GI173: How Does a 1031 Exchange Work with Alex Olson

GI173: How Does a 1031 Exchange Work with Alex Olson

Alex Olson is a multifamily buyer’s agent in Kansas and Missouri and he focuses on helping 1031 Exchange clients; identify cash flowing deals, avoid capital gains; while ensuring that their 1031 exchange money is secure.

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Announcer:
Welcome to the Global Investors Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market. Host, Charles Carillo, combined decades of real estate investing experience with a professional background in international banking to interview experts in all areas of US real estate investing. Now here’s your host, Charles Carillo.

Charles:
Do you have money sitting in the stock market? And you’re worried about it or worse. You have money sitting at the bank, not keeping up with inflation. My name is Charles Carillo, founder and managing partner of Harborside Partners. And since 2006, I’ve been investing my money and my family’s money into income producing properties. These are real assets, real properties with real addresses that produce real cash flow. At Harborside Partners, we provide passive investors who love real estate with a turnkey investing solution. If you want to put your money to work in real estate, but can’t find deals, don’t have the time to get funding in. The last thing that productive people want to do is manage real estate. We find the deals. We fund the deals and we manage the tenants, the termites and the properties. Partner with us at investwithharborside.com. That’s investwithharborside.com. Go to investwithharborside.com. If you love real estate, you like the idea of passive income and believe that income producing properties will appreciate over time. Go to investwithharborside.com. That’s investwithharborside.com.

Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host Charles Carillo. Today we have Alex Olson. He is a multifamily buyer’s agent in Kansas and Missouri and he focuses on helping 1031 Exchange clients; identify cash flowing deals, avoid capital gains; while ensuring that their 1031 exchange money is secure. So thank you so much for being on the show, Alex.

Alex:
Oh man, I’m glad to be here. This is gonna be fun.

Charles:
Yeah, definitely. So give us a little background yourself both personally and professionally prior to being involved with what you are now in commercial real estate.

Alex:
Yeah, so prior to being an actual real estate agent I spent 15 years in the consumer finance space, so short-term loans. So that’s where I learned a lot about lending and the power of leverage, and not necessarily on who the customers were, but as just business in general in operating that business. And then I became a real estate investor. Actually, after building our dream home, my wife and I built our dream home and fell in love with just the financing aspect of it. The value, the, the value of the home had in increased by 20, 30% just while we were building it because we’ve done a pretty good job of selecting the right vendors and, and selecting the right builder and all that kind of thing. And then we had a bunch of money and so we, you know, equity and so we put that into real estate investments.

Alex:
And after a while after that, I really, even for 15 years was always looking for a new day job. Had some entrepreneur stuff I was doing and, you know, throughout the years. And then it was like took a big leap into getting my real estate license after a mentor of mine had convinced me that I don’t have to do residential real estate sales, I can do commercial sales, which is what I had bought in the past. So got my license, actually met Logan Freeman, which I know has been on this show. And he really helped me get into the buyer side of commercial real estate. But that’s what I did before I became an agent, was I was an investor real estate investor and in the consumer finance base, you know, had employees and W2 work.

Charles:
Nice. So you have a niche that’s a little different. I mean, you focus lying with buyers who are interested in purchasing commercial real estate, which is not the norm. I I feel like most brokers out there are really focusing on lying with sellers to get listings mm-hmm. <Affirmative>. So why would you go this route with, I’ve seen people do this within residential. It’s it’s not common. It’s not normal, the biggest thing about it. But I, I see a lot of realtors that will do this during for buyers in residential, but why would you do it with commercial?

Alex:
That’s a great question. And I think a lot of that comes down to the reality of a 10 31 exchange and the client deadline that the people are on. And we can talk about that later, but the, the aspect of working with a buyer is more how my brain is wired. I’m looking at how deals are good investments or bad investments versus how a seller perceives their investments that they currently have. Now, admittedly, I think that we are leaving money on the table. You could probably make more money representing sellers, but there’s a lot of coddling and really kind of time spent with the seller. And so when we work with buyers, we can actually produce and trade a lot more deals because buyers are, you know, they don’t take a ton of time before going under. I mean, they take a ton time before going on a contract, but once going under contract, we have all of our vendors lined up for ’em.

Alex:
We can really help them accelerate their buying opportunities. And to be frank, we don’t have to listen to really what sellers want or worry about. Hey, we need reports on this, you know, why isn’t this selling? You know, And, and that’s not something that I, my brain’s really wired to work with and rather work with a buyer that’s building long term wealth. And we can do a ton of those transactions in a year, whereas a seller, you might be able to do four or five, maybe six transactions that are called 5 million each. But, but again, you’re really tied to that seller and we want to be focused on the, on the buyer side.

Charles:
Yeah, it’s interesting because when selling especially with the commercial properties, there’s so much going back and forth prior to getting a contract, where do we adjust the price? How do we get more people in there? Why isn’t it, you know, why aren’t we getting traction on what you, you know, what we thought before with this marketing channel and all this kind of stuff. And then when it goes under channel it goes under contract, It’s kind of, you know, it it’s, it goes to a whole new thing. It’s a whole new step in the process, but there’s so much to get to that. So I understand exactly what you’re saying because with us selling properties right now, we’re, we’re constantly going through that. And having those conversations before stuff gets in our contract. So it’s very interesting. So a little, we’ve had somebody on the show prior, several months back on about 10 31 deals. Can you explain briefly what a 10 31 exchange is? The, you know, 30,000 foot view? Yeah,

Alex:
Absolutely. So 10 31 exchange is a federal IRS guideline. So that means it’s state agnostic. So you can 10 31 exchange in and out of any state. But what you’re doing with that is you are selling an real estate investment can be any type of investment, and then deferring all your taxes to a later time by purchasing another investment that’s at equal or greater value than what you sold your, your prior investment. We call that the down leg. So your up leg, your next property has to be equal or greater value. That’s the easiest and best way to explain it. There’s all of course, little tricks and this is, and that so you can get into and deal with. But from there then you have 40, from the moment you sell your down lake property of 45 days to identify up to three properties to exchange into, you can close on one or all three of those properties or one, two, or three of those properties. You know, and you have to close on those within six months of selling your down league. So those are really hard and fast rules. Again, you can trade in and out of any states. You come from California to Missouri to Nebraska, and in and out of any asset class you can come out of farmland and into apartments or apartments into commercial. None of that really matters to the IRS as long as you follow going out of a real estate investment and back into a real estate investment,

Charles:
Which keeps as a like kind investment as they kind of call it. Right,

Alex:
Exactly. Like kind. Yeah.

Charles:
Nice. So this is, you brought up the timeframes, and this is something that has kind of pushed me off from doing 10 30 ones previously is when you’re working with a buyer, I mean, how do you structure it? Cause you’ve done dozens of these successfully. So how do you structure it if, I mean, imagine that earlier they come to you that they’re selling and another state or with you maybe, or with another broker. How do you structure the timeframe so you can identify properties and purchase online with the 10 31 rules? I mean, how does that, like, do you have some sort of, we’ve gotta look at this many properties, this is kind of where we have to start putting in offers. Does it tie the buyer’s hands with the, I’m not gonna say you’re gonna get a good deal where we are today, but with the deal that they’re getting?

Alex:
Yeah, so the best you touched on the very beginning of that conversation was the sooner you come to somebody like us, the better because we actually do sell a lot of properties for people that are gonna 10 31 exchange into something else. We help them sell, but we also help them negotiate in the contract side to say, Hey, look, you know, me as Mr Mr and Mrs. Seller, I have right to extend the closing date of this contract by 30 days or 15 or 45 days, which therefore allows them an additional, you know, month, month and a half to go out and find this replacement property. So that’s a great strategy there. And then, even if you’re under a deadline, let’s say you closed yesterday, so you have, let’s call it forty four, forty five days. We have a really good process of of funneling off market deals to the the buyer, and that’s through a weekly deal flow email.

Alex:
We also have an off market marketplace where the only way you can get access to those is through our website. And the reason why that’s important is because there’s not a ton of competition there. I’d love to say, Hey, look, I’ve got a million members on this website. You know, but it’s really just our vetted and experience buyers who have access to this website and, and our off market deals. And then we also go through a lot of other pieces to it, right? We find you a local lender that we know could close out a deal. Cause that’s extremely important in today’s marketplace. We also have insurance, local insurance agents that are able to get, you know market, you know, commercial market pricing, which is gonna be a heck of a lot better than farmers or, you know, whatever you use for your normal residential stuff travelers. And then we also have, you know, attorneys and property managers and all these different tools that we hopefully make the buyer feel comfortable that, hey, look, you’ve got a team here that you can trust, get into this real estate project, and hopefully it’s gonna be casually better than what you had before. We can help you with different leverage options, all those kind of pieces to it and really make them feel comfortable during that 45 day window.

Charles:
That’s great. It’s such a great niche because I don’t hear, I hear very few if any commercial brokers that really specialize in this. They say, Oh, we can, you know, you’re selling something, they want a 10 31 of you into something else. And, but it, it’s, you know, you wanna go something better, you might wanna go to a different market. So it’s, it’s great what you have going on. So one of the things is when a buyer comes to you, and this is something I always like asking brokers how do commercial buyers become credible in your eyes? Now obviously you’re not spending that much time with him prior to going under contract in the sense of on every specific deal, but I imagine prior to you even showing them deals and moving forward and, you know, getting an LOI from and all that stuff, there’s a lot of vetting, I guess you would say, or prepping, let’s say, maybe better that you’re doing with buyers. So how do you, I mean, how are you become incredible? How do the, how does a buyer become credible with you?

Alex:
Yeah, so that starts with how they respond to our process. And, you know, buyer comes to us, says, Hey, look, I I’m on a 10 31 exchange deadline. So we set up a call, then we provide them with some stuff that’s available, properties off market, even if they’re gonna be horrible matches for them. The point is we want to want to kind of show them what we have available. We then provide them, you know, introductions to, like I said before, lender and property manager, whatever tools they need, whatever team members they need to get a a grasp for. Are they actually reaching out to the property manager? Are they reaching out to the lender? And then from there it’s feedback from the buyer. That’s the most important piece. You know, I think a lot of of buyers that are, you know, semi experience, they go out there and they wanna talk to every broker in town.

Alex:
Totally fine with that. However, what happens is you’re diluting your time across all brokers in the marketplace, and then you wonder why you don’t get the attention you need. Whereas if you spend your time with a buyer focused agent, you know where you’re providing feedback and you and the, the broker can almost tell, Okay, this person’s pretty committed to this market. You know, they, they’ve committed and they’ve even told me, Hey, look, I’m gonna use you for my transaction here in Kansas City or Kansas or Missouri or come similar to, to that kind of language. We don’t ask for any buyer’s representation up front. It’s, that’s not until we get into the actual deal process you know, after, after it’s under contractor, I guess technically before it’s under contract, we, we, you know, get that outta the way. But the main thing is just communication with the broker, constant communication with the same broker. And I think if you have somebody who truly does work with buyers maybe not all the time, but least on the regular, then you know that that particular broker’s gonna have some deals for you to look at. And at that point you have to go with what the market’s there to give you.

Charles:
Interesting. now how do you do it for that makes it professional in your eyes when, say you’re getting offer that comes in and you’re now have to sell that to the sellers broker. How are you when you’re presenting that offer, explaining to them in you know, in a short, short summary of your buyer, that they’re gonna be able to close, they’re serious. I’ve, you know, I’ve vetted ’em, however that is. How, how do you make it so you’re getting offers to the top of the pile when we’re in such a hot, hot markets here?

Alex:
Yeah, so that’s one another thing. So we come in here, we make sure that you’ve got a preapproval letter from a financial institution preferably local cuz local sellers, even if they, or even outta state sellers that have property here in Kansas City, you know, they still like to see the local banks cuz they know they can close out deals better. And usually some kind of investor buy, even if it’s a paragraph that says, I own these, you know, 6, 8, 12, 5000 units you know, and here’s what I own, here’s how I do business. Those kind of things. Putting that in front of the seller, the seller’s broker, and we say, Hey, look, this is the package we’ve vetted. You know, we’ve, they have a preapproval letter. Not only do they have a preapproval letter and we vetted them, they have every intent to close because guess what? They’re not 10 31 exchange deadline which means that money’s real. It’s not just in their bank account. And they have options that they can do with that funds. So I think that usually gets our offer to the top. And you know, sometimes it takes a couple different phone calls and a couple different, you know, text messages to, to walk that through with them. But we pride ourselves on, you know, bringing the only true vetted and the key to it in, in my opinion, is the desire to close on that property.

Charles:
Yeah. Having the 10 31 is such a strong, I think, selling point too because it, it’s just something that they have to close. It’s not, they’re not kicking tires, they’re buying something and you know, this is, that’s how serious their offer is. And also once they’re in, they’re most likely not going to retrade over a couple percent, which is, you know, it’s just another hassle for sellers and seller brokers that are now having to deal with this and say, Hey, you know, this and that, you know, this is a, you know, little issue down here in, in the, in the utility room they’re having a problem with, and you’ve gotta do this. It’s something I feel that they know going in anything’s better than paying taxes. Right. So <laugh> right, you,

Alex:
You’re on, you’re under the gun, so to speak, and yeah, and and you know, it’s important to come in and, and show that. And, you know, I have clients even one under a 10 31 exchange deadline, and we do that part of the betting, like, are you under anything under contract right now to, to buy, you know, kind of those questions. What are the markets are you looking at? That way we can have confidence that who we’re working with is committed to this market. Now they don’t have to be handcuffed to it, but the intent is there. And once in a while you hear key, you know, trigger words to a broker, it’s like, Yeah, let me tie that up for a little bit, you know, put it under contract, tie that up. I’m like, eh, we don’t tie anything up, You know, we put it under contract and we have every intent to close. So if you’re looking for a broker that ties stuff up for you, that’s not me.

Charles:
Yeah. Yeah. That’s, it also is a, it kills your rep in your industry as well where you are, because I’ve had it before where we’ve gotten offers from properties and the buyers just like fell right through. And I told my broker, I don’t, you know, they’re like, Oh, we have someone else for you, you know, for this property. And I’m like, I, you know, we’re not accepting any more offers from, from that broker, You know what I mean? Mm-Hmm. <Affirmative>.

Alex:
Yeah. You’re like, I’m not, I’m not wasting my time. Yeah.

Charles:
I don’t care if it’s a few percent off or anything. Like I just, we’re here to sell a property. I’m not here to like, you know, just accept the offers, sign ’em, send ’em back, and they don’t get signed. You know what I mean? So mm-hmm. <Affirmative>. so let’s see. Like I have a question with just to just popped up on, no, but like at 10 31, if, if I’m selling my property and can I put another property under contract prior to selling my first prop, you know, the property that I’m laying down, let’s say as you said it yeah.

Alex:
Yes, you absolutely can. I think the, the key there is if you’re going to do that, let’s say your property doesn’t close for 30 days even, let’s just say that you’re selling you know, first thing you look at is, okay, do I have the capability, the true capability to close out this other property I’m putting under contract if this other property falls through? And if you have that ability, then at least you know, that’s a couple check marks that you have in your favor. And this is just from a, an industry perspective, nothing to do with the laws and IRS or anything like that because you absolutely can put anything you want to under contract. But, but from how it looks to a prospective seller on the other side. And, and so the answer is yes, you can definitely do that.

Alex:
And then you, the closer you get to being past escrow or due diligence being up or whatever, the more and more confidence you’re gonna have as a seller to know that, hey, your property’s gonna close and we even coach people to, to do that, right? Is once you’re past due diligence, now let’s take a look and see if there’s anything we wanna put an offer on right away, because you have a 90%, 95% chance of getting this seller maybe even higher, that 99% chance of closing because your past due diligence and, and the money’s hard to the the buyer at that point on your side. And so we can go ahead and get this thing closed out and get your other property contract and move on.

Charles:
Yeah, no, that’s, that’s some great information there. So Alex, working with a lot of buyers over the years, what are common mistakes you see real estate investors make, I guess if they were buyers or sellers in the transaction, or if they were not even, you know, party to what you’re doing with the transaction?

Alex:
Biggest mistake is getting too principled in nature. And I’m not saying that to try and make things, you know, to, to say, Hey, look, everything needs to be easy, but you get into a deal, you’ve got a $2 million property you’re selling, and the buyer comes back and says, Hey, look, there’s some life safety issues that need to be taken care of and it’s $15,000. At that point you go, Okay, is it really $15,000? And you’re weighing all these different options in your head. I’m not saying you accept the $15,000, but what you should be thinking about is, what’s it worth it to me to get this thing over the edge? Maybe there, maybe, I think the property’s perfect, You know, you as a seller, this property’s perfect. There’s nothing wrong with this thing. I replaced all the smoke detectors, no life safety issues.

Alex:
But then you go, Okay, you know what, who cares? It’s 15 five, $7,000, let’s sell this thing and move on so we can get into a bigger, better property. So that’s the biggest mistake, and I’ve seen it happen time and time again. Usually we can get past those. But sometimes there are very bullheaded buyers or sellers that they can’t get passed. And then I would say probably nine times outta 10, I get a text call or email from him. Say, Hey, remember that property that, you know, we were under contract on that, You know, I, I didn’t close. I mean, they don’t use these exact words, but basically what they’re saying is that we didn’t close on. I saw it was on the market for $400,000 more this year than last year. And I say, Yeah, market’s gone up and, you know, there’s real opportunity there.

Alex:
We just kind of missed out on it. So you gotta be thinking about the long term aspect of the, of the property that you’re selling and that you’re buying to be frank. So that’s the biggest mistake. The other big mistake is coming into it with, on a 10 31 exchange and having unrealistic expectations before you put your property up for sale that you’re gonna sell, understand what the market conditions are knowing right now, for example, today is what is it, April 26 or whatever it is, you know, interest rates are kind of high compared to where they were six months ago. However, they’re also still not that high compared to where they were, you know, in the early two thousands. So you gotta think about where the market is, where the market’s going and a lot of people come in and they just don’t, they’ve forgotten, you know, they think it was like what it was two, three years ago. It’s not.

Charles:
The other thing too is the, when you’re selling the condition of your property, the actual condition of your property, you know, like some people like, Oh, you know, it’s perfectly fine. Well, I mean, it’s perfectly fine. Maybe as you say your tenants feel, it’s perfectly fine, but there’s some, there’s some issues there that are gonna have to be taken care of maybe not this week, but in the next one to three years. And and, and, you know, so it’s like knowing that and being aware and realistic with the condition of your property, I find with some sellers is that and I, you know, I’m guilty of myself to an extent too, you know what I mean? There’s stuff you don’t really look at. Everything’s running fine and it wasn’t something you’re focusing on. So you really have to know and do your own kind of due diligence, inspection prior with your agent and get an idea of what your condition actually is and hey, this is what we’re gonna have to get fixed beforehand and this is what we’re gonna have to do if during due diligence. You know, so

Alex:
Exactly. Yeah. Just be prepared and, and be reasonable. That’s why I tell both buyers and sellers the key to success real transaction is being reasonable.

Charles:
So what do you, are the main factors that have contributed to your success?

Alex:
A lot of, you know, the main factors is just, you know building relationships and, and then the number one factor is cold calling, to be frank. And it’s more or less, you know, rephrased as smart calling or warm calling, and I call as many sellers as I can throughout the year, throughout the week. I say sellers is really property owners and just, I don’t ask ’em to sell necessarily. It’s all about building the relationship. What’s their next step with this property, leaving it to their kids, you know, are they gonna sell it in a couple years? And, and just kind of building those relationships through smart calling over time has been the best piece of success for me. And then secondary to that, of course, is building off existing relationships that you have taking really good care of your referral sources taking really good care of your clients and you know, just trying to be an open and honest person. And, and again, like I said earlier, you know, being reasonable.

Charles:
So how can our listeners learn more about you and your business, Alex?

Alex:
Yeah, my website@exchangecre.com is gonna have a lot of our information there. You know, if you wanna see off market deals, we have a marketplace that you can only get access to through our website, through those deals. Linkedin, I love communicating on LinkedIn. I’m posting on there often. You can see what we’re up to here in Kansas City. And then email me@alexexchangecre.com.

Charles:
Awesome. Well, thank you so much for coming on today and looking forward to connecting with you in the near future.

Alex:
Thanks, man. It’s great to be here.

Charles:
Talk to you soon.

Alex:
See ya.

Charles:
Hi guys! It’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin, set up a free 30 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

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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.

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