Want to know how you can benefit from 1031 Exchanges? Look no further because joining us for today’s episode is Alex Olson, Senior Real Estate Broker at XChangeCRE for 1031 Exchange Buyers looking for off-market multifamily and NNN investments. With host Ava Benesocky and August Biniaz, he explains how to navigate 1031 exchanges along with more tips on making the most of your real estate investments. He breaks down the benefits of exchanging and delves into the best ways to get started in real estate investing. Tune in for more golden nuggets to help you earn more from your investments.
Get in touch with Alex Olson:
If you are interested in learning more about passively investing in multifamily and Build-to-Rent properties, click here to schedule a call with the CPI Capital Team or contact us at firstname.lastname@example.org. If you like to Co-Syndicate and close on larger deal as a General Partner click here. You can read more about CPI Capital at https://www.cpicapital.ca. #avabenesocky #augustbiniaz #cpicapital
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- Am I Being Too Subtle?
- Alex Olson – LinkedIn
- From The NFL To Managing A Real Estate Private Equity Firm – Logan Freeman – YouTube
- Audible – Am I Being Too Subtle?
About Alex Olson
1031 Exchanges can be stressful. Deadlines, how it works, new markets, and many other factors make 1031 Like Kind Exchanges (also called the Starker Exchange) confusing. Many investors want more cash flow, want a safe investment but don’t have the resources or direct knowledge to start or complete an exchange. Alex is a multifamily agent in Kansas and Missouri that ACTUALLY works with buyers. He has built a system around helping buyers succeed.
Learn how cities of Kansas and Missouri have become such a great market to invest in, how you can establish boots on the ground, and complete a simplified approach to ensuring your exchange entails as little stress as possible. Hear what questions you should ask, how to keep the conversation going, and how to build a long lasting relationship in a cash flowing market. As a commercial real estate investor himself, Alex understands the frustrations of not being able to locate off-market deals, not finding deals that cash flow, and running into dead ends. Once you have an agent, learn how to build out your team, identify the core components of getting a transaction done, and getting your deal across the finish line.
Having helped clients complete over $50mm in sales through 35+ transactions, Alex is an expert in helping 1031 Exchange clients. Alex and his Colleague Logan Freeman are taking real estate brokerage to the next level. They have developed a proven system for helping 1031 exchange clients identify cash flowing deals, develop a trusted team, and ensure that your 1031 exchange money is secure.
How To Navigate 1031 Exchanges With Alex Olson
Everybody, we are joined by Alex Olson.
People reading for the first time think you’re a rookie. They don’t know that you’ve done 120 shows.
I interviewed 125 expert guest speakers. We’re so excited because we keep bringing valuable information. When people contact us, it’s like, “I learned about something new and I’m utilizing it now.” We love what we do.
We learn a lot from the guests that we bring on. We’ve partnered with some guests and some guests have invested with us. It’s truly amazing. The show taught us a lot and we want to keep it going. You got right into it. We have a great show for you. Ava gave up the big reveal of who our guest was right the first second. Alex Olson is on the show. If you like to give his background a bit.
I will but before I do that, Alex works with one of our good friends, Logan Freeman, which we have a lot of respect for. We interviewed Logan on our show. Alex, no pressure or anything but it was one of the best episodes honestly. We enjoyed it so much and learned so much from Logan.
You can tell because Ava wasn’t falling asleep. Sometimes, we have guests and I have to give her a nudge but with Logan, that wasn’t the case. It was great. One thing I learned from Logan is this idea of immersion. He was quoting these books that he had read in the past. I said, “How do you remember the book so vividly and you’re using it in your talk now?”
He said, “It’s because I immerse myself when I read a book. I don’t read it once and say, ‘I read it, then I’m gone.’ I spend weeks and weeks immersing myself in this book.” He read one book at a time. They have this thing about CEOs reading 60 to 80 books here and that’s the reason they were billionaires. It’s because they read a lot of books. The idea is remembering. You can’t read books and have them there. Enough about Logan. Let’s get it to Alex over here.
We’re excited about our episode. We’re going to be talking about the 1031 exchange and Alex is a 1031 Exchange Expert. He’s also a broker or, as we like to call it here in Canada, agents.
A bit of clarification. In Canada, for whatever reason, we call real estate agents realtors agents. In the US, they call them brokers. We do have a phrase broker that we use here in Canada and we use a broker for mortgage brokers.
It can be a little confusing but that’s what we’re here for.
He’s a broker, an agent and all of the above. He focuses on 1031 exchanges. We’re excited to chat with him. Let’s welcome our guest.
Welcome, Alex. Thanks for being here.
How are you doing?
We’re doing great. How are you?
It’s beautiful over here. We got weather in the 70 and I can’t complain.
Is that Kansas City?
You got it correct. It is smack in the middle of the year. Sometimes, it can be the 30 and 40 this time of year. Sometimes, it can be the 80. We were at 70, so there are no complaints.
That’s Fahrenheit for all you Canadians.
Alex, let’s dive into things. Can you start by telling us about your background and then your start in real estate, please?
I spent about fifteen years in consumer finance before I full-time transitioned into real estate. It’s pretty very common in the real estate world. We’re all entrepreneurs because we have this desire to want to do things on our own and build wealth. I was looking for a new job the entire time I worked there for fifteen years. I’m exaggerating a little bit but I always had a side hustle, whether it was doing whatever or trying to make a few extra bucks here and there. What happened was my wife and I built our dream house and we had a ton of capital. We had a ton of equity stored up in that purchase because we did a good job of keeping expenses down.
It was worth a lot more than what we’re paying for it. I was like, “Let’s take out a home equity line of credit.” We did. I learned a lot about financing and whatever home equity line credit was at that time. I became a real estate investor first before I had anything to do with becoming a real estate agent. I met a mentor as I was acquiring these properties. This guy wouldn’t sell me his house. I wanted to buy his house as an Airbnb house here in an area downtown. I was very persistent and he was the one that told me, “You’re persistent. You seemed like you might know a thing or two about real estate, even though you’re not an agent. You should go out and get your license.”
Lo and behold, I said, “That’s fine. Let’s do that.” I met Logan through doing that because he was the one that was with the brokerage firm that I had eyed. I said, “I think I would be a good fit to work with this.” Logan and I met, had drinks and talked about it. He gave me the confidence to know that I could be decently successful as a real estate broker-agent. Here we are years later, I’m a professional real estate broker focused in Kansas City and have loved almost every moment of it.
A couple of quick questions for you. What is consumer finance?
Consumer finance is a little bit different than mortgage brokers or somebody who works specifically in larger loans. This is small-dollar lending. We’re talking micro-loans, $100 up to $1,000 kind of thing. If you’re here in the United States, you can see these as your payday loans or short-term loans. I was working with a Native American tribe that was organizing this product. We were a nationwide-ish lender here in the US. I worked in that space for about fifteen years.
It’s more transactional, though. Your personality in the brokerage space doesn’t come into play in that space. Is that right?
It has nothing to do with each other than you’re learning about finance. I was learning about finance as I was running this consumer finance arm like APR and some of those things. A lot of that stuff didn’t apply. When you transition out of that into the real estate space, everything is extrapolated and exaggerated into a much longer timeframe. Still, there are some relationships there. To be frank, there isn’t a whole lot of commonality other than running a business.
As far as your mentor, who was your mentor that you connected with?
He’s here in Kansas City. His name is Brad Gardner and he owns 50 houses in this popular area by the university. He’s an old-school guy of hard work and came from nothing. He was a standard story. He was a wealth advisor and then got into real estate. We then became friends because of where he came from. We connected on that level.
It was more of the single-family, not the multifamily space that you’re in. The last question is, when was that transition that you left your job, connected with Logan and started your career?
What happened there was I was always looking for a different job. I never left my job as a full-time W-2 employee doing this consumer finance stuff. What happened was I met Logan and he told me, “You can do this part-time.” I said, “I don’t want to do this part-time long-term.” He said, “I get it. Something is going to happen.” What happened was the pandemic happened and thankfully, I got fired from my job, even though I was there for fifteen years.
It was a complicated reason for such. The cofounder was leaving the company and I started about 2 or 3 months after the cofounder brought me on board for no real reason. We ended up leaving the company at the same time, which was a blessing because that same day, within an hour of me getting notification that I was no longer going to be employed there, I called Logan and said, “I’m full-time on this. Let’s go.” That was right at the beginning of the pandemic. I’d already done several transactions part-time through that process working with them on transactions. We both had a passion for working with buyers, which brought about the 1031 exchange clientele.
I wanted to learn from you because we got into the real estate private equity space focused on multifamily and BTR-SFR. We were both real estate professionals. Ava was an agent for over a decade. I was in real estate for 16 years or at that time, probably around 14 or 15 years. There was a bit of an Imposter syndrome. Even though we were in real estate for such a long time, this was much bigger than us. The level of education, the background, the lingo and the way people spoke in this business were so much bigger. It was the start for us to eat, sleep, live and breathe commercial real estate to be at some level close to others who were in this space.
When you come from the other space into this space, you have a great guide and partner like Logan. I’m sure he handed off a lot of ways for you to expedite the process of learning. Did you feel the same way dealing with tens of millions of dollars in transactions? You’re not selling a home to a new couple, whether they put something on the market, sell, show them a few houses and they buy it. You’re talking about commercial real estate, multifamily and institutions. Was there some anxiety there? How did you get into the space? Talk to us about that journey.
You are, on some level, not being yourself at the start. I don’t know what the cap rate was and what some of these other terminologies are. I read a lot of books before I even got started. BiggerPockets has tons of resources on there if you’re familiar with BiggerPockets, podcasts and a lot of LinkedIn resources. This was when I was an investor. Before I became an agent, I was an investor. My first investment was a fiveplex. With fiveplex down here in the US, you’ve got to have a commercial loan. I immediately had to learn about what a commercial loan was and why that was different from a traditional loan.
That also helped accelerate some of that but then, the brokerage firm I started with, which was where Logan was, had a lot of great resources for learning the lingo and calling buyers. I had no problem ever with picking up the phone, calling and speaking to somebody. They would say a word that I had no idea what they were, so I’d write it down and look them up or ask Logan or other brokers in the office.
Some of that consumer finance background we talked about at the beginning wasn’t real estate based but there was a lot of marketing, planning and cash-on-cash return metrics. There are EBITA conversations that I was all part of and helping plan that at least made it a lot quicker transition into the lingo than coming from a single-family home background.
Is EBITA the equivalent of NOI in our space?
It’s pretty similar, Earnings Before Income, Depreciation, Taxes and Amortization.
August immersed himself in this space.
I immersed myself because I thought I knew it all. I had built homes and multifamily. I transacted all types of deals. I thought I was the man. I show up to this space and I’m like, “This is the big boy’s league over here.” I have no other choice.
August is using all kinds of big fancy words.
I learned on the job with a gun to my head. That’s the way it happens.
Let’s get into things here. Alex, can you please explain to everybody what is a 1031 exchange?
1031 exchange is where you are selling. You have to be a real estate investor, which means you have a piece of real estate investment property. You sell a piece of real estate and then defer all of your capital gains on that piece of real estate you’re selling by reinvesting into another real estate asset. That asset can be any asset class as long as it’s an investment in active real estate. You can go from farmland or multifamily and buy into any other asset class of the same. It’s also state-agnostic here in the United States. You could be in Alaska and exchange into Missouri or vice versa. There are a lot of key points in there.
The big thing with the 1031 exchange is it’s not like you get infinite time to do this. You only have 45 days from the moment you sell your property to identify up to three other properties. There are some ways to do more than three other properties and all that stuff. From there, you have another 135 days to close out 1, 2 or 3 of those properties. It’s a six-month start-to-finish thing. It’s 180 days total but the important part at the beginning is those first 45 days, finding those replacement properties. What we specialize in is helping people find the replacement property for your 1031 exchange.
It’s go time. You got to identify three particular investments that you want a 1031 exchange into, pick the top one and then make that investment.
Also, you can pick all three.
You can close on all 3 of those, 2 of them or 1 of them. The typical process that we coach people on is you sell your down leg, the property you’re selling and from that moment, you have 45 days. We coax them even before the 45-day window is up to be under contract and pass due diligence on your number one replacement property. It doesn’t always happen that way but that’s the least risky situation for a person.
The other important piece I forgot to mention is it’s not like you can just go close a property that you’re selling and then be like, “I’m going to go do this.” You have to put your funds with a qualified intermediary. At title or escrow, you cannot take any constructive control of the funds that you gained by selling this property. It has to be in a separate escrow account that you can’t access. You can change your mind and say, “I’m not going to do a 1031 exchange,” but if you take any constructive control of that money, then you’re paying taxes on that. There’s no way around it. No whoopsies, no accidents, no nothing. That’s yours to pay the IRS at that point.
Quick question before we get into the other questions. If 1031 exchanges is a tax deferral process where you can defer your taxes moving forward, what happens at the end? Let’s say somebody defers their taxes and I know people who’ve started at a single-family home and they have over $1 billion portfolio. What happens at that juncture when they pass on? Is that tax realized at that point? Tell us about the exit.
When a person dies, that’s another beauty of the 1031 exchange. Your tax dies with you. If you’ve continued to exchange, let’s say you started in 1950 and you’re going to pass tomorrow, all of your taxes and capital gains that you’ve made on this property die with you. Your family that inherits your property, assuming you have a will set up, would get to a step up at basis. Their basis begins over at day one. It’s a pretty incredible way to build wealth for your family if you get into it that way.Another beauty of the 1031 exchange: your tax dies with you. Click To Tweet
Is it 100% tax-free at the time of sale?
Let’s say you die and you’ve got a $1 billion portfolio. When your family inherits that, they start over at zero. If you died yesterday and they sold it today, they would still pay the amount of money that they made on it but they wouldn’t pay all the other gains that they’d made through the period of the last 50 years in all the depreciation. Their depreciation would be zero because they inherited it yesterday, so you have no capital gains tax on that. If it’s $1 billion, you’re still paying Uncle Sam all that but you’re not paying the depreciation aspect of it that your family had done over some time.
I understand what you’re saying. Let’s talk about somebody who wants to retire in cash out. Let’s say they’re like, “I want to cash out of everything. I’ve accumulated all this real estate. I’ve 1031 exchange to many different assets.” What happens to all of those 1031 exchanges? Do they owe for all of those past 1031 exchanges?
Yes. In that situation, if you want to cash out and get out of the real estate, you want to go put it in stocks or something else, then you have to pay capital gains for every single depreciated time in an asset. What a lot of people do is if they want to get out, they’ll go into DST, a Delaware Statutory Trust, which is still active ownership in real estate but it’s passive. You get a check every single week.
Your cash-on-cash return on something like that is probably around 4% or 5%. It’s not very good but it does protect all of your tax implications. For somebody that’s got several million bucks in there, 4% or 5% with a regular check is still pretty nice. If you went out and sold, then you’re paying all your capital gains tax, which could be 30%, 40% or 50%. Delaware Statutory Trust is a secured asset. It’s very similar to buying a REIT force for stock but it’s not. It’s active ownership in real estate, which you have to be to continue a 1031 exchange.
Alex, how and why did you get focused on 1031 exchanges in your career?
When I started real estate, I felt like agents were great and smart people but there was a gap in people who would help buyers in the real estate market. There are so many agents that all they do is focus on getting the listings and say, “Mr. or Mrs. Seller, will you please list your property with me? I’ll get you to the highest and best price.”
It is great but I’m not a big fan of doing the proverbial dog and pony show and trying to win over a seller when what we’re trying to do is match properties with buyers. The 1031 exchange is a pretty common way for people to continue to upgrade their wealth. Logan and I were talking about how much opportunity there is in helping people.
No one is helping people with that exchange from the real estate broker side. There are qualified intermediaries. Every agent can help a buyer with that but we go out, help and guarantee that we will provide you with three properties to identify for your 1031 exchange. We feel that number 1) There’s a niche and number 2) Part of our personalities is helping buyers in the marketplace.
We want to talk about 1031 exchanges as it’s related to syndicated investments. We were on a call with our lawyer, Dugan Kelley. We were asking him this question about people coming in as a 1031 exchange and it depends on the lender. Can you give us a quick crash course on this place?
A 1031 exchange in a syndicated deal is technically not syndication. It would be called a Tendency in Common. That would be a tick investment. If you look back in the 2000s, they got a bad name for themselves, these tick investments, because it was called Tick Tick… Boom. What would happen is you had all these different owners owning a piece of an asset. There’d be a disagreement in it and then the whole thing would fall apart and everybody would be upset.
There had been regulations and different things put in place to prevent a lot of those things. If you’re a 1031 exchange person, you sold your 16 units in Los Angeles and you want to exchange that $5 million in equity into a different investment, you have to find a syndicator out there that specializes and sets up a tendency in common.
You usually want those to be a few owners because what happens when you’re tendency in common is you do own it. You’re supposed to be managing that asset along with the other owners, so you’re co-owner and co-managing it. It’s a lot different than being a passive investor from the syndicator standpoint. Through that process, there’s a lot more paperwork to set up and attorney fees to do to get a 1031 exchange tick set up. You have to do it very much on the front end of the acquisition of that asset.There's a lot more paperwork to set up, a lot more attorney fees to do, to get a 1031 exchange TIC set up. You have to do it on the front end of the acquisition of that asset. Click To Tweet
You can have it but it’s extremely difficult. Typically, if you have an investment opportunity that you normally be syndicating, you would set it up at the beginning more to be a tick investment opportunity because as you get further along within a real estate investment opportunity, you can’t stop everything, redo the formation of the company and get everything set up that way and then your securities are different. All those moving parts have to be set up way at the beginning for a tendency in common for a 1031 exchange to work.
To break that down a bit more for understanding. A syndicated investment, what it means is a general partnership or the management team goes and sources a deal and brings a deal to passive investors who usually have limited partners within this entity being an LLC or a limited partnership. This partnership buys the asset. What you say is that when it involves a 1031 exchange, the deal can still be structured either in an LLC or a limited partnership but the person who’s doing the 1031 exchange into the deal cannot play a passive role. They end up being a co-GP on the deal and have to play an active role.
That’s right. If you’re 1031 exchanging, you are an active real estate investor. If you’re an exchange via the IRS Tax Code, you have to use the same LLC. Even if you own it yourself that is selling an asset, that company that you had set up with the asset that you sold has to be the same buyer in the new asset. You can’t set up a new entity and go in and out of things. It has to be the same asset that’s 100% exchanging in one asset into 100% exchanging into another asset using the same business that you have set up.If you're 1031 exchanging, you are an active real estate investor. Click To Tweet
Correct me if I’m wrong. There’s a lot of paperwork that’s done upfront. Most syndicators allow people that have an investment size of $1 million or $750,000. It has to be above a certain price point because then it’s not going to be worth it. Is that correct?
You got it right. You typically have much larger investments. For example, if you’ve got a $10 million industrial project going on and it’s a syndicate, you’re like, “Should I syndicate this? Maybe I should open up to 1031 exchange buyers through a tick.” You want them to probably have $2 million or $1 million minimum to come into this thing because you’re a co-GP on this thing. Even though you can be passive, you still have to have those agreements in place. It has to be worth your time to set up all the attorney work and the deal to be structured in that way.
Also, the deal can still have other passive investors in it. Let’s say you have fifteen investors who come in as LPs, you still can have them and have these tenants who come in and exchange. We’ve seen deals where it is being advertised to a large database of people but then it’s also open to 1031. We assume that can be possible.
Usually, what they’ll do is maybe it’ll have 3 or 4 1031 exchanges come into 1 deal plus 500 smaller investors or something like that in this $10 million to $20 million range. You’ve got these 2 or 3 tick investors plus a syndication side that handles it. If you look at it that way, you structuring it into two different money pools. You’ve got the 1031 money, which is maybe 3 or 4 people and then the passive investors, which is maybe 100 people. You’ve got to have good accountants, attorneys and people that know what they’re doing to be able to pull that off. You see them but you don’t see them nearly as much as the standard syndication model.
That brings something to question. I’m looking at it from a viewpoint of a syndicator from somebody managing a real estate private equity firm and we’re looking to raise more equity. We want to open the door to 1031 exchange sellers bringing their equity into our deal. The first thing that comes to mind is how we get to connect with these individuals.
The first thing that comes to mind is brokers because if you’re a broker, you’re on the front lines and you can see who’s sold the property. You could have sold the property for your client and then you have these syndicate investments. We know Logan is a broker but also a syndicator. Are you also involved in a syndication business as a GP?
Typically, I’m not. I am essentially a broker, so I’m out here looking for deals for buyers for the most part, trying to match up buyers and sellers. We have people come to us and say, “I want to be passive.” I’ve got a seller who was done with apartments. He’s so sick and tired of apartments but he wants a better return than what you can get in the DST world, The Delaware Statutory Trust. The other option to be more passive is the tick model, 1031 exchanging into a pseudo that looks like a syndication deal.
The challenge for people like yourselves is number one, you have to get these people that don’t want to be in a DST but want to be active. You have to get comfortable with them being in your business because they’re co-GP essentially. That’s one aspect of it. Two, you have to have the timing lined up because remember, they only have 45 days to identify these 3 properties. You might be buying 2, 3 or 5 deals a month but what if you don’t have anything for this investor that’s a 1031 exchange investor? You can’t let them fall by the wayside.
You have to have a lot of confidence in what you can do for them. You have to have confidence that if you’re opening it up to a 1031 exchange investor, you’re going to have enough money to be able to get the deal closed in those pools where you’ve got the 1031 pool and then the syndication pool. Splitting those two out in a different ratio could put you on the back end if you’ve got to raise a lot more money at the end than bringing in that 1031 tick money at the beginning.
Can a syndicator 1031 exchange their promotion or carried interest into another deal?
I don’t know the answer to that.
As syndicators, we make profits as well. That was a question that wasn’t planned but we have another question that’s going to be also difficult and will put you under the gun here. Ava, the next question is a question that I’m going to steal away from you because I thought about hard questions. I don’t expect you to know to answer.
What class in the CRE, Commercial Real Estate, space is the most 1031 exchange into? To itemize a few of those are multifamily, office space, retail, hospitality, industrial and BTR-SFR, Built-To-Rent-Single-Family Rental. I don’t expect you to know the stats to this but you might. If not, you can also answer it like, in your experience, where are the investors looking to put their money? I’ve heard of triple net.
My focus is Kansas City, Kansas and Missouri. Our focus is the multifamily people. A lot of times, what we see is somebody that’s got a duplex or fourplex and they want to take all that equity. If they only have 4 units at that time, they want to take all that equity in their fourplex or they have 2 fourplexes. Let’s say they got $1 million in equity. They want to go out of Kansas City and buy $4 million worth of property. They can take their million in equity and they’ve got $4 million worth of properties. Instead of having 4 units, maybe they’ve got 20 units. That’s the most common thing that we see.
On a large end, we still see something similar where they have a 50-unit apartment complex and they want to go out and buy a 150-unit apartment complex. That is, by far, the most common. A lot of that comes down to the appreciation and the returns you get on the multifamily side. A lot of people want to get into the industrial space but there’s not enough of it out there for people to get into it and understand it. It’s another level if you have a single-family home. It’s easy to understand.
Not everybody but a lot of people lived in single-family home apartments. Everybody is either lived in an apartment or a single-family home. Those are understandable and then you get further and further away from it. The further away you get from what people know, the harder it is to convince them to invest in something new. We have had decent success getting people into the triple net lease space, either neighborhood, retail or shopping center.The further and further away you get from what people know, the harder it is to convince them to invest in something new. Click To Tweet
Even an industrial triple net lease because you can show the investor, “All your expenses are paid for by the tenant. You don’t pay for anything.” That’s easy for them to wrap their mind around. If it’s a gross lease or some of these other metrics, then their mind starts spinning and their head pops off. You got to be careful with what but most people want to invest in multifamily because that’s what they’re most familiar with. You get the best appreciation in their opinion.
Right before we go on to the next segment of our show, Alex, we went under contract on a Build-To-Rent in Arizona and we have several days until it closes. If you know any 1031 exchange buyers at that time, you let us know.
I thought he convinced us not to bother with it. That’s what I learned from the whole show. It’s too cumbersome and too much paperwork. We’ve got somebody else in the kitchen with us.
I have to be on it. I know some of my very good friends that are brilliant syndicators who do this on every deal. They have a couple of ticks and I talk to them about it yet people put a large shove in there.
All I got to say is tick, tick… boom.
Alex, onto the next segment of our show.
Before I get to that, I want to thank him for all the knowledge he gave us and all this stuff. Poor guy, we put him on gun questions he couldn’t answer even. He did everything. We threw him everything and the kitchen sink, Ava.
I learned a lot. Thank you so much. That was awesome.
Is there anything else you want to tell us about the 1031 exchange before we move to the next segment of our show?
What I would want to point out is the importance of understanding where the value of your wealth. What people think a lot of times is, “I sold this property and then I got a 1031 exchange.” What you need to think should be, “I get to sell this property and look at all this equity I can use to upgrade my property.” A lot of people in this syndication space already know that because the game is to buy and sell, you make money on all those different transactions and continue to upgrade.
If you’re doing a 1031 exchange, you have equity. If you don’t have any equity, then you don’t need to do a 1031 exchange because you lost money on it, so you have all this equity in there that you get to upgrade. It’s about your return on your equity versus buying something else. The important factor is to look at your return on your equity as you’re going through a 1031 exchange.
We appreciate that. Let’s start the next segment of our show.
Ten Championship Rounds to Financial Freedom. Whatever comes top of mind, we love to learn more about who you are as a person, so here we go. I’m going to start with the first question. Who was the most influential person in your life?
It is my grandfather who was a hard worker. He had an eighth-grade education. He stored a lot of his money away and gave it back to his family. He was also a perfectionist in how things looked. He worked two jobs I guess. I never knew him when he worked. He was retired by the time I met him. He was also the head of the family. Not a godfather by any means but everybody respects him. He’s the person I looked up to the most in a lot of different ways. It is his work ethic. He had no idea what money was other than he needed to save and earn it.
Is he from the Kansas area? Is that where he was from?
He was from the Lincoln and Omaha area of Nebraska.
Alex, what is the number one book you’d recommend?
My favorite book is Am I Being Too Subtle? by Sam Zell. He’s a billionaire investor. It’s an amazing book. It’s also worth not only reading it but listening to him read it to you through the Audible version. He reads it and he got this weird raspy voice. You might have to listen to it at maybe two times speed or something. It’s super interesting.
It’s worth reading twice because he’s a guy who came from no real estate investment world. His family had some money but not a ton and he found ways to make deals. That’s what he was about. He was like, “How can I make this deal work?” Not, “I don’t like that deal,” but, “What do I like about this deal?” That gave me a lot of inspiration for not only how I go about life but how to coach clients as well.
Quick story about Sam Zell. Stephen Schwarzman leaves investment banking. JPMorgan starts his firm. Blackstone got a brand new office. He doesn’t even have furniture in it and he gets a knock on the door because they were featured in some news publication. He opens the door and it’s this biker guy wearing an all-letter cap. He’s like, “I’m Sam Zell.” He brings him to the office.
There’s no furniture to sit so Sam sits on the floor and they start talking for two hours about real estate investments, leveraged buyouts and everything they were doing. I believe they ended up partnering. It’s tremendous what he is done. A lot of people talk about Grant Cardone but Sam Zell is the godfather of all this stuff. He did get in trouble with SEC at some point early on but he paved the way for a lot of us in this space.
Next question, Alex. If you had the opportunity to travel back in time, what advice would you give your younger self?
I’ve thought about that a lot, not because I’d do anything much different. The best wealth-building advice I could give my younger self would be to buy a fourplex, live in one of those units and rent out the other three. Probably even rented out the other bedrooms in the unit that I’m living in to maximize my ability to leverage as much as I could with a bank and then continued to do that every 2 or 3 years until I got so sick and tired of it that I couldn’t do it.
I tell it to people all the time. They’re like, “How do I get started with this?” I’m like, “This is the best way you get started. Go out and buy a fourplex, live in one of those units and build your wealth that way. Do it again in 2 or 3 years and keep doing that.” It’s hard to understand when you’re that young and you think you got to change toilets and all that stuff but that would’ve been an excellent wealth-building tool.
All the young guys living in Vancouver and Toronto pulled all of their hair out because a fourplex will cost you $2 million.
That’s why we go to the US. Alex, what’s the best investment you’ve ever made?
I bought this fourplex, speaking of fourplexes, close to my house. It doesn’t need a ton of work but I decide I’m going to redo everything. By the time I’m done, it’s going to be a brand-new fourplex that I can get for half market value. Fingers crossed, we have some long-term tenants in there that stay forever. So far, that seems to be my favorite investment.
What’s the worst investment you’ve ever made? What lessons did you learn from it?
I bought four large houses in the urban core of Kansas City. It’s a hot area but I bought them as Airbnb houses. I had to spend $20,000 per house furnishing those. About six months later, the pandemic hit and no one could travel. There are real estate laws and regulations in Kansas City enacted for how to operate Airbnbs and have licenses. It became very much not worth my time and effort. I sold them and gave one back to the owner because it was on lease purchase option.
What happened there was I was trying to get out of my day job. I talked about my day job. I was looking for a new job. That was my attempt to accelerate that. What I learned from that is I got to have patience because other opportunities finally presented themselves but I was so wanting to get out of it. I made some bad decisions on investments. Having some patience and doing a little bit more due diligence is what I learned from that.Have some patience and do a little bit more due diligence. Click To Tweet
The next question is how much would you need in the bank to retire now? What’s your number?
It’s hard to pinpoint because of your lifestyle. You don’t know what it’s going to cost later on. Even if you pay off your houses, you still got a lot of taxes to pay. I would say at least $1 million.
If you could have dinner with someone dead or alive, who would it be?
I love to have dinner with Sam Zell, especially after hearing that story. That’d be a good one. He’d be a great person to get his perspective on everything. He would be genuine and down to Earth. He’d probably take me to a good steakhouse, which I like.
The question is, you are taking somebody off for dinner and you’re paying for it.
I’d still pay for it. It’s no problem. It’s a nice steakhouse. Why not?
If you weren’t doing what you’re doing today, what would you be doing now?
It’s similar to building houses. Maybe be an architect. I always wanted to be an architect but that takes a lot of math skills and stuff that I don’t have. I’d probably be trying to design houses or something. I have a degree in Graphic Design and Economics, which are two weird things. It’s something similar to that realm of designing homes.
Book smarts or street smarts?
I got to go with street smarts. You got to be able to live in the world. I go back to my grandfather. He had an eighth-grade education but he knew the core values of family, saving money, working hard and giving it back to the people whom he cared for. The most important part is having street smarts to survive.
Last question, Alex. If you had $1 million cash and you had to make one investment now, what would it be?
I would invest in real estate in Kansas City in a probably a 1990s or early 2000s multifamily asset. Each one of those units had a garage and everything was separately metered. What I’m getting at is something that is not brand-new construction. It’s super expensive but it’s new enough construction. It’s got modern technology in it and everything is separate, so there’s low owner responsibility. That would be the best investment that I know as of 2022.
Alex, let everybody know what is the best way that they can reach you, please.
Thanks. We enjoyed our time with you. Logan made the invitation, so we couldn’t say no to you. I appreciate your time.
We learned a lot from you and everybody is going to find lots of value. Thank you so much for being on our show.
Thanks for having me. I appreciate it guys.