negotiations haven't been figured out yet. Maybe you're open to cash offers, all these things, whatever it is. But have plan a, plan b, plan c, and then all the way down the list, if you're not looking to go into a Delaware statutory trust, that still might be a better situation than paying 30% in taxes because you couldn't find something because deals fall through. Sellers change their mind. Maybe you don't come to the right price.

Whatever it is, maybe someone comes in last minute and takes the deal that you're expecting. So you can't control all these things, and so you want to identify all those things, because if you don't identify it in those first forty five days, you can't go into that asset. And so what we'll typically do is we'll identify the properties you want. We work with several DST, Delaware statutory sponsors. We're, again, independent and unbiased, and we can't accept the back end commission of it, so you're just paying us for our time, our consulting services, basically.

And we'll identify several Delaware statutory trusts as a backup plan. So if things fall through the cracks, you can still move the assets in. It'll be in the DST for maybe five, six, seven years. Mhmm. It's tax free, but you you moved everything into it.

You're gonna take income out of it. Now the income is taxable. The property should appreciate. Think of like an Amazon warehouse. Think of a a self storage unit.

These are very boring properties. Yeah. Senior living, college housing, or student housing, things like that.

Okay.

And then when it comes due in five, seven years or so, they will most likely sell the property, and you'll need to then roll it over into another DST or another like kind property. Maybe you go back into the landlord business. Maybe you found the apartment complex you wanna buy into, or a couple of residential properties that you wanna buy, whatever it is.

Okay.

But you've gotta have multiple backup plans, especially for those that are selling apartment complexes or larger ticket items. It's hard to sell a $1,020,000,000 dollar asset, and then want to move it into a bunch of real estate properties. I mean, real estate market can be difficult at times. So to find 10 properties, that's a tough situation. Yeah.

Yeah. Yeah. You've got to have these backup plans. You you wanna diversify all these different things, and so that's why it's very important to work with someone that has access to these different things. You can't get a Delaware Statutory Trust investment on your own.

You have to go through a licensed person that has the ability to even talk about it, and then has the relationship with the sponsors, and then is able to vet those sponsors.

So not all sponsors are created equal, is what you're saying? Yeah. Okay.

Not all sponsors are created equal. We work with the ones that survived 02/2008 without

issue. Okay.

A lot of sponsors after 02/2008 went bye bye. Oh, boy. And it's because some sponsors will do stupid things, like leverage the DST into variable rates, and so when the rates then change, things blow up. Yeah. You want a sponsor that's boring.

You want a sponsor that's doing boring assets. You want a sponsor grocery stores are pretty boring. Self storage is pretty boring. Student housing is pretty boring. Movie theaters, not so boring.

Yeah. So entertainment places, not so boring. You don't want to take the risky investments. You want a DST that you're not losing sleep over, but you don't have to do the capital calls. You don't have to pay up money.

You don't wanna have those issues. And so these things matter. Again, maybe you wanna move into a DST. Maybe you want to have it as a backup plan so you're not paying that large tax bill, knowing that you could roll funds out of the DST later when it matures and sells off, and then you put it back into the real estate game. It just depends, but having options, having an investment selection is a very important thing.

And so how does how does someone, like, get paid that you mentioned that we don't have the right license to get paid on finding these DSTs.

Yeah. So it's around 5.6% that the whatever you put in, so a million dollars and 5.6%, that's a nice commission. Yeah. I don't have a series seven license. I can't accept it.

And so the money's there, and the sponsor's going, well, where do you wanna send it? We just send it back to the the investor, so he just gets it rolled up into his his bed. Nice. And I say that because I think it's very interesting how I can get in trouble for saying this.

Well, that hasn't stopped you before?

Yeah. Can't get access to a DST on your own. Yeah. And we're allowed to charge fees that are considered reasonable. If you're gonna put money into a DST, and maybe it's appreciating in value and great, and the cash flow's around 4% as well.

Why would I charge 1% when I'm not doing anything? But some advisers will say, yeah. We'll do it at DST. You're gonna get 4% cash flow, but we're gonna charge you 1% fee because that's our asset under management fee. It's just how business is done and tough.

Yeah. That crap drives me crazy. So we charge you're basically paying for hours or consultative work to vet the products, to do the planning, to line things up, and then to make sure the transaction happens smoothly. It's a fixed cost. Yeah.

And it depends on how many DSTs you want, the planning, the nuance of it all, But I mean, we're open on those conversations and what that looks like. But, yeah, we can't accept the commission. You're just paying for our time, so that's why people especially when they're selling large properties. I mean, my goodness, the amount of money people save because we we just have a simple, maybe we're dumb for this, but the simple thesis is how much does it cost to do the job? Yeah.

Great. I'll pay that. Yeah. To get a job done well, let's do that. Right.

It's an ethical question. Just because I can charge 1% and rationalize things doesn't make it right. Mhmm. So I just have issues with that. That's why we we structured things the way we did.

That's why we help a lot of real estate people go from their properties, sell it off, be able to retire, have more passive investments like Delaware statutory trusts, and and then not charge them an ongoing percentage of their cash flow, which is ridiculous. But anyway, I I digress. K. That's not to say what other people are doing wrong. I can't speak to them.

I don't I'm not disparaging people. I'm not maybe there's a reason why they're paying that fee. I that's up for them to explain, not me. Yep. I'm allowed and entitled to have an opinion.

Absolutely.

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