I C: Today we are talking to Mike, who is currently Chief Growth Officer at Bondaventure, where he's growing their 1031 platform. But over the last 10 years, he's worked in acquisitions and investment for multifamily real estate, where he's been a part of teams that have underwritten, sourced, and managed over one billion in real estate, and most recently was educating the masses on during his time with a qualified intermediary company. ⁓ Needless to say, he has seen a lot when it comes to 1031s. So Mike, first, thank you so much for your time today. Second, what is the most efficient way to explain a 1031
Mike Auerbach: Yeah, thanks for having me, Bella. I think are ⁓ really simple. It's just ⁓ swapping piece of investment property without paying a diamond tax. ⁓ And when you think of doing a 1031 exchange, that's really what it's all about. And I think sometimes people get into the weeds, but the goal is really to defer tax ⁓ on capital gains. most of... the most, I would say, not only qualified, but some of the biggest families in real estate have been doing it for generations and decades. And that's really how they've compounded and built their wealth over time.
I C: Yeah, it's hard to ignore when the wealthiest families are using this. So there's obviously something there. Is there a common misconception about 1031s or what do most people get wrong?
Mike Auerbach: Yeah, there's a lot. I'll go into a couple. One, think a lot of people when they hear the word like kind, they immediately think like, oh, I'm selling a single family rental. have to buy another single family rental. And I think that really confuses people like like kind just means investment property. And so as long as you purchase an investment property and it's not your personal residence or you spend more than 14 days out of the year there, you can do a 1031 exchange. The other thing I think that a lot of people get wrong or biggest misconception is that all the net need to be reinvested. In reality, all the net equity and debt retired on relinquished property needs to be reinvested for the replacement property, but a lot of people take money out to pay for medical expenses, college life events, so you can do something called a partial 1031 exchange. I've helped a lot of investors do that over time. Talking to a qualified intermediary is what people should do before they close. That's the last one that I'll say because we used to get a lot of calls from people saying, hey, I closed my property yesterday. I want to do this 1031 thing. And sorry, you can't do that because the funds already hit your bank account. So those are my three biggest misconceptions that I think people should know about.
I C: ⁓ no. hear those a lot too. Definitely the qualified intermediary concept is one that I forget because you should know that when you're selling and want to do a 1031, ⁓ you know that you cannot receive receipt of the funds, but truly is a misconception. People don't realize that that's a necessary step. So ⁓ when you're considering working with a qualified intermediary or QI, what the best questions to ask them?
Mike Auerbach: Yeah, I would just ask them like, just like any service provider, like, what's your process? And how do I make sure my funds are safe and secure? I think there's a lot of people in this industry that have like an attorney or a CPA that has done this in the past and they don't necessarily take the best quality controls to make sure your money is safe and secure. And what I mean by that is, you know, It costs money to open up a segregated trust account, a bank account in the investor's name or the LLC's name where the funds go after closing. And some or attorneys will just have one slush fund account where they just keep all the investors' money in there together. ⁓ And that way, you know, it's not necessarily the best thing for the individual investor to make sure that their money is separated from everyone else. Right. So I would ask them that. And, know, I think thing is just like their experience in real estate, I think is really important. Obviously, working with CPAs and dedicated professionals is super important. But I think today, like. ⁓ It's all about like, will people spend the time on the phone with you to answer your questions and be personal? And I think that really goes a long way. And not always about the cheapest. ⁓ sometimes it's about the people that add the most value. And, you know, you can spend a couple extra hundred dollars to make sure that, you know, you're compliant with the IRS and that's, well money spent in my, you know, in my mind.
I C: sometimes you get what you paid for. if it's cheap, it might be cheap for a reason. So I'm glad you brought that up. Aside from questions to ask your qualified intermediary, there are a ton of different 1031 options out there. There's you can 1031 and find a property yourself. There's passive ways to do it. So what would you say are two key things people should look out for ⁓ they're considering a 1031?
Mike Auerbach: Totally. Yeah, I think it all comes down to the personal investor and what their goals are, right? Like we talk about different vehicles. There's DSTs, Delaware Statutory Trusts, we own a fractional piece of ownership in a large institutional quality asset. You know, I think a lot of people now are, you know, thinking about the idea of more passive ownership, but really, like it comes down to control and decision making. And I think for an investor, even though things may seem one way, they have to consider like, hey, what are my main goals in the next five years? Do I need this money? Am I in a partnership? Do I want to go my own way? There's a ton of different scenarios. so I think as an investor, like, The best way to always do it is to set it up either in an LLC or a tenant in common if you have partners, so you have that optionality in upfront and in the future. Otherwise you have to jump through some hoops which can be done, but just wanna make sure that you maintain that flexibility for the future. And a lot of times people don't necessarily think when they buy things that partnerships will end or marriages will end. And we all know that sometimes like nothing is forever and... ⁓ My advice would be to just think whenever you buy a piece of property like worst case scenario because it ⁓ happen.
I C: I think it was Keller Williams that said you need a disagreement what happens when you disagree on things because it's easy if everything's going according to plan and it's all rainbows and butterflies. Talking about thinking about the future how should investors align a 1031 exchange with their long-term goals? Whether that's diversifying, retirement planning, even shifting markets, any advice there?
Mike Auerbach: Totally. Totally. ⁓ Yeah, I think Charlie Munger said it best, like compounding is the eighth wonder of the world. And so a lot of people when they get a windfall or they're selling a property with a huge capital gain, like, great, I'm to get $5 million. Well, know, after you pay the tax, like, what are you going to do with that money? ⁓ well, I'm going to reinvest it somewhere. Right. So ⁓ I you know, the greatest thing about 1031 exchanges is like, you can do something called swap to you drop ⁓ and having exposure to real estate with all the benefits you and your family up in your of succession ⁓ really So ⁓ the families, the greatest dynasties that I mentioned earlier, they've really done...
I C: Mm-hmm.
Mike Auerbach: the 1031 and the tax estate planning tool. So they will keep buying and buying and buying and swapping and swapping and swapping, not paying a diamond tax. Then when their time on earth is up, their heirs will get a step up in basis and the lifetime of appreciation that they made happen. And when their heirs go to sell the next day, they won't have to pay a dime in capital gains. So that to me is something really important when it comes to alternatives, I think. Real estate in general has performed really well, considerably well, and it's safe. think where we get in trouble is ⁓ want real estate values and deals to go up as fast as possible. But traditionally, it's been ⁓ long, slow, ⁓ safe asset class, and I think we need to get back to that today. ⁓ because the last five years with COVID and everything, like people have gotten into this industry for the wrong reasons. And I really believe, and I think a lot of experts agree now that ⁓ owning assets are gonna be ⁓ really to build wealth in the future. investment real is no different.
I C: Morgan Housel, who's has the famous book, Psychology of Money, just came out with a new book ⁓ he was on a podcast recently talking about it. And he mentions what you just said about it doesn't have to be a sexy investment. Sometimes slow and steady will win the race. So even though 1031s not feel like a really exciting VC fund or I'm investing in a franchise that Shaquille O'Neal is sponsoring, sometimes it's okay to be boring. ⁓ Boring investments can be good.
Mike Auerbach: Totally, totally. Yeah. And look, I think like, let's not overcomplicate things. Like I have friends who've gone into a number of crypto assets and, you know, trying to get outside returns. And, you know, most of those things, I would say most, right? Most of them pan out to zero, whether it's meme coins or other things. And I think real estate is tangible. It's something where people, tenants or people, including multifamily are going to need a place to live. And that
I C: Yeah, exactly.
Mike Auerbach: gives more comfort than something that was just, you know, the Mike coin, you know, that I created and it trades and then all of sudden it crashes and you you can't really even, you know, see it, feel it, touch it, you know, any of that stuff. So I agree with you. I think we just need to keep it simple in the future. The problem is we're just overloaded with a lot of different information and everyone, you know, wants the quickest way today.
I C: Yeah. And like you said earlier, that hurts your compounding and compounding is no doubt a very powerful tool. So that's what I like about 1031s the most is again, like we were alluding to earlier, the wealthiest families are strategizing around taxes because if you pay taxes, that's money that you'll never see again, where if you keep taxes in your pocket, you can continue to invest that and allow it to compound on itself, which like you said, Charlie Munger has said it's the eighth wonder of the world. The number one rule of compounding is never to interrupt it. So people hopefully should seriously consider tax programs like 1031s.
Mike Auerbach: Yeah, and I think like if you're thinking about from a real estate perspective, like everyone, like to be effective, you should buy with leverage, meaning debt, right? So more ⁓ you have, ⁓ larger properties, the more diverse properties that you can buy that generate more cashflow, more depreciation, all these things that can help generate more income. And, know, just with less, with less equity, ⁓ after-tax dollars, like you're going to be able to afford less basically, right? Assuming all things equal. So I think when it comes to the 1031, it is shocking to me, Bella, shocking to me, this is not the default option in investment real estate. And I think the reason why is because people are lazy, lazy in the fact that they don't want to plan. think planning is really hard for a lot of people. the people complaining about the timeline, it's like, well,
I C: Yeah. Yeah.
Mike Auerbach: when you're talking to your broker and you decide you want to sell your property, know, start looking for, you know, replacement property. The clock hasn't even started yet. Like instead of 45 days, maybe you have six ⁓ right? ⁓ I ⁓ we need to do a better job as an industry of making this simpler for our partners, brokers, advisors, CPAs, but for the investor, it's like, no one likes paying taxes, but like,
I C: Right.
Mike Auerbach: they don't take the 90 minutes to just determine if I should do this thing or not. And it's literally just a 10 minute phone call with a qualified intermediary or a tax professional or you or me or someone just to say, like, you know, that $400,000 capital gains tax, like that could be, that could turn into 2 million over the course of however many years if you don't, you know. if you don't pay the tax right now, right? So, know, I hate the word educating, because I think everyone says educating, ⁓ we just got to educate. It's like, we got to educate in a way where people like listen, and I don't think it's really been done effectively ⁓ ⁓ a ⁓ scalable level, because ⁓ like people would be like, man, why should I pay the tax, right? And I think part of it is this. ⁓
I C: Yeah.
Mike Auerbach: Timeline thing part of it is just maybe you know inventory for sale like not and not agreeing with the return threshold but I mean You know if you're gonna buy a property Bella and you are gonna value add the property Which means rehab and renovation and then the property appreciates it takes five or ten years like you're gonna give away 30 to 40 percent of your profits like overnight without even thinking about it like that to me is like
I C: You
Mike Auerbach: You're doing all the work and not really recognizing any of the gains. So it's just interesting to think about it that way.
I C: it's just ⁓ ⁓ people don't know that ⁓ exist. And then B, to your point, the gross education word, just people don't know how to be guided through the process either. So sometimes it's just a little bit of ignorance and just have to keep getting the word out there and helping people understand the process a little bit more. But like you said, it can be overwhelming and cumbersome, especially when you're on this 45 day deadline that you have to identify three properties in.
Mike Auerbach: It's just bizarre. mean, it's been around for a hundred years. Like the last time I checked, every person I know doesn't like want to pay tax any more tax than they already have to. And so if going to stay in real estate, think the 1031 is great for people staying in real estate. If you want that exposure to report your portfolio, but if you're not, you know, you can pay the tax and ⁓ go somewhere But if your plan is to always stay invested in real estate, the 1031 should always be. ⁓
I C: Mm-hmm. Yeah. Mm-hmm.
Mike Auerbach: the tool, the mechanism to always be able for you to get to your goals quicker and compound faster.
I C: And maybe if you don't want to be in the day-to-day management anymore, that's okay because there are passive ways of doing that. I know that fees and additional costs can be cumbersome if you go the passive way. So what should investors expect when facilitating a 1031 exchange in terms of cost?
Mike Auerbach: Yeah, definitely. So I think when you're when you're doing a standard 1031 exchange, you're working with a qualified intermediary, like maybe it's $1,200, right? Like it's super. It's it's very, very small potatoes compared to when you sell your property and it's 5%, 6%. I'll say that obviously other transaction costs that aren't related title fees, the standard fees with the transaction are involved. Now, what you can do when you do a 1031 exchange is
I C: Mm-hmm.
Mike Auerbach: you want to get to something called your net selling price. So let's say you have a property that's on the market for a million dollars, you've got an agent or a broker, they charge 5%. You're allowed to have something called an allowable expense where you get to I want to say write off is that's not the right term, but you know that the net selling price of what you have to defer, it all gets calculated from there. So instead of like buying something that's greater than equal to a million dollars, it's a million dollars minus all title fees, transaction costs, broker costs, all that stuff. And so, you know, you can, you know, it'll reduce the amount of equity that you have to or the amount of. replacement property that you have to go out and buy. So, you know, it's really a great tool to help investors. And I think they just don't know about it because on a national licensing level, it hasn't been taught yet. I was, I was working on a pretty big initiative and I think it's going to happen to get that done. But really, you know, once these people know and do the math, right? Like I think that the answer is pretty clear if they want to stay invested in real estate.
I C: What about depreciation recapture? That's a common question that comes up with 1031s. Do, people have depreciated their property for many years, that get netted out of the selling price as well on top of the title fees and broker fees?
Mike Auerbach: Yeah, so there's four layers of tax when someone does a 1031 exchange and they get to defer. And this is like the simplest way that I explained it. And so there's federal, know, federal, you know, cap gains tax 15 to 20%, depending on what tax bracket you're in. There's state income tax, California, 13.3 states like Texas, Florida, Tennessee, or zero. Then you've got depreciation recapture. could depreciate 25 % of what you depreciated. You can defer that. And then something called net investment income tax, which is like 3.8%, depending on your investment level status. And so all of those can be deferred when you do a 1031. And some people, depending on their level of depreciation, will depreciate a property almost to nothing, buy a bigger property, restart the depreciation schedule, and do it all over. And so, you know, these are great tools like cost seg, depreciation, 1031s that for investors, like some people I know do this, you know, in tandem and like they're paying literally no tax, you know, annually, right? So their exposure by the time when they sell is nothing. And so I would always talk to a tax professional, a CPA, you know, a cost seg, you know, there are cost segregation experts out there and those people can point you in the right direction. But in tandem, these things should expedite anyone's personal journey to get to where they want on a monthly income or an asset aggregation standpoint. it's just, again, it's been pretty eye-opening that people just, they know about it, but they're scared because maybe it's the numbers, 1031 and all these other numbers, or abbreviations that they don't really understand. trying to change that as being part of the 1031 industry for sure.
I C: I like how you broke out those four levels. I think that's a little bit easier to follow for people that are newer to 1031. Another common question I hear about is basis. So how does your basis change when you're 1031-ing into the next deal? And then how does it change if you 1031 again, or if you are utilizing a DST to 721 up read or something like that?
Mike Auerbach: Yeah, like I think like, like, I think like the simplest way of like basis in general is like, people are like, well, yeah, I bought a property for $800,000. I'm selling for a million dollars, like, you know, 200,000 gain, like, what, what, do I need to, you know, what do I need to essentially like, buy a replacement property for. And so like you have to, this is like the easiest way to explain it. It's like you have to buy a replacement property that's greater than or equal to whatever your net selling price is in order to not pay any taxes. And so I think the other thing to consider is like, people think it's just the equity, it's equity and debt proceeds, And so like proceeds are made up of debt and equity. And so if you don't replace the debt or the equity, you may have to pay taxes on whatever you don't replace. For instance, if you're selling a property for a million dollars and you bought it for 800, but 400 it was equity and 400 was debt. you have to buy something for at least a million. And then you'd have to, if you didn't want to replace the debt, you can also bring additional cash to offset that debt. Right? So, you know, when it comes to basis, like people are like, well, my basis is this. It's like, well, you have to go off of whatever the, ⁓ the properties kind of sells for in order to negate whatever that gain is. But I always leave basis questions to CPAs like always, just because they have different. know, CPAs are kind of the source of truth, even though in the past they're like, well, you're the qualified intermediary, like you help us. it's like, well, I think from my perspective, like, you know.
I C: Yeah.
Mike Auerbach: A lot of investors will have portfolios, a lot of properties in their portfolio. So whatever is going on at different properties at the property level, maybe it's a loss, like maybe they can offset some of the gain, right? So my recommendation when talking about basis or anything else is always reach out to a real estate qualified CPA. They will go through your scenario specific because everything is a little bit nuanced when it comes to ⁓ basis and ⁓
I C: Mm-hmm.
Mike Auerbach: To even give viewers out there advice about basis, it's just, you start asking questions and learning more, it's little bit more nuanced than what people think.
I C: Yes, these situations can be very nuanced. there any areas? What is the most complex 1031 situation you've come across?
Mike Auerbach: Yeah, that's a great question. would say in general, it's not complex, but it's happened a lot more recently, is like the reverse 1031. And so a lot of people, for instance, trying to, they find property because they find property, replacement property, and they can't sell, maybe their property isn't on the market or... They haven't sold their property that's for sale. And so, you know, I think over the last year, I've dealt with probably 50 reverse exchanges or inquiries. And basically here's how it works is, know, a traditional 1031, you put your property on the market, ⁓ you sell the property, you buy a new property, ⁓ identify that new property within 45 days ⁓ you have to close on it with 180 days. Well, ⁓ of your friends just brings you a really great deal and you're like, Well, great. I want to buy it now, but my property isn't on the market yet. So like, what do you do? Well, number one, you have to be really well capitalized to be able to go out and buy the property without the debt and the equity that you need for the property that you're selling, which already eliminates probably 85 % of the people out there because they need that to buy the replacement property. ⁓ you buy your replacement property, you've got 45 days to identify up to three properties in your portfolio. And then have to sell it within 180 days to satisfy the exchange. And so, ⁓ know, that's something that was ⁓ the most complex. ⁓ know, the most complex stuff I would say, Bella, is like people that want to do an improvement exchange where, you know, they buy, they buy a property, they want to do a value add with the exchange equity from the property that they're selling. And, know, that's a little bit more nuanced. And so, ⁓ you like, To do that, from an improvement exchange standpoint, have to have the scope of work and the planning submitted. and itemized by day 45 in the qualified intermediaries, you know, basically sets up, it's called an exchange accommodation title holder. It's an LLC, it's a trust where we basically use the funds to draw down and pay the contractors. And, you know, it's very labor intensive for the qualified intermediary. from an operator perspective, you have to be extremely organized and you have to have contractors that ⁓ are able to do the work within 180 days and complete it. And so that's the most complex stuff. But mainly I would say, you know, the majority of 1031s are just standard, straight forward exchanges, sell a property, buy a new one, because most people need the, you know, the equity to, you know, roll into a new property.
I C: Mm-hmm. Right, I feel like another complexity is when you're in a partnership, a lot of people don't realize that unless everyone in the partnership is 1031-ing, you might have to change the structure of it. So how, guess, how does the holding structure of a property affect the exchange process and what flexibility exists for those type of scenarios?
Mike Auerbach: Yeah, I think that's a really great question. so, you know, I think the easiest thing for partners that they're not even aware about is like, you know, let's say you and I are buying a property. goes in, you know, we're both, you know, on title, but in our own names. And then I could take my portion. You could take your portion and go our own separate way. What happens in a partnership is the IRS views each person in the LLC as unique, you know, their tax ID number. And so, when they track a 1031, each person in the LLC has to buy the replacement property because it's tracked to the LLC, right? Like everyone sets up an LLC, but the reality is, like, well, who's behind the LLC, right? And so, you know, a lot of times people are like, yeah, I've been this partnership, my buddy wants to go his own way. I want to go my own way. And so you can do something called a drop and swap where you have to get... a real estate structuring attorney involved, ideally before you signed contract. Again, this is really up to the attorney ⁓ are the source of truth. ⁓ attorney has a different viewpoint of when you need to season it. Some people say you need to do this ⁓ year ahead. ⁓ in New York now, you can do it like a day ahead, right? And so ⁓ ends up happening is you drop out of the partnership, you ⁓ up a tenant in common where you own whatever ... a beneficial interest in the property on the deed. Let's say it's 50-50, I own 50, you own 50, and then I can take my interest and I can 10-31 my own way and you can do your own way. But I say for right now, we really need to talk to ⁓ a attorney. Some people will have their own viewpoints, but that's typically how you get out of it. But ⁓ the way to do it is to just set up a 10-in-common in the beginning. you're giving yourself flexibility and options in the future for sure.
I C: Restructuring a partnership certainly sounds ominous, but it's nice to hear that this process can actually take a day, ⁓
Mike Auerbach: they just passed legislation, I guess, like in New York where they're like able to do that. Like it's, state by state. And so like some states, like it's really frowned upon, you know, less than a year. And so like, here's what a lot of, cause a lot of people do a lot of different things. Here's what I'll tell you about like the IRS. Like if you were ever to get audited, ⁓ you just to make sure that the facts and circumstances of your case ⁓ support you a transaction. That's not to just. ⁓
I C: Go good.
Mike Auerbach: you know, not pay the tax, right? And so, you you wanna make sure that the intention is there. You wanna make sure that you're, you know, it doesn't look like you're just restructuring just to restructure, which is what it really is, right? And so, you know, you definitely wanna make sure that like you talk to some counsel and if you're thinking about going your separate way, it's best to do that with talking to, you know, 1031 tax structuring attorneys across the country who are, you know, knowledgeable about this stuff.
I C: Mm-hmm Sure, fair enough. Speaking of the IRS, do you think 1031s will be around in the future?
Mike Auerbach: I mean, I would hope so. No, I definitely think there's no, there is no way. 1031 exchanges won't be around and here's why. Besides the fact that people point to politicians and their families owning a lot of real estate, which they do, think, think about the incentive for a lot of people to sell and transact in real estate. If you got rid of the 1031, as we've kind of seen the market be, the markets come back this year, but the last couple of years has been a lull. The amount of transaction volume that would disappear would be terrible for the entire industry. And it would give no incentive for people to trade in and out of properties if every time they're going to get taxed. so, I think the last, you know, the last iteration was the 2017 Tax Cuts and Jobs Act, which said, hey, you can't 1031 personal property, cars, yachts, paintings, you know, all that stuff. And so now it's just strictly investment real estate. But You know, I definitely think that we need to figure out more creative ways for policy to affect investors that are pro deal and pro investment, then put up more safeguards to eliminate ⁓ velocity because the real estate industry, mean, ⁓ got sponsors, brokers, title, attorney, CPAs. Like think about how big of an ecosystem it is and ⁓ with less deals, unfortunately, like less people are able to survive. So I would hope that they don't give, you know, that changes in the 1031. And, you know, I don't foresee that happening in our lifetime at all.
I C: those are good points. And even with qualified opportunity zones, which are probably cousins to ⁓ is what I would label it as, that just received a 2.0 version. So that gives you positive momentum for these types of investment opportunities and tax deferral strategies. ⁓ is certainly a lot to know about 1031s. Hopefully this is a good start, but I think we can now end with a quick fire round of questions. The first one will be, what is your favorite restaurant?
Mike Auerbach: My favorite restaurant that I miss, because I'm from Chicago, is actually kind of like my happy hour spot. I like Gilt Bar. ⁓ Love those kind of chains of restaurants, but that's right next door. I love not only good food, but I love a nice atmosphere too.
I C: You Yes, so. Yes. They have my most favorite carrot cake in the whole wide world. I can eat the whole slice and it's a big one. Yeah. Second question, what is the best piece of media you've consumed recently?
Mike Auerbach: Yeah, it's ridiculous. Yes, I think I actually sent this to you, but we were talking about the acquired podcast and it was, was the, know, think David Rosenblatt was interviewed on like the Genesis and the evolution of the acquired podcast and you know, why they decided to do it the way that they did ⁓ and they effectively market and channel their partners ⁓ and sponsors why they're so selective. so
I C: Hmm... Yes.
Mike Auerbach: You know, like I think a lot of times like in media, like we're trying to all distribute podcasts, content, everything, but we don't really think about like the, you know, the reason why that we're doing it or the way that we can elevate our partners. And so I just thought that was really interesting.
I C: Mm-hmm. Yes, it was such a great episode. And I also like how he said it actually took years for their podcast to build. So it's literally that question of if no one was listening, would you continue doing it? And they proved that for many years before they gained any traction. So definitely recommend that episode for anyone.
Mike Auerbach: Yeah, I think what's cool is like, think, you know, you and I talk about this offline, but like, in order to do anything today, like we always think like, it takes a year, like it really takes 10 years to do anything. Like, ⁓ really commit to things and. ⁓ I think there's an opportunity for people that are patient out there and I've admired watching your podcast and having some of your guests on there and the platform that you've created that, you know, eventually like all of a sudden it's like, Oh, like I just heard about this person was like, no, like I've been, I've been doing this for five years, 10 years. Like it took me a long time to do it. And I think like, that's what I really appreciate about like learning from, you know, folks like that and seeing you out there, you know, just doing your own podcast. So keep, it up for sure.
I C: Yeah. Thank you. Yeah, it's not for the week. Last question. How would you invest $100,000 today if you won the lottery?
Mike Auerbach: Thank It's a really great question. would definitely, I'll be specific in of like, I would keep it in real estate for a lot of reasons. ⁓ I think faster options like crypto and some other fun vehicles are interesting, think real estate in general to me ⁓ is something where assets are gonna continue to appreciate, I think investment income. ⁓ is really important. I think diversification, if you can go into a private fund or via 721 is going to be really something that I think takes off in the future. And so if can leave you with anything like. I think 721s, we don't really touch on it, are the way for the future. think we're going to see a lot of investors in the next 10, 15 years, 5, 15 years, really want to get into that passive vehicle. But really transition into owning kind of like an index fund of real estate that has a portfolio of properties that perform that, kind of maintain that. safe and steady income and give them optionality to kind of, you know, over their future. So, you know, I think that's really the new thing that's going to happen here, like, and it's already happening. So I would go into, you know, I would go into a 721 fund, you know, for a private fund via 721 for sure.
I C: real estate through and through.
Mike Auerbach: Always, you have to represent, always.
I C: Yeah. Well, Mike, thank you so much. Why and how should people reach out to you?
Mike Auerbach: Yeah, I think you should reach out to me if you want to learn more about 1031's DSTs, really 721's. I like to say that I'm a 1031 expert. I helped pioneer 1031's distribution in the industry, and now doing the same thing with 721 exchanges. And I think the most important part is the best investors and the best people I know educate themselves on options. It's not necessarily, you know,
I C: Mm-hmm.
Mike Auerbach: having the right option for them at the same time, but it's at least letting them know like, hey, like I never thought that this existed. Maybe it's good for you. Maybe the timing isn't right, but at least you know, like there's some, there's some flexibility, some options that people have in the future. I'm happy to go through and talk with people about that.
I C: Absolutely. I hope that's what people got from this podcast. I hope they just know that this is an option out there and this episode is a good first step, but there's a lot more digging to do so they can reach out to you or to me to learn more. At least we can funnel them to the right people. So thank you again for your time until next time. Adios.
Mike Auerbach: Yeah, thanks for having me on.
Mike Auerbach: Yeah, thanks for having me, Bella. I think are ⁓ really simple. It's just ⁓ swapping piece of investment property without paying a diamond tax. ⁓ And when you think of doing a 1031 exchange, that's really what it's all about. And I think sometimes people get into the weeds, but the goal is really to defer tax ⁓ on capital gains. most of... the most, I would say, not only qualified, but some of the biggest families in real estate have been doing it for generations and decades. And that's really how they've compounded and built their wealth over time.
I C: Yeah, it's hard to ignore when the wealthiest families are using this. So there's obviously something there. Is there a common misconception about 1031s or what do most people get wrong?
Mike Auerbach: Yeah, there's a lot. I'll go into a couple. One, think a lot of people when they hear the word like kind, they immediately think like, oh, I'm selling a single family rental. have to buy another single family rental. And I think that really confuses people like like kind just means investment property. And so as long as you purchase an investment property and it's not your personal residence or you spend more than 14 days out of the year there, you can do a 1031 exchange. The other thing I think that a lot of people get wrong or biggest misconception is that all the net need to be reinvested. In reality, all the net equity and debt retired on relinquished property needs to be reinvested for the replacement property, but a lot of people take money out to pay for medical expenses, college life events, so you can do something called a partial 1031 exchange. I've helped a lot of investors do that over time. Talking to a qualified intermediary is what people should do before they close. That's the last one that I'll say because we used to get a lot of calls from people saying, hey, I closed my property yesterday. I want to do this 1031 thing. And sorry, you can't do that because the funds already hit your bank account. So those are my three biggest misconceptions that I think people should know about.
I C: ⁓ no. hear those a lot too. Definitely the qualified intermediary concept is one that I forget because you should know that when you're selling and want to do a 1031, ⁓ you know that you cannot receive receipt of the funds, but truly is a misconception. People don't realize that that's a necessary step. So ⁓ when you're considering working with a qualified intermediary or QI, what the best questions to ask them?
Mike Auerbach: Yeah, I would just ask them like, just like any service provider, like, what's your process? And how do I make sure my funds are safe and secure? I think there's a lot of people in this industry that have like an attorney or a CPA that has done this in the past and they don't necessarily take the best quality controls to make sure your money is safe and secure. And what I mean by that is, you know, It costs money to open up a segregated trust account, a bank account in the investor's name or the LLC's name where the funds go after closing. And some or attorneys will just have one slush fund account where they just keep all the investors' money in there together. ⁓ And that way, you know, it's not necessarily the best thing for the individual investor to make sure that their money is separated from everyone else. Right. So I would ask them that. And, know, I think thing is just like their experience in real estate, I think is really important. Obviously, working with CPAs and dedicated professionals is super important. But I think today, like. ⁓ It's all about like, will people spend the time on the phone with you to answer your questions and be personal? And I think that really goes a long way. And not always about the cheapest. ⁓ sometimes it's about the people that add the most value. And, you know, you can spend a couple extra hundred dollars to make sure that, you know, you're compliant with the IRS and that's, well money spent in my, you know, in my mind.
I C: sometimes you get what you paid for. if it's cheap, it might be cheap for a reason. So I'm glad you brought that up. Aside from questions to ask your qualified intermediary, there are a ton of different 1031 options out there. There's you can 1031 and find a property yourself. There's passive ways to do it. So what would you say are two key things people should look out for ⁓ they're considering a 1031?
Mike Auerbach: Totally. Yeah, I think it all comes down to the personal investor and what their goals are, right? Like we talk about different vehicles. There's DSTs, Delaware Statutory Trusts, we own a fractional piece of ownership in a large institutional quality asset. You know, I think a lot of people now are, you know, thinking about the idea of more passive ownership, but really, like it comes down to control and decision making. And I think for an investor, even though things may seem one way, they have to consider like, hey, what are my main goals in the next five years? Do I need this money? Am I in a partnership? Do I want to go my own way? There's a ton of different scenarios. so I think as an investor, like, The best way to always do it is to set it up either in an LLC or a tenant in common if you have partners, so you have that optionality in upfront and in the future. Otherwise you have to jump through some hoops which can be done, but just wanna make sure that you maintain that flexibility for the future. And a lot of times people don't necessarily think when they buy things that partnerships will end or marriages will end. And we all know that sometimes like nothing is forever and... ⁓ My advice would be to just think whenever you buy a piece of property like worst case scenario because it ⁓ happen.
I C: I think it was Keller Williams that said you need a disagreement what happens when you disagree on things because it's easy if everything's going according to plan and it's all rainbows and butterflies. Talking about thinking about the future how should investors align a 1031 exchange with their long-term goals? Whether that's diversifying, retirement planning, even shifting markets, any advice there?
Mike Auerbach: Totally. Totally. ⁓ Yeah, I think Charlie Munger said it best, like compounding is the eighth wonder of the world. And so a lot of people when they get a windfall or they're selling a property with a huge capital gain, like, great, I'm to get $5 million. Well, know, after you pay the tax, like, what are you going to do with that money? ⁓ well, I'm going to reinvest it somewhere. Right. So ⁓ I you know, the greatest thing about 1031 exchanges is like, you can do something called swap to you drop ⁓ and having exposure to real estate with all the benefits you and your family up in your of succession ⁓ really So ⁓ the families, the greatest dynasties that I mentioned earlier, they've really done...
I C: Mm-hmm.
Mike Auerbach: the 1031 and the tax estate planning tool. So they will keep buying and buying and buying and swapping and swapping and swapping, not paying a diamond tax. Then when their time on earth is up, their heirs will get a step up in basis and the lifetime of appreciation that they made happen. And when their heirs go to sell the next day, they won't have to pay a dime in capital gains. So that to me is something really important when it comes to alternatives, I think. Real estate in general has performed really well, considerably well, and it's safe. think where we get in trouble is ⁓ want real estate values and deals to go up as fast as possible. But traditionally, it's been ⁓ long, slow, ⁓ safe asset class, and I think we need to get back to that today. ⁓ because the last five years with COVID and everything, like people have gotten into this industry for the wrong reasons. And I really believe, and I think a lot of experts agree now that ⁓ owning assets are gonna be ⁓ really to build wealth in the future. investment real is no different.
I C: Morgan Housel, who's has the famous book, Psychology of Money, just came out with a new book ⁓ he was on a podcast recently talking about it. And he mentions what you just said about it doesn't have to be a sexy investment. Sometimes slow and steady will win the race. So even though 1031s not feel like a really exciting VC fund or I'm investing in a franchise that Shaquille O'Neal is sponsoring, sometimes it's okay to be boring. ⁓ Boring investments can be good.
Mike Auerbach: Totally, totally. Yeah. And look, I think like, let's not overcomplicate things. Like I have friends who've gone into a number of crypto assets and, you know, trying to get outside returns. And, you know, most of those things, I would say most, right? Most of them pan out to zero, whether it's meme coins or other things. And I think real estate is tangible. It's something where people, tenants or people, including multifamily are going to need a place to live. And that
I C: Yeah, exactly.
Mike Auerbach: gives more comfort than something that was just, you know, the Mike coin, you know, that I created and it trades and then all of sudden it crashes and you you can't really even, you know, see it, feel it, touch it, you know, any of that stuff. So I agree with you. I think we just need to keep it simple in the future. The problem is we're just overloaded with a lot of different information and everyone, you know, wants the quickest way today.
I C: Yeah. And like you said earlier, that hurts your compounding and compounding is no doubt a very powerful tool. So that's what I like about 1031s the most is again, like we were alluding to earlier, the wealthiest families are strategizing around taxes because if you pay taxes, that's money that you'll never see again, where if you keep taxes in your pocket, you can continue to invest that and allow it to compound on itself, which like you said, Charlie Munger has said it's the eighth wonder of the world. The number one rule of compounding is never to interrupt it. So people hopefully should seriously consider tax programs like 1031s.
Mike Auerbach: Yeah, and I think like if you're thinking about from a real estate perspective, like everyone, like to be effective, you should buy with leverage, meaning debt, right? So more ⁓ you have, ⁓ larger properties, the more diverse properties that you can buy that generate more cashflow, more depreciation, all these things that can help generate more income. And, know, just with less, with less equity, ⁓ after-tax dollars, like you're going to be able to afford less basically, right? Assuming all things equal. So I think when it comes to the 1031, it is shocking to me, Bella, shocking to me, this is not the default option in investment real estate. And I think the reason why is because people are lazy, lazy in the fact that they don't want to plan. think planning is really hard for a lot of people. the people complaining about the timeline, it's like, well,
I C: Yeah. Yeah.
Mike Auerbach: when you're talking to your broker and you decide you want to sell your property, know, start looking for, you know, replacement property. The clock hasn't even started yet. Like instead of 45 days, maybe you have six ⁓ right? ⁓ I ⁓ we need to do a better job as an industry of making this simpler for our partners, brokers, advisors, CPAs, but for the investor, it's like, no one likes paying taxes, but like,
I C: Right.
Mike Auerbach: they don't take the 90 minutes to just determine if I should do this thing or not. And it's literally just a 10 minute phone call with a qualified intermediary or a tax professional or you or me or someone just to say, like, you know, that $400,000 capital gains tax, like that could be, that could turn into 2 million over the course of however many years if you don't, you know. if you don't pay the tax right now, right? So, know, I hate the word educating, because I think everyone says educating, ⁓ we just got to educate. It's like, we got to educate in a way where people like listen, and I don't think it's really been done effectively ⁓ ⁓ a ⁓ scalable level, because ⁓ like people would be like, man, why should I pay the tax, right? And I think part of it is this. ⁓
I C: Yeah.
Mike Auerbach: Timeline thing part of it is just maybe you know inventory for sale like not and not agreeing with the return threshold but I mean You know if you're gonna buy a property Bella and you are gonna value add the property Which means rehab and renovation and then the property appreciates it takes five or ten years like you're gonna give away 30 to 40 percent of your profits like overnight without even thinking about it like that to me is like
I C: You
Mike Auerbach: You're doing all the work and not really recognizing any of the gains. So it's just interesting to think about it that way.
I C: it's just ⁓ ⁓ people don't know that ⁓ exist. And then B, to your point, the gross education word, just people don't know how to be guided through the process either. So sometimes it's just a little bit of ignorance and just have to keep getting the word out there and helping people understand the process a little bit more. But like you said, it can be overwhelming and cumbersome, especially when you're on this 45 day deadline that you have to identify three properties in.
Mike Auerbach: It's just bizarre. mean, it's been around for a hundred years. Like the last time I checked, every person I know doesn't like want to pay tax any more tax than they already have to. And so if going to stay in real estate, think the 1031 is great for people staying in real estate. If you want that exposure to report your portfolio, but if you're not, you know, you can pay the tax and ⁓ go somewhere But if your plan is to always stay invested in real estate, the 1031 should always be. ⁓
I C: Mm-hmm. Yeah. Mm-hmm.
Mike Auerbach: the tool, the mechanism to always be able for you to get to your goals quicker and compound faster.
I C: And maybe if you don't want to be in the day-to-day management anymore, that's okay because there are passive ways of doing that. I know that fees and additional costs can be cumbersome if you go the passive way. So what should investors expect when facilitating a 1031 exchange in terms of cost?
Mike Auerbach: Yeah, definitely. So I think when you're when you're doing a standard 1031 exchange, you're working with a qualified intermediary, like maybe it's $1,200, right? Like it's super. It's it's very, very small potatoes compared to when you sell your property and it's 5%, 6%. I'll say that obviously other transaction costs that aren't related title fees, the standard fees with the transaction are involved. Now, what you can do when you do a 1031 exchange is
I C: Mm-hmm.
Mike Auerbach: you want to get to something called your net selling price. So let's say you have a property that's on the market for a million dollars, you've got an agent or a broker, they charge 5%. You're allowed to have something called an allowable expense where you get to I want to say write off is that's not the right term, but you know that the net selling price of what you have to defer, it all gets calculated from there. So instead of like buying something that's greater than equal to a million dollars, it's a million dollars minus all title fees, transaction costs, broker costs, all that stuff. And so, you know, you can, you know, it'll reduce the amount of equity that you have to or the amount of. replacement property that you have to go out and buy. So, you know, it's really a great tool to help investors. And I think they just don't know about it because on a national licensing level, it hasn't been taught yet. I was, I was working on a pretty big initiative and I think it's going to happen to get that done. But really, you know, once these people know and do the math, right? Like I think that the answer is pretty clear if they want to stay invested in real estate.
I C: What about depreciation recapture? That's a common question that comes up with 1031s. Do, people have depreciated their property for many years, that get netted out of the selling price as well on top of the title fees and broker fees?
Mike Auerbach: Yeah, so there's four layers of tax when someone does a 1031 exchange and they get to defer. And this is like the simplest way that I explained it. And so there's federal, know, federal, you know, cap gains tax 15 to 20%, depending on what tax bracket you're in. There's state income tax, California, 13.3 states like Texas, Florida, Tennessee, or zero. Then you've got depreciation recapture. could depreciate 25 % of what you depreciated. You can defer that. And then something called net investment income tax, which is like 3.8%, depending on your investment level status. And so all of those can be deferred when you do a 1031. And some people, depending on their level of depreciation, will depreciate a property almost to nothing, buy a bigger property, restart the depreciation schedule, and do it all over. And so, you know, these are great tools like cost seg, depreciation, 1031s that for investors, like some people I know do this, you know, in tandem and like they're paying literally no tax, you know, annually, right? So their exposure by the time when they sell is nothing. And so I would always talk to a tax professional, a CPA, you know, a cost seg, you know, there are cost segregation experts out there and those people can point you in the right direction. But in tandem, these things should expedite anyone's personal journey to get to where they want on a monthly income or an asset aggregation standpoint. it's just, again, it's been pretty eye-opening that people just, they know about it, but they're scared because maybe it's the numbers, 1031 and all these other numbers, or abbreviations that they don't really understand. trying to change that as being part of the 1031 industry for sure.
I C: I like how you broke out those four levels. I think that's a little bit easier to follow for people that are newer to 1031. Another common question I hear about is basis. So how does your basis change when you're 1031-ing into the next deal? And then how does it change if you 1031 again, or if you are utilizing a DST to 721 up read or something like that?
Mike Auerbach: Yeah, like I think like, like, I think like the simplest way of like basis in general is like, people are like, well, yeah, I bought a property for $800,000. I'm selling for a million dollars, like, you know, 200,000 gain, like, what, what, do I need to, you know, what do I need to essentially like, buy a replacement property for. And so like you have to, this is like the easiest way to explain it. It's like you have to buy a replacement property that's greater than or equal to whatever your net selling price is in order to not pay any taxes. And so I think the other thing to consider is like, people think it's just the equity, it's equity and debt proceeds, And so like proceeds are made up of debt and equity. And so if you don't replace the debt or the equity, you may have to pay taxes on whatever you don't replace. For instance, if you're selling a property for a million dollars and you bought it for 800, but 400 it was equity and 400 was debt. you have to buy something for at least a million. And then you'd have to, if you didn't want to replace the debt, you can also bring additional cash to offset that debt. Right? So, you know, when it comes to basis, like people are like, well, my basis is this. It's like, well, you have to go off of whatever the, ⁓ the properties kind of sells for in order to negate whatever that gain is. But I always leave basis questions to CPAs like always, just because they have different. know, CPAs are kind of the source of truth, even though in the past they're like, well, you're the qualified intermediary, like you help us. it's like, well, I think from my perspective, like, you know.
I C: Yeah.
Mike Auerbach: A lot of investors will have portfolios, a lot of properties in their portfolio. So whatever is going on at different properties at the property level, maybe it's a loss, like maybe they can offset some of the gain, right? So my recommendation when talking about basis or anything else is always reach out to a real estate qualified CPA. They will go through your scenario specific because everything is a little bit nuanced when it comes to ⁓ basis and ⁓
I C: Mm-hmm.
Mike Auerbach: To even give viewers out there advice about basis, it's just, you start asking questions and learning more, it's little bit more nuanced than what people think.
I C: Yes, these situations can be very nuanced. there any areas? What is the most complex 1031 situation you've come across?
Mike Auerbach: Yeah, that's a great question. would say in general, it's not complex, but it's happened a lot more recently, is like the reverse 1031. And so a lot of people, for instance, trying to, they find property because they find property, replacement property, and they can't sell, maybe their property isn't on the market or... They haven't sold their property that's for sale. And so, you know, I think over the last year, I've dealt with probably 50 reverse exchanges or inquiries. And basically here's how it works is, know, a traditional 1031, you put your property on the market, ⁓ you sell the property, you buy a new property, ⁓ identify that new property within 45 days ⁓ you have to close on it with 180 days. Well, ⁓ of your friends just brings you a really great deal and you're like, Well, great. I want to buy it now, but my property isn't on the market yet. So like, what do you do? Well, number one, you have to be really well capitalized to be able to go out and buy the property without the debt and the equity that you need for the property that you're selling, which already eliminates probably 85 % of the people out there because they need that to buy the replacement property. ⁓ you buy your replacement property, you've got 45 days to identify up to three properties in your portfolio. And then have to sell it within 180 days to satisfy the exchange. And so, ⁓ know, that's something that was ⁓ the most complex. ⁓ know, the most complex stuff I would say, Bella, is like people that want to do an improvement exchange where, you know, they buy, they buy a property, they want to do a value add with the exchange equity from the property that they're selling. And, know, that's a little bit more nuanced. And so, ⁓ you like, To do that, from an improvement exchange standpoint, have to have the scope of work and the planning submitted. and itemized by day 45 in the qualified intermediaries, you know, basically sets up, it's called an exchange accommodation title holder. It's an LLC, it's a trust where we basically use the funds to draw down and pay the contractors. And, you know, it's very labor intensive for the qualified intermediary. from an operator perspective, you have to be extremely organized and you have to have contractors that ⁓ are able to do the work within 180 days and complete it. And so that's the most complex stuff. But mainly I would say, you know, the majority of 1031s are just standard, straight forward exchanges, sell a property, buy a new one, because most people need the, you know, the equity to, you know, roll into a new property.
I C: Mm-hmm. Right, I feel like another complexity is when you're in a partnership, a lot of people don't realize that unless everyone in the partnership is 1031-ing, you might have to change the structure of it. So how, guess, how does the holding structure of a property affect the exchange process and what flexibility exists for those type of scenarios?
Mike Auerbach: Yeah, I think that's a really great question. so, you know, I think the easiest thing for partners that they're not even aware about is like, you know, let's say you and I are buying a property. goes in, you know, we're both, you know, on title, but in our own names. And then I could take my portion. You could take your portion and go our own separate way. What happens in a partnership is the IRS views each person in the LLC as unique, you know, their tax ID number. And so, when they track a 1031, each person in the LLC has to buy the replacement property because it's tracked to the LLC, right? Like everyone sets up an LLC, but the reality is, like, well, who's behind the LLC, right? And so, you know, a lot of times people are like, yeah, I've been this partnership, my buddy wants to go his own way. I want to go my own way. And so you can do something called a drop and swap where you have to get... a real estate structuring attorney involved, ideally before you signed contract. Again, this is really up to the attorney ⁓ are the source of truth. ⁓ attorney has a different viewpoint of when you need to season it. Some people say you need to do this ⁓ year ahead. ⁓ in New York now, you can do it like a day ahead, right? And so ⁓ ends up happening is you drop out of the partnership, you ⁓ up a tenant in common where you own whatever ... a beneficial interest in the property on the deed. Let's say it's 50-50, I own 50, you own 50, and then I can take my interest and I can 10-31 my own way and you can do your own way. But I say for right now, we really need to talk to ⁓ a attorney. Some people will have their own viewpoints, but that's typically how you get out of it. But ⁓ the way to do it is to just set up a 10-in-common in the beginning. you're giving yourself flexibility and options in the future for sure.
I C: Restructuring a partnership certainly sounds ominous, but it's nice to hear that this process can actually take a day, ⁓
Mike Auerbach: they just passed legislation, I guess, like in New York where they're like able to do that. Like it's, state by state. And so like some states, like it's really frowned upon, you know, less than a year. And so like, here's what a lot of, cause a lot of people do a lot of different things. Here's what I'll tell you about like the IRS. Like if you were ever to get audited, ⁓ you just to make sure that the facts and circumstances of your case ⁓ support you a transaction. That's not to just. ⁓
I C: Go good.
Mike Auerbach: you know, not pay the tax, right? And so, you you wanna make sure that the intention is there. You wanna make sure that you're, you know, it doesn't look like you're just restructuring just to restructure, which is what it really is, right? And so, you know, you definitely wanna make sure that like you talk to some counsel and if you're thinking about going your separate way, it's best to do that with talking to, you know, 1031 tax structuring attorneys across the country who are, you know, knowledgeable about this stuff.
I C: Mm-hmm Sure, fair enough. Speaking of the IRS, do you think 1031s will be around in the future?
Mike Auerbach: I mean, I would hope so. No, I definitely think there's no, there is no way. 1031 exchanges won't be around and here's why. Besides the fact that people point to politicians and their families owning a lot of real estate, which they do, think, think about the incentive for a lot of people to sell and transact in real estate. If you got rid of the 1031, as we've kind of seen the market be, the markets come back this year, but the last couple of years has been a lull. The amount of transaction volume that would disappear would be terrible for the entire industry. And it would give no incentive for people to trade in and out of properties if every time they're going to get taxed. so, I think the last, you know, the last iteration was the 2017 Tax Cuts and Jobs Act, which said, hey, you can't 1031 personal property, cars, yachts, paintings, you know, all that stuff. And so now it's just strictly investment real estate. But You know, I definitely think that we need to figure out more creative ways for policy to affect investors that are pro deal and pro investment, then put up more safeguards to eliminate ⁓ velocity because the real estate industry, mean, ⁓ got sponsors, brokers, title, attorney, CPAs. Like think about how big of an ecosystem it is and ⁓ with less deals, unfortunately, like less people are able to survive. So I would hope that they don't give, you know, that changes in the 1031. And, you know, I don't foresee that happening in our lifetime at all.
I C: those are good points. And even with qualified opportunity zones, which are probably cousins to ⁓ is what I would label it as, that just received a 2.0 version. So that gives you positive momentum for these types of investment opportunities and tax deferral strategies. ⁓ is certainly a lot to know about 1031s. Hopefully this is a good start, but I think we can now end with a quick fire round of questions. The first one will be, what is your favorite restaurant?
Mike Auerbach: My favorite restaurant that I miss, because I'm from Chicago, is actually kind of like my happy hour spot. I like Gilt Bar. ⁓ Love those kind of chains of restaurants, but that's right next door. I love not only good food, but I love a nice atmosphere too.
I C: You Yes, so. Yes. They have my most favorite carrot cake in the whole wide world. I can eat the whole slice and it's a big one. Yeah. Second question, what is the best piece of media you've consumed recently?
Mike Auerbach: Yeah, it's ridiculous. Yes, I think I actually sent this to you, but we were talking about the acquired podcast and it was, was the, know, think David Rosenblatt was interviewed on like the Genesis and the evolution of the acquired podcast and you know, why they decided to do it the way that they did ⁓ and they effectively market and channel their partners ⁓ and sponsors why they're so selective. so
I C: Hmm... Yes.
Mike Auerbach: You know, like I think a lot of times like in media, like we're trying to all distribute podcasts, content, everything, but we don't really think about like the, you know, the reason why that we're doing it or the way that we can elevate our partners. And so I just thought that was really interesting.
I C: Mm-hmm. Yes, it was such a great episode. And I also like how he said it actually took years for their podcast to build. So it's literally that question of if no one was listening, would you continue doing it? And they proved that for many years before they gained any traction. So definitely recommend that episode for anyone.
Mike Auerbach: Yeah, I think what's cool is like, think, you know, you and I talk about this offline, but like, in order to do anything today, like we always think like, it takes a year, like it really takes 10 years to do anything. Like, ⁓ really commit to things and. ⁓ I think there's an opportunity for people that are patient out there and I've admired watching your podcast and having some of your guests on there and the platform that you've created that, you know, eventually like all of a sudden it's like, Oh, like I just heard about this person was like, no, like I've been, I've been doing this for five years, 10 years. Like it took me a long time to do it. And I think like, that's what I really appreciate about like learning from, you know, folks like that and seeing you out there, you know, just doing your own podcast. So keep, it up for sure.
I C: Yeah. Thank you. Yeah, it's not for the week. Last question. How would you invest $100,000 today if you won the lottery?
Mike Auerbach: Thank It's a really great question. would definitely, I'll be specific in of like, I would keep it in real estate for a lot of reasons. ⁓ I think faster options like crypto and some other fun vehicles are interesting, think real estate in general to me ⁓ is something where assets are gonna continue to appreciate, I think investment income. ⁓ is really important. I think diversification, if you can go into a private fund or via 721 is going to be really something that I think takes off in the future. And so if can leave you with anything like. I think 721s, we don't really touch on it, are the way for the future. think we're going to see a lot of investors in the next 10, 15 years, 5, 15 years, really want to get into that passive vehicle. But really transition into owning kind of like an index fund of real estate that has a portfolio of properties that perform that, kind of maintain that. safe and steady income and give them optionality to kind of, you know, over their future. So, you know, I think that's really the new thing that's going to happen here, like, and it's already happening. So I would go into, you know, I would go into a 721 fund, you know, for a private fund via 721 for sure.
I C: real estate through and through.
Mike Auerbach: Always, you have to represent, always.
I C: Yeah. Well, Mike, thank you so much. Why and how should people reach out to you?
Mike Auerbach: Yeah, I think you should reach out to me if you want to learn more about 1031's DSTs, really 721's. I like to say that I'm a 1031 expert. I helped pioneer 1031's distribution in the industry, and now doing the same thing with 721 exchanges. And I think the most important part is the best investors and the best people I know educate themselves on options. It's not necessarily, you know,
I C: Mm-hmm.
Mike Auerbach: having the right option for them at the same time, but it's at least letting them know like, hey, like I never thought that this existed. Maybe it's good for you. Maybe the timing isn't right, but at least you know, like there's some, there's some flexibility, some options that people have in the future. I'm happy to go through and talk with people about that.
I C: Absolutely. I hope that's what people got from this podcast. I hope they just know that this is an option out there and this episode is a good first step, but there's a lot more digging to do so they can reach out to you or to me to learn more. At least we can funnel them to the right people. So thank you again for your time until next time. Adios.
Mike Auerbach: Yeah, thanks for having me on.
