Episode 418 - Navigating the 1031 Exchange Landscape: Insights from Russell Marsan

And it's a real opportunity for especially realtors, Right. To solicit people that own raw land and to let them know. Because most people, especially if it's, you know, if it's under, you know, 50 acres, right.It's 5 acres, 10 acres. Right. It's a building lot for them. They don't. They have no income coming off of it. They. They either inherited it or they bought it.And they own it all cash, Right. They have no mortgage on it, so they're not going to sell it. It's not on their radar to sell.But nobody's approached them and said, hey, you know, you got at that land is worth $300,000. That's $300,000 of stagnant equity. Right. Producing zero cash flow for you and zero depreciation.You can sell that and I can buy your first, you know, investment property for you, like a rental.

You're listening to the Real Estate Sessions and I'm your host, Bill risser. With nearly 25 years in the real estate business, I love to leaders, up and comers, and really anyone with a story to tell.It's the stories that led my guests to a career in the real estate world that drives me in my 10th year and over 400 episodes of the podcast. And now I hope you enjoy the next journey. Hi, everybody. Welcome to episode 418 of the Real Estate Sessions podcast.As always, thank you so much for tuning in. Thank you so much for telling a friend. Today we're going to talk tax code.I have never done this on the podcast and I can't tell you how excited I am. We have an expert in the world of 1031 exchanges. His name is Russell Marsan out of Northern California. We're going to talk about that a little bit.But he really has some great ideas, some great strategies, and just a ton of knowledge on what's happening in that 1031 exchange world.I love that we've talked about some of the misconceptions because there are investors out there who are throwing away money by not listening to Russell. So let's get this thing started. Russell, welcome to the podcast.

It's a pleasure to be here, Bill. Thanks for having me.

Yeah, you know, I always. I love it when I get referrals for guests to come to the podcast. Cause I'm always kind of looking for people. But.But Matt Hidalgo, who I've known for a long time, you've probably known longer.

Yeah. Little while. Yep.

Yeah. Suggested that I chat with you when we talk about 1031 and I think I've never done that. I've never had a conversation about that topic.Which is super important really, when it comes to wealth building and strategy and all kinds of stuff that we sort of.

Not.

We sort of don't pay attention to, I think enough. So I'm really happy to have you here.

Yeah, it's great to be here.

All right, so we're. You're in Northern California. Are you kind of like in the Sacramento area? Is that. Am I. Am I good with that?Like Roseville, all that stuff where there's a lot of people that I work with that are kind of living in that area with the company?

Yeah, absolutely. I.I live in Northern California, north of Sacramento, kind of halfway between Sacramento and Chico and a smaller farm farming community called Yuba City. Wow. I travel through extensively, like for my job. I'm always on the road traveling.So, you know, that's not where my office is located, but that's, you know, that's where I live.

Okay. And then I'm just going to assume, you know, you're a native to Northern Californian. It seems like a lot of people.

That are born there. Yeah, absolutely. Yep. Got my California Born and Raised tattoo.

And so now I gotta ask the tough questions. Does that mean like Giants, you know, Niners, Warriors? Is that all that stuff on your side? Kind of, yeah.

I mean, so it is definitely. In order of. It would be Niners, then Giants, then probably the Kings. Although I love the warriors too.

Now how the Kings jump in there? Where does that. Oh, A. Sacramento. I'm sorry. Oh, that's even closer. My first thought went to hockey. No worries. Yeah. All right, so that makes sense.And then don't you have the Oakland Ace playing with you? Like you get a whole couple seasons.

Of the Oakland A's playing in Sacramento.

I can't even imagine what that's like. I can't imagine. I'm in St. Petersburg. Right.So the Ray's Stadium roof got blown off by Milton and so they're playing at an 11,000 seat spring training facility that the Yankees, you know, use all the time. So they're in the same boat, but they're also the two teams. So they're the lowest in attendance the last probably 10 years. So it kind of works out.

It's a great little stadium, River Cat Stadium. It's. It's an excellent little stadium. A small venue and stuff. So easy to get in and out of too. So it'd be nice to catch a ball game there.

Yeah. Do you River Cats are affiliated with who?

River Cats were. Were affiliated originally with the A's. I think they're now affiliated with the. The Giants.

Okay. So stayed up keeping that area good?

Yeah.

All right, cool.

So when.

I said when you talk. When you talk Niners, you live there your whole life. I just have to. I like sports a lot and I.I imagine the 80s were just like an unbelievable time to be a Niners fan. Is that. And into the 90s as well, because you had young that took over and had to be just a blast. Yeah. I grew up in San Diego, Russell.So you know what that means. I mean, I'm sorry.

Condolences.

Exactly. Never experienced a championship of any kind. Unless you count the indoor soccer league. The Soccers. That was their name. Yeah.

Ranks right up there.

Yeah. Nine. Nine championships in like 10 years.

Indoor soccer. Really close.

All right, I guess we're done talking sports.

Well, the hope. Hope is there for you, though, because now you have a EX 49er coach, so you should have.

True. But they're in LA though, so.

Oh, well, if you're still a fan. Right?

Not a fan. I. I'm not a fan. If they left the city, this Clippers left, boom. We were done with them. Now the Chargers have left. We're stuck. Not stuck.We still have the Padres, who have a great ownership. They're. They're. They have a chance. They have a shot. You no longer have Bochi. So good. That means. Because he's the guy that wins all the World Series.He won him with the Rangers, you know, last year. Right. So. Yeah, it's just great. I. I love. I love Northern California sports. I love going up there. I've.My wife and I have made many trips up there just to really. Just to watch games. Super cool.

So are you saying that San Diego has a chance in that division?

Yeah, I am going to say they have a chance for making the playoffs. I don't know.

I don't know if they're gonna feel like I'm listening to Dumb and Dumber. Right. So you're saying there's a chance.

Yeah. Well, look, you know, you got Fernando Tatis. You got some great pitching. You've got Machado. I like. There's Merrill. Jackson. Jackson, Merrill.Yeah, I'm just. It's. Look, it's just what I do. I am. I'm very optimistic, so.

I'm a Giants fan. I am too. But it's just. It's tough to look at that Dodger lineup.

I know, it's rude. That's why you get that you Got to go wild card.You know, you have been associated with IPX 1031 and maybe a couple of other operations through your career.But we're talking about nearly three decades or a little over three decades that you focused on this, this one piece of the, the IRS code that is really important. Right, for a lot of different people. So my first question is, how do you get from.You're coming out of school, how do you end up, you know, at that early into this part of the game?Because it always seems to me like people got there a little bit later, maybe a second or third, you know, piece of the puzzle, kind of their career arc.

Well, it definitely was that I didn't come out of school.I mean, yeah, I've been in this 29 years, but I went in the service after school for several years, came back out and I actually sold real estate first and then transitioned to Fidelity Title as a. I was. Well, I was actually a sales rep and title for another smaller brand. And then Fidelity recruited me to be a sales manager for them.And then it was IPX 29 years ago that recruited me to come over and cover at that point, Northern California for them. Okay, so, yeah, yeah. So it wasn't just at straight out of school.

How would you compare the two jobs you left, you know, this, the title side of business development and went to the, this a very specific situation with 1031. How do you compare the two? Was there, are there big differences or is it kind of the same?

No big differences for sure. So, you know, I really enjoyed the title side.I was actually at that point because I had gone from a sales rep with a smaller title company to a sales manager. And I was managing just two sales. Managing the salesforce, just two small counties in Northern California.And I was, after a couple years, we were doing really well. We'd expanded market share substantially and I was just looking to kind of expand.So I was engaging with a couple of the county managers who didn't have, who were close by, that didn't have a. A sales manager. And I was kind of trying to get through the bureaucracy of seeing how that would work with everybody.And along the same, about the same time, IPX approached me and they were looking to expand in Northern California. And they said, hey, we want you to take on like 29 counties in northern California.And my passion throughout all of my life, one of my greatest passions has always been public speaking. I love it. And I've competed on national levels in both humorous and motivational speaking. So, you know, this job this job is more educational.Like sales on the 1031 side is going out and giving one to three hour classes in a lot of cases for accredited for accreditation to realtors, commercial brokers, CPAs, attorneys, things like that. Right.On how to use the 1031 exchange to, you know, better assist their clients, but also how to, in the real estate world, how to capture more clients. So for me it just, you know, it allowed me to do what I love. Right. Go out there and do public speaking every day with the clients.And so it's a lot different. It's a different sales, definitely a different sales tactic than it is on the title side for sure. Yeah.

Still relationship building going on, but it's in a different level. Yeah, but a little different. You're not, you know, following people around on the, on the title side.You know, those relationships have to stay strong. You got to continue those kinds of things.Maybe it's not the same when you're talking about doing those, you know, accredited sessions kind of on a regular basis. You want to stay connected to those people, but it's not that same level. Does that make sense?

Yeah, yeah, absolutely. It's just a little different. Right. Because so I deal in internal revenue code.And so, you know, agents and the clients themselves, they're not familiar with, you know, what you can and can't do. And so, you know, it's my in depth knowledge of taxation. Right.Real estate tax law, internal revenue code, tax, all of that stuff, everything having to do with real estate. And so, you know, I'm, I'm that resource for them that they can pull in to make themselves look good. Right.Because I'm, I have all the answers that, the question that they're, that their clients need because they can't speak to it because it's outside the scope of their licensing. Right, right. Yeah. Right. So, so yeah, it's, it's an educational sales play.

Gotcha.You mentioned it just a second ago that the type of people that you work with, it's not just for the most part when we're on the title side, we're working with, you know, realtors and lenders. Pretty much that's going to be the sum total.But you were talking about commercial brokers, investors, financial planners, attorneys, all these different groups that you're connected to. Percent I don't want to make you have to give me exact numbers.But maybe could you break out like what percentage of the work you're doing is residential versus commercial or you know, attorney versus, you know, realtor, that kind of Thing.

Yeah, all of them definitely different for sure. Right. So I'd say that just because of sheer volume, there's always going to be more residential transactions. Right.Because there's more single family rental properties, raw land, there's, you know, multi family, one to four, that kind of stuff. There's more just in sheer volume than there is in the commercial. Right. So there are more residential transactions than there are commercial.Although, you know, we certainly target the commercial for sure, because those are the larger deals.So if you're dealing with, you know, you know, a higher volume in, you know, the value of the, the real estate, then the commercial is certainly, you know, great. But the volume on just the sheer transaction numbers is definitely on the residential side.And from a standpoint of referral sources, like who's the most interaction I probably have is on the residential side also, just same thing, because they're the ones that are, I would say, most hungry for the information. And I show that I specialize in showing, you know, realtors how to capture more listings. Right. Using the 1031 exchange.Because a lot of Realtors are intimidated by soliciting investors because they have this mindset of, well, gosh, because they're an investor, they know more than I do. The reality is they don't. Right.So, and then secondarily, probably commercial brokers, I deal with them a lot and then to a little lesser expense extent, although just as important is I do teach accredited courses for CPAs and attorneys as well.

Okay. So I know a little bit about 1031 exchanges just because I ran a branch for 10 years and we had them.You know, there's qualified intermediaries, there's, it's really important timelines, like, like critical timelines that can blow up a deal. Might have happened once or twice. But can you. First of all, I, I'd love to ask you this question.What are some of the biggest misconceptions about 1031 exchange? Does somebody come to you and go, yeah, I've heard I can do this because it's going to do that. And you're like, no, that's not really the case.Like something that's common, Is it, is it, is it out there?

Oh, absolutely. There's one, the, the most glaring one that I have seen for throughout the 29 years I've been doing this is the misconception of like, kind. Right?That is huge. Right. Because in a 1031 exchange, you can sell a piece of real estate and buy a piece of real estate and defer all the tax. Right.That's the big benefit of 1031. But the key is that both properties involved in the exchange, the one you're selling and buying, they both have to be like kind with one another.Right. And so most people like myself are visual. So, you know, you think, okay, well, if I'm selling raw land, I have to buy raw land.If I'm selling a single family, I have to buy a single family commercial for commercial, commercial, etc. And it's not the case. It's not what a property looks like that makes it like kind. It's how it's treated for tax purposes. Right.Any property that's treated for business or investment purposes is like kind. So you can sell raw land and you can buy single family rental property, commercial industrial, mini storage. Right.It's all like kind, it's all interchangeable. And that's kind of one of the greatest beauties of 1031. And why 1031 is such a powerful wealth building tool.Because, you know, as, as an investors, as they grow older in life, their financial objectives naturally change, Right. They pivot from appreciation to cash flow to maybe going passive. Right.Well, you know, all the different types of real estate have different types of financial objectives.So as your objectives change, the 1031 allows you to pivot, right, to that different type of like kind real estate that better suits your current financial objectives.I can't count the number of times over my 29 years that I've had tax and legal advisors tell my clients, you can't exchange raw land for improved property. It's not like kind that's 100% false. It's never been true.

It's so weird because you think about it, that's the, they're missing it on the side of, I don't want to mess up around with the government or the IRS because they're saying like kind, so it's got to be the same. So they're, they're, they're, there's something weirdly positive about that.But then you get to be a hero and go, let me tell you something, it's just how they're treated. And that's different than like you said. So I think that's, that's kind of cool.I mean, you do you come out of this going, oh my God, you really know where we're at and how we're going to make this happen.

Yeah. And it's a real opportunity for especially realtors, Right. To solicit people that own raw land and to let them know.Because most people, especially if it's, you know, if it's under, you know, 50 acres, right. It's 5 acres, 10 acres.

Right.

It's a building lot for them. They don't. They have no income coming off of it. They, they either inherited it or they bought it and they own it all cash. Right.They have no mortgage on it, so they're not going to sell it. It's not on their radar to sell, but nobody's approached them and said, hey, you know, you got at that land is worse, $300,000.That's $300,000 of stagnant equity. Right. Producing zero cash flow for you and zero depreciation.You can sell that and I can buy your first, you know, investment property for you, like a rental. Right. Now you have income, now you have depreciation. Right. You, you really dramatically change somebody's financial, you know, outlook. Right.Just by being. You can, you can change somebody's life by 20, 30, $40,000 a year by simply dropping that seed. Right.People would be willing to do it if they simply knew the option exists out there.

Right. I can see you talking to a room full of a hundred realtors and just little head explosions everywhere when you say that. If they were all memes.

That's why I wear hazmat suits in my presentation. So. Yeah. Yeah.

You're kidding me.

Yeah.

That's awesome. Just, just for, for the, the primary listeners, this are residential realtors. So can, can you.Do you mind walking us through what a typical good old fashioned 1031 exchange looks like when they're just going to help an investor move from one type of property to another? What does it look like? What's the process?

Yeah, the process is relatively simple. A lot of people think it's very complicated, and it's actually not.So we can't set up an exchange for somebody until they've accepted an offer on the property they're selling. We call that the relinquished property. Right.So once they've accepted an offer from a buyer on the relinquished property they're selling and they've opened escrow. Right. Then we have to set up the exchange. We have to set it up sometime before closing. It only takes us like a day to set up the exchange.It's a super good process. So they're. If they're not in Estro yet, we can't actually set up the exchange.Although I should certainly be talking to them well in advance of being an escrow. Right. Because the sooner I talk to them, the better. I don't care if they're Selling four years from now. Right.I want them to go into the transaction completely stress free and understanding what their priorities and objectives are. Right, yeah.But then once they are in escrow, then we get a copy of the purchase agreement fully executed by buyer and seller and then we also need a copy of the title commitment. Right. Once we have those two things, then we assign into the closing with the title company as the seller on behalf of the exchanger. Right.So that's going to give the title company instructions to wire those funds to us upon closing because they can't go directly to the exchanger because if they have any kind of control of funds, they have a failed exchange. And then what we do is we create a segregated commercial bank account we name the clients on also.And those funds just sit there static in that exchange account waiting for them to close on whatever they're going to buy. And like you stated, you know, they have 45 days to identify and 180 days to close.So once they're in contract on that replacement property, then we're going to assign into that Right. As the buyer on their behalf and that's going to give that title company instructions to receive those funds from us to close the transaction.So we put all of the exchange agreements and assignments in place, we do all the wiring throughout the entire process.

And it's relatively inexpensive. I think people would think it's a little more like wow, that's a lot of work and you're working into two escrows.But generally, isn't it, it's a flat fee for most transactions, especially on the residential side.

Yeah, it is. It's a flat fee structure with us, although kind of there is kind of regional pricing. So it kind of varies.Most of my regions we charge like a thousand dollars.When you close escrow on the relinquished property, it just comes out of the proceeds at closing and then there's a $250 fee charged when the replacement property closes. So in most cases if they sell one and buy $1,250 a total cost, that's it.

You know, you've been in the business a long time and, and I mentioned, I, I've seen things kind of go south after an exchange has been opened.And generally speaking it's someone's doing something they were probably told not to do or they're going to do something they're going to do something they were told not to do.For you, is there, is there over the years, has there been something, once again, something common like this is you, you can tell this one's not going to go all the way through because of this.

Procrastination.

Oh, missing the timeline. It sounds like number one killer.

Yeah, so. Because once the relinquished property has closed. Right. Okay. Your clock has started. You've got 45 calendar days, not business days to identify.And you've got a total of 180 days to close. 180 days is rarely a problem. The 45 day identification deadline is the number one killer of 1031s.Because of procrastination or somebody just says, you know what?I don't want to write a contingent offer, so I'm going to wait until my relinquished property actually closes and funds before I start writing offers. Okay, you can do that if you want to, but it's a bad strategy, right? It's a little extra work. If you write contingent offers. Yeah.Maybe you're going to lose out on some and you'll have to write twice as many contracts as you would otherwise. But you know what? Get into contract on a replacement property before day zero before the relinquished property closes.In a perfect world, you should shoot for trying to complete your Exchange before day 45 ever passes.

Yeah.

The reason, the reason why I said is because you know prior to Midnight on day 45, you can change your identification all you want. You can add and revoke to your heart's content. But as soon as midnight Strikes on day 45, you can only close on something you've identified.So if you've named three properties and you've gone past day 45 and you can for whatever reason no longer buy any one of those properties, it doesn't matter what's happened or whose fault it is. Your exchange fails. You can't substitute new properties after day 45. That's when it gets risky, is after day 45.

Yeah.

So. Wow.You know that waiting, that procrastination to get into contract and get past your inspections and contingencies is the number one killer of exchanges.

I would assume that some people maybe look at that code too literally and say, well I can't, I can't start identifying until after it closes. But you're saying, why are. You should start identifying right now. Right. You gotta deal, you gotta. You. You're an escrow. Start identifying.Let's go find something. Yeah, that makes sense.

You're a hundred percent correct.I have those conversations with every single one of my clients and I wanna say probably close to half of them say, oh my gosh, I didn't know I could write an offer first.

Gotcha. Yeah. That's awesome. Yeah, Good to know. That's great. I have to ask you this question, you know, over my time, you know, with the FNF family.So it's been 25 years, right. I started in 2000.And, and, and there every now and then, somebody starts talking about changing the, the, the, the revenue code and the 1031 might be going away. You've. I'm sure you've been through that a few times. Where are we now with that?And how did you handle that when that was, that conversation was out there?

Yeah, that's a great question.

Yeah.

In my 30, 29 years of doing this, dealt with it many, many, many, many times. Every handful of years, I think this is the best way to describe it. Every handful of years, a politician stumbles upon section 1031, right?And they have, you know, they see this section 1031 and they're not familiar with. They're like, wait a minute, there's $10 billion or whatever the number is that's deferred every year.If we simply get away with this provision that I've never heard of before, then we'll have $10 billion to spend on what I want to spend on in my bill, right? And so they propose it. Well, you know, we're part of the Real Estate Roundtable.You know, it's everybody, it's nar, it's us, ccim, naop, everybody, right? We spend a lot of money every year with firms like Ernst and Young doing economic impact studies. This is real information on the economy, right? On.On what Section 1031 actually does for the economy. And the reality is section 1031 is not a net loss to the treasury. It's a net gain to the treasury in the billions of dollars.Because there are transactions, a lot of transactions that happen that otherwise would not happen, right? There's real estate transactions. Because, you know, if I'm going to. I want to sell my $5 million investment property, right?I fully depreciated, right? If I just sell it and pay my tax, I'm going to get killed. It makes no sense for me to sell it, right?But if I have this 1031, okay, well, I can sell it and defer the tax. What I'm going to do is I have to reinvest in other real estate. Every time you sell and buy, there's all kinds of things that are happening, right?There's cons, there's all of the vendors involved with the sale, title companies, appraisers, banks, you know, etc Contractors doing improvements. A lot of different things happen. Right. That's why real estate is such a big part of the economy.It would, it would create a lot less transactions if 1031 was gone. Right.So we just simply, every time, we simply have to, you know, educate the, the players on why Section 1031 is important to the economy and it would be harmful to the economy if you eliminated it. It wouldn't. It's not. They think it's a pay for, and the reality is it's not a pay for. So that's why we're always successful in not eliminating 1031.

Yeah. You know, the first.As you're saying that, the first thing I think of is, like, not every property that's being purchased through that 1031 exchange is going to 1031. That one, that one might be paying taxes because that person needs the money and they just can't do the deferment.So I, it makes sense that there's a lot of transactions are turned on by this, by this process. It would just go away.

Yeah. Because if you take away the incentive of 1031, the tax deferral, then it becomes too punitive to sell my property.So what I'm going to do is I'm just going to hold on to it for the rest of my life and let my kids deal with it after I die.

Right. What great strategy. Exactly. You talked about your, your, your, your passion for public speaking, and you've done thousands of these presentations.So I've done maybe, maybe I got two, A thousand of trainings and things at the association level. Kind of like, you know, you were doing. But, but on a, on technology and all this other stuff, and it was always residential.You have these different audiences. I want to know because I'm just going to flat out say this, Russell, tax code can be boring. So you agree, right, with that comment. Okay, good, good.So how do you, how do you keep an audience engaged? I mean, you must have case studies or you might, you got to have some fun with it. Right. It sounds like you have a lot of fun with it.

Oh, yeah. I mean, if you knew me personally, you would know. Right. I'm. I'm a clown at heart. Right.I just, I truly believe in making people laugh and smile no matter where I'm at. I'm, I'm super serious, too, and I'm a student of the business for sure. But, you know, humor is so important in, just in life in general. Right.Not just in business. And so, yeah, my presentations are filled with humor. Also motivation. Right.So, so, yeah, I mean, going to one of my presentations, depending on who I'm, who my audience is, like if it's attorneys and CPAs, they're a little more serious. So I sprinkle in some humor. But if it's realtors, it's, it's like an improv. Right. As I hear, I'm a stand up comedian in front of those guys.

Yeah.

So it just varies.And so, yeah, without fail not to sound, you know, I don't want to sound vain or anything like that, but I mean, but I always do get that in comments afterwards and testimonials of like, wow, I've never been to a 1031 class. That was so entertaining.

Yeah, that's great. I think that's huge.I think that's a big piece of, you know, I'm doing some stuff right now with, you know, in the FNF world we're dealing with in here. Right. Our living here and our start in here and tracking here and all that great stuff.It's not super exciting, but yeah, the goal is if I can get someone laughing in the room and you know, just a quick quip, it just makes it a whole different experience. Right. And I think that's so, I love.

That it's endearing, you know, for the clients, you as well. Right. I think it's, in some ways it's a little selfish. I, because I gain from it. Right. I really enjoy making people laugh. It makes me feel good.Right. And so, I mean, so it's a win, win.

And they're not going to forget you. That's, that's key. That's a key, key piece of that.

Russell.

There's, you know, we have multi generations. There's used to be the, the millennials were the biggest group of home buyers. I just heard earlier this week, it's now boomers.So that in your world, in the 1031 world, which one's the most important? Where are you seeing the most activity and who needs to be paying more attention?

Yeah, definitely. So last year the exchange world was actually really busy.You know, on, on the residential side, I know a lot of realtors saying, well, it wasn't a great year. And the 1031 side, the investor side, it was a really good year. There was a high, high amount of volume.This year we're considerably ahead of last year, year to date, and we anticipate that trend to continue throughout the year. The demographic that is mainly responsible for that increase in volume is the baby boomers. My people, our People. Yes, they are.They are repositioning their real estate assets throughout the phases of retirement they're going through. Right. To better suit their current financial objectives.Only about 20% of the population is baby boomers, but over 40% of the real estate is owned by that demographic in the United States. And so for every baby boomer that maybe is repositioning real estate assets right now, there's probably four or five or more that aren't.So many of them are not repositioning assets, and they need to, you know, so for those reps out there or realtors out there listening to this podcast, you really need to solicit the baby boomers as a demographic, especially baby boomers that own single family rental properties. Because if you're somebody of retirement age and you own single family rental properties, you're in the wrong asset class.

Right.

I'm a financial analysis guy. That's my life. Like numbers and tax law is my life, which I know sounds really sad.So, but, but, you know, from a financial analysis standpoint, they're in the wrong asset class. And just to kind of build the scenario.So this is a very typical scenario where you have a retired couple and they own seven single family rental properties, free and clear. Super common scenario.Well, when they bought their first piece of real estate, they were in their 20s or 30s, because somebody said, buy real estate, it's a good investment. So they bought a fixer. Right.After a couple years, they fixed it up, had some sweat equity in the property, maybe a little positive cash flow coming off it, and they're like, hey, this is cool, let's do it again. And eventually they buy another one and another one. Now they own 5, 7, 10 single family rental properties, all free and clear.They this has always been a side hustle for them, Right. Because they're a retired teacher, fireman, policeman, something like that. Right?

Right.

They're not a real estate investor as from a standpoint of it being their sole source of income.

Right.

It was passive to them. They're not into financial analysis.They've made a lot of money on their real estate because over three decades it's doubled or tripled in value, and now they own it free and clear. So they've built wealth. Well, when they first got into real estate, they bought single family because that's affordable, right.Well, it just so happens that was the perfect asset class to buy into, because from a financial analysis standpoint, single family, the primary financial objective of that in most of the United States is appreciation, not cash flow. So they built the right. They bought the right kind of asset to appreciate. Right.Well, now they're of retirement age and they're sitting on assets that are not designed for cash flow. Right. That's not the primary objective of single family. It's appreciation. They're in the wrong asset class. Right.They need to go, they need to be in commercial because commercial is designed for cash flow.But then they also, there's typically one other financial analysis, financial objective rather, that goes right along hand in hand with somebody who's retired. And that's passive. Right. I want to maximize cash flow on the equity I have, but I also want to go passive.I don't want to deal with the headaches of real estate. Right. Especially if you live in states like California, which is a, not a landlord friendly state at all.So you should be going into triple net lease, commercial then. Right. But that can be daunting, right.That there's, there's this thing out there most people haven't heard of, called the dst, Delaware Statutory Trust. Right. Which is a type of replacement property in a 1031 that's been around for over 21 years.And when you buy into a DST, you're buying a fractional ownership interest in a very large institutional grade asset.It's going to be like an Amazon distribution center for $150 million or a huge climate control mini storage or senior care facility, something like that. Right. And you're just a passive owner in it. You just receive cash flow every month without any duties, responsibilities or maintenance costs. Right.It is literally passive.So, you know, without creating this podcast as being a class, there's just a lot of, there's a lot of baby boomers out there that are not repositioning right now, and they should be because they don't know their options.

That's. That's awesome, Russell. That'd be some great content to be spreading around for sure. Russell, I, I know that 1031 is a, is federal code, federal law.Right. So does that mean it's. The states don't really have much to do with it or how does that play into the, to the. How this works?

Yeah, great question. So 1031 is federal because it's part of the Internal Revenue Code, but all states recognize the 1031, right?There was one state, Pennsylvania, that didn't, but then two years ago they finally did. So now all states recognize the 1031. So you can buy and sell and cross every single state line.So, you know, it's very common for people to decide, you know, What? You know, I live in Montana, but, you know, I really. It's getting too cold for us.We want to retire, so we want to, you know, we want to buy something in Scottsdale because, you know, we want to retire there because we love golf and we love like 150 degrees in the summer. I love driving with oven mitts in my car, so. But yeah, there's different reasons why people are in the tender. One allows you to do that, right.It allows you to, to, you know, transfer your assets into other states without having to pay federal or state tax.So it's huge if, if somebody's going to be retiring in another state or somebody's thinking about buying a second home or vacation home in another state. The 1031's a tool for that.

Look, I'm looking at the clock and I know we both have.We're working today, so I'm going to go ahead and ask you the same question I've asked every guest and that is what one piece of advice would you give a new agent just getting started in the business?

Yes. So that's a really great question.So I would say definitely, you know, seek out your 1031 guy, maybe even Russell, and do not, do not leave investors out of your solicitations. Right. A lot of people that just get into the business, they're going to be. They're going to do their comfort zone.They're just going to go after people that own single family primary residences. Right. Because there's this intimidation factor that, oh, my gosh, I'm new agent. I don't know as much as an investor does, so I can't engage them.That's 100% false. You know, there's this. There's this area, I call it kind of like purgatory.In real estate solicitations, the majority of realtors solicit owner occupied by far. Right.And then you have the very far end of the spectrum of like commercial and ag and stuff like that, which are all solicited by commercial brokers and ag brokers. But then you have this, what I call the kind of purgatory in between.It is where you have single family rental properties, multifamily 1 to 4, and you have, you know, raw land, but small, not farms, not ranches. Right. You know, 50 acres or less kind of thing. Those people aren't solicited. Right? They're not.So nobody's telling them what their options are and how to reposition to better, you know, suit whatever their current financial objectives are. So if you're just getting into real estate.You know, definitely solicit those investors, work with somebody like myself and you know, have even evening classes. You know, bring those people, the investors into a class and even like how to build wealth with the 1031 exchange. There's tools like we have.I have tools. I have postcards, flyers, all kinds of things that you can, that they can use to go after those types of clients. So I guess that'd be my number one.You're going to be soliciting possibly. You know, you're not competing with everybody else after. With. After unoccupied. Right. And, and yeah.

And there's help. There's help available. You're there. Right?

There's.

And then everyone at IPX 1031, there's going to be somebody in your area that can push you along and help you kind of learn the ropes. That's great. I love that. That's a great piece of advice.So Russell, if somebody wants to reach out to you, have another conversation about this, what's the best way for them to do that?

Yeah, so two ways. One is by cell phone. My cell phone. And this is actually my cell phone. So I'm going to give it to you.And you can call me anytime, no matter where I'm at in this country because I travel all over. But you can. If you call me at like 8 o' clock on a Friday night, the first thing you don't have to say is, Russell, I'm so sorry for bugging you.I'm a financial nerd. I'm a geek. I don't have a life. So you'd be giving me a life by simply calling me and asking me questions. So cell Phone number is 530-755-8355.Email address. My first and last name. So it's Russell. R U S s e l l dot Marsan M A R S A N@ipx1031.com this has been great, Russell.

Thank you so much. I. I really know. I. Now I gotta like give Matt some props. I mean, this was a fantastic episode.Really a lot of good information, especially for my audience. So I think this has been fantastic. Thanks for your time today. You know, the Niners will be back one day. You know, it's just the flow.

Well, that's why God made wine.

And you're close to it. It's even better. Yeah. Okay. Well, thanks so much. This has been great.

My pleasure. Absolutely. My pleasure.