The Planning Impact of the 1031 Exchange: Case Studies

Wallace Smith:
Well, one of the areas that we spend a lot of time in is helping people who’ve put together portfolios or properties. And a portfolio may be one extra home, or two or 30 or 40. And they’ve been real estate owners. They’ve had to deal with the tenants and taxes and trash and toilets and all of that over the years. And they’re tired of it. A lot of them are baby boomers. They want to cash out and they want to sell without it being a big problem. They also don’t want to get killed by taxes.

And that’s really where the planning impact of that 1031 exchange, that’s really where that comes in, because we can show them how, most of the time, they’ve got some really good solutions for that, that they can cash in. They bring the cash register, get into passive ownership and get a very good monthly mailbox income, if that’s what they want. But it really needs to include the planning. Needs to include, what do they want to do with their money? What do they want to do with the multi-generationally? So there’s so much that goes into the planning.

And I see what you are doing with the focus that you have on listings. It’s almost like the listing strategy is every bit as important as how hard you work to get the house prepped or staged. Can you talk a little bit about the listings?

MJ:
Oh sure. And I want to talk a little bit about the 1031 exchange because there was that client that had four homes to sell. She wanted mailbox income. And you were able to take hers and do a 1031 exchange into the DST. So those four homes, I worked with her for several months. Went to the homes, had to get approval from the tenants to take a few pictures so I could go home and evaluate, what do we need to do to get that show ready?

And she’s like, “Well, can we just sell it with the tenants there?” Another agent said we could, and we could get it sold right away in this market. I said, “Yes, you could sell it. But if you want to maximize your return, then we go in and we make sure it’s all cleaned out.” I hired cleaners, helped her get painters, got everything done. And I did light staging in a couple of the homes, which made a big difference. And originally we were thinking, sell around this price, but then we pushed it just a little bit. But then the buyers pushed it even more. So she was able to really capitalize on that. And every single home, all four homes, sold for more than what she-

Wallace Smith:
Significantly more.

MJ:
Significantly more.

Wallace Smith:
Yeah. I remember that case. She was pretty pleased with that. I know that in that case you’ve gone well above and beyond just being a realtor. It’s almost like you’ve been a general contractor with a Rolodex of people that can come in, get something done efficiently. That’s pretty unusual, I think. I think that is one area that’s a point of difference between you and a lot of your competition.

I know another client that we both know of who was so frustrated, had been in a home for, oh gosh, 20 years. And it was lot of deferred maintenance on that property. There were even talks of whether it should just be scraped, because it was in a pretty ideal location. You came in, and I don’t want to throw figures around. But you were actually able to sell that for probably 40% more than they thought it was worth, by making some investments. But you acted as the go-to, the organizer, the general, if you will. Not legally as a general contractor, but you helped help coordinate things.

MJ:
Yes. And so we went through and said, “I think if we put this much money into it, your return, it’s more than four fold. I mean, it’s way more than that.”

Wallace Smith:
For the dollars that you spent of her money, she got about a four fold return?

MJ:
Right. And she trusted me. Yeah. And I actually never met her until closing. And we did it all virtually. I would send her ideas. And she trusted my judgment. And we turned that house in. I mean, this was a total gut job in the kitchen. All the kitchen cabinets came out. Walls. It was a major thing. But it was a good, creative opportunity for me. Yeah. And since I’ve been in-

Wallace Smith:
Oh, you enjoy it?

MJ:
I enjoy it. And it was in December, January, which was a little bit slower. So I had the ability to do that. She made more money. I made more money. It was a win-win. So for listings, I do have a good group of people that I’ve worked with for years, having been in the area for almost 40 years. Those are contractors-

Wallace Smith:
There’s really a strategy to that.

MJ:
Yes.

Wallace Smith:
And it’s knowing what money, if I put money in. I hear so often people say, well, to get the property, I know there was another one out in the mountains and the owner felt like, well, before we sell it, I’ve got to do this, this, this, this, this. And you looked at it and I don’t know, two thirds of the things he suggested really weren’t going to benefit him.

MJ:
No, no. In fact, if we had got it on sooner, it would’ve sold faster. But we still, ultimately got it sold. But you have to weigh the time and the amount of money and the return, your return, your ROI, your return on investment, and really getting a home ready for sale. People say, “Anything will sell right now.” Well, yes. But if you want to maximize your equity, you want to go in. I do staging of my properties. I don’t charge my clients for that. I have used a professional stager in the past, and it is expensive. So I have gathered my things. I have a place to store them. And sometimes we just do little vignettes, little areas just to accentuate the positive features of the home. Sometimes we just put little decorations in just to warm it up a little bit.

Wallace Smith:
That’s kind of the Goldilocks approach. You don’t want it so crammed with garbage and junk. And so many people have way too much stuff. Just empty it out. But you also don’t want it to be a skeleton either.