Real Estate Wealth Building Tips for Investors | Julie Bratton | Work Like A Mother Podcast, Ep 25
This week Marina sits down with real estate expert, Julie Bratton, to delve into the intricacies of building wealth through real estate investments with a focus on 1031 exchanges.
Learn what it means to defer taxes through 1031 exchanges, including common mistakes to avoid, crucial timelines, and property identification rules. Julie offers expert advice on selling old or dilapidated properties to reinvest in newer, high-value constructions for better estate planning and rental appreciation.
The episode also touches on the impact of the pandemic on commercial real estate and various financing strategies for investors. Julie sheds light on the importance of starting the property search early, the process, costs involved, and the nuances between residential and commercial exchanges. Whether you’re a seasoned investor or new to real estate, this episode offers invaluable advice to optimize your investment portfolio and defer taxes.
Julie Bratton
Marina Tolentino
https://www.marinatolentino.com/
YT: @marinatolentino
Newsletter: https://marinatolentino.myflodesk.com/opt-in
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Transcript:
Julie Bratton [00:00:00]:
So let's say your mom got this property and it was worth 300,000, like, 100 years ago, and now she's maybe getting up there in age, and she's like, you know, honey, why don't I just give it to you? You can take care of it. And now it's worth, like, 1.4 prices today versus the prices in three years from now are going to be very different.
Marina [00:00:20]:
Do you have any advice for someone that's trying to time the market or, like, trying to really find that special property? Like, what do you tell them?
Julie Bratton [00:00:26]:
First of all, when somebody puts a property on the market, you should start really looking. Then take that listing period in that escrow period to really go shopping. Only real mistake. Two mistakes, I guess. And I don't know if this is the first one's a mistake. They don't start looking early enough.
Marina [00:00:40]:
Okay.
Julie Bratton [00:00:40]:
They really get stressed out.
Marina [00:00:41]:
Yeah.
Julie Bratton [00:00:42]:
And secondly, when they identify property, they have to put the correct addresses down.
Marina [00:00:54]:
All right. Today I'm so excited because I have the dear Julie Bratton here on the call, and we're just gonna talk about 1031 exchange. I initially met Julie, and I know I've known your name, but it was at the Nahelle presentation with Doctor Horton where you were talking about 1031 exchange opportunities. And as a realtor, I was like, I know a lot of this, but I forgot it, or, like, it's just not relevant sometimes when you don't think of it all the time. And it's such an incredible tool to use as a homeowner in the future. So we're going to do some myth busting and just a little bit of basics, but, Julie, hello. Welcome. Hi.
Julie Bratton [00:01:27]:
Thanks for having me.
Marina [00:01:28]:
I'm so excited to see you. Real quick, before we dive in, how did you get involved with 1031 exchange? Like, what was your career path to doing this?
Julie Bratton [00:01:35]:
Oh, my gosh, that's so funny. Well, I don't. I've done a lot of things, yeah. But I have a degree in interior design from San Diego State, and I moved to Hawaii years ago. And I thought, long story short, I could get into real estate. You know, I have the vision or whatever. So I started selling real estate, I think, in 95, the beginning of 94. So I started my career doing that.
Julie Bratton [00:02:00]:
And, you know, the market was up and down. I was like, what should I do? So I, at that point, became a transaction coordinator for the top producers at the company that I was working for. So I learned a ton there. And then a type an old republic title scooped me up we need a program like that. So I did that for a little bit, and then exchange came out, and I was like, I can do this because I knew how to sell real estate. I know title and escrow, so I kind of fell into it. And that was 23 years ago.
Marina [00:02:28]:
Oh, my gosh. Yeah. So you've been. You're the pro. You're the island pro. Guaranteed. Like no one else knows it. Like you.
Julie Bratton [00:02:34]:
I hope so. It's a lot. I mean, everybody has a story, but the rules are still the same. So it's just interesting how to gather information and get people on the right track.
Marina [00:02:44]:
Yeah, for sure. And I think one of the biggest assets you have is that experience, because every situation is going to be different, and you've helped so many different families navigate those differences. And so when you're an emergency, it's like, who you gonna call? You're gonna call Julie. She's gonna help you, but hopefully we catch it before it's an emergency.
Julie Bratton [00:02:59]:
Yes. Yeah. No emergencies. If we can help.
Marina [00:03:02]:
Okay, so give us the rundown. What is 1031 exchange.
Julie Bratton [00:03:06]:
Okay, so an exchange is a way to defer paying capital gains tax, and it's just for the sale and purchase of properties held for investment or for productive use in a business or trade. I guess that's the textbook definition. So, for example, personal residences don't qualify. It has to be investment for investment. And you have to do this within, you know, a specific period of time. But I do think a lot of times people say, okay, I'm going to do an exchange, sell my investment property, and buy a property I'm going to live in. When you can't do that right away. So it has to be investment for investment.
Julie Bratton [00:03:41]:
I mean, no one says you have to hold it for investment forever, but, you know, upfront, your intent needs to be to hold for investment.
Marina [00:03:47]:
Yeah. Okay, so run us through that timeline. Let's say we're ready. Is it when we close it, the clock starts on selling the home or when you start.
Julie Bratton [00:03:54]:
Yes.
Marina [00:03:55]:
Okay.
Julie Bratton [00:03:55]:
Yeah. So an exchange needs to be set up before the escrow closes. Like, put it this way, nothing can close without an exchange being set up. So, you know, what do I do? I got a copy of the contract and the title report, and I draft exchange documents. Escrow gets everything set. But the day of closing is critical because escrow is going to disperse money. I mean, if they give the money to the client, the client's toast. No exchange.
Julie Bratton [00:04:20]:
They're gonna pay taxes. They're gonna do an. Yeah, if they're gonna do an exchange. The funds come to us and we hold them until they're ready to buy the replacement property. So, yes, the clock starts ticking the day they close.
Marina [00:04:31]:
Okay.
Julie Bratton [00:04:32]:
And here's the clock. They have 45 days from the day of closing to identify in writing what they're gonna buy.
Marina [00:04:39]:
Okay.
Julie Bratton [00:04:40]:
And 180 days to close on it. So the 45 days is included in the 180. They don't get 45 and then an additional 180. Yeah. Day counts. So, for example, a 45 day lands on Easter Sunday. They still need to identify by midnight of Easter Sunday. If the 180 days lands on a holiday or a weekend, let's say Christmas, they might have to close on the 179th day or the 178th day.
Julie Bratton [00:05:07]:
So there's no extensions unless we're a victim of a natural disaster.
Marina [00:05:12]:
Okay. Okay.
Julie Bratton [00:05:13]:
That the government. The government recognized. Like the Lahaina fires.
Marina [00:05:16]:
Yeah.
Julie Bratton [00:05:17]:
They put out, they gave them an extension.
Marina [00:05:18]:
So let's say we mess up and we miss the timeline. They have to pay capital gains tax.
Julie Bratton [00:05:23]:
Yep.
Marina [00:05:23]:
That's what it is. Okay. Your ten, a lot on your neck. Like, what is the capital gains tax for someone selling?
Julie Bratton [00:05:30]:
So it depends on their tax bracket. But you have federal, that's 15, 20% depending on your bracket. You have the state tax, seven and a quarter and above. Then there's depreciation recapture, that's taxed at 25%. And then the 3.8 affordable care tax, if that applies to you. So it adds up quickly. So that's probably the number one reason why people do exchanges. They just do not want to pay.
Marina [00:05:52]:
Yeah. And so I think the roadmap of this is to use this over and over and over. Maybe you're starting with a condo, but then you can get up to a multi million dollar, if not multi gen, property. And that's cash flowing major over the years. But then eventually you're going to have to pay capital gains tax. So what does that look like at the end of the road? Do people put it in?
Julie Bratton [00:06:11]:
Well, okay, that's a good question. A little bit. Yes. There are a lot of variations in an exchange. So you can sell one property and buy three, you can sell two properties and buy one. I mean, there's a lot of very. I'm just using those numbers. But you can.
Julie Bratton [00:06:25]:
There's so many variations. But again, it's a deferral of tax, not a getaway from paying tax forever. So you can continue to defer, defer, defer until you pass away. Then your kids or whoever is inheriting your property, inherits it at a step up in basis, which is great. They don't inherit the capital gain burden, they just pretty much get these properties. But some people do exchange, exchange, exchange into something they eventually want to live in. If they make it their forever home again, fine, you pass away, your kids inherit it. Or you can prorate, you could take advantage of the personal residence exemption and your investment property after a certain amount of time.
Julie Bratton [00:07:07]:
So there's a formula. So if you outright sell the personal residence, you're not going to get 100% of your 250 or 500. It's a prorated formula, but at least you can take advantage of a little bit of both. But you'll have to pay taxes on the difference. And if you just outright sell, you're going to pay taxes. So let's say you did exchange, exchange, exchange, and then now you have this one property and you're like, I'm going to sell it. I'm taking a loss, or I don't want to be a landlord anymore. I'm tired of this.
Julie Bratton [00:07:36]:
I'm just going to sell. If they outright sell, then they're going to go back to the first property they did an exchange with because that followed, that just follows them around. Some people think, oh, I'm just getting out because I'm not. This is, you know, not so great right now, or I'm taking a loss or, I don't want to be a landlord. They have amnesia. They forget that they did five exchanges into it.
Marina [00:07:59]:
Okay, and you're paying the tax on all five at the end. Yeah.
Julie Bratton [00:08:03]:
You're going back and calculating.
Marina [00:08:05]:
Okay, so this is why.
Julie Bratton [00:08:06]:
Well, not you and others, but I.
Marina [00:08:09]:
Mean, there is strategy to this. It's not just like Willy nilly, whenever I feel like it or whatever, like you do need to know your numbers and have an exit plan at the end of the road. What is the best situation? It's to have it be inherited to your kids. You don't have to.
Julie Bratton [00:08:24]:
Well, yeah, so if you. I. It's my understanding, and, you know, the law can change and I can't get tax advice, but it's my understanding it's better, obviously, to inherit property because you get it at a new basis. The step up. If you give the property to your kids while you're alive, they have your basis. Okay, so let's say, you know, your mom got this property and it was worth 300,000, like a hundred years ago, and now she's, you know, maybe getting up there in age and she's like, you know, honey, why don't I just give it to you, you can take care of it. And now it's worth like 1.4.
Marina [00:08:58]:
Okay.
Julie Bratton [00:08:58]:
So now she gives it to you, it's worth 1.4. She passes away or you want to sell it, your basis is really her. 300.
Marina [00:09:06]:
Wow. Yeah.
Julie Bratton [00:09:08]:
So you get the step up.
Marina [00:09:10]:
Yeah.
Julie Bratton [00:09:10]:
Yeah. So it's step up if you can, in my opinion. But, you know, everybody's financial plan is unique.
Marina [00:09:19]:
Can you take two investment properties and then roll it into one exchange for a bigger property or it has to be.
Julie Bratton [00:09:25]:
Yes, absolutely. People do that all the time. So you can sell two properties to buy one. Okay, let's say you are selling two properties, 500 each. The replacement property would need to be equal to or greater than a million dollars if you want to have 100% deferral. And when you sell two to buy one, you go off the clock, the timeframes of which the first property sells.
Marina [00:09:46]:
Got it. Okay.
Julie Bratton [00:09:47]:
So you'll start the 4580 days. So the second one just needs to close in time. The 45 days isn't really going to matter because you know what you're going to buy because you identified it in the first 45 days, but it has to close in time to make your closing date.
Marina [00:10:01]:
Yeah.
Marina [00:10:02]:
Hey, ladies, real quick. If you are looking for a mentor, I just wanted to remind you that I offer mentorship to entrepreneurs. So if you're someone who has a never ending to do list and you're smiling out of control and feel like your business doesn't have a track plan, I want to work with you every single week for a month at a time. It's super simple, but I come from over ten years of experience doing this myself, and now I'm willing to give that information back to people. So I've mentored real estate agents, I've mentored wedding photographers, I've mentored other business owners, and they've come from a place of overwhelm, mostly. And they really just needed clarity and a couple of action steps to move the needle. And we've seen gigantom leaps and bounds in their business. Like, I can't even tell you.
Marina [00:10:43]:
So if you're interested and you want to know what that looks like, I want you to go to marinatolentino.com and there's a calendly link there to do a 15 minutes discovery call with me just to see if we're a good vibe check to make sure we're on the same page. And I would love to work with you one on one to really boost your business to the next level.
Marina [00:10:59]:
Let's dive back in. As far as people worried about finding the replacement property, like, 45 days is kind of a tight timeline, especially if you have a high criteria list. Do you have any advice for someone that's trying to time the market or, like, trying to really find that special property? Like, what do you tell them?
Julie Bratton [00:11:15]:
Okay, well, I do have a little bit of advice on that because recently, I'm changing my stories up a little bit or my examples. So, first of all, when somebody puts a property on the market, they should start really looking then. So take that listing period and that escrow period to really go shopping. You know, weed out the areas, the properties, the projects, the islands, the states they like and they don't like. So when they're in there 45 days, they're not really stressed out, because, yeah, if you wait till day 145 days can be really super stressful. So, you know, start shopping early and look around. The other thing I am noticing that kind of gets in people's way is they're looking for perfect.
Marina [00:11:59]:
Yeah.
Julie Bratton [00:12:00]:
And remember, it's just an investment property. Okay? You're not going to live there. You're not going to marry it. You're not stuck with it. I mean, of course, disclaimer, don't buy a piece of junk. But if you had to make a lateral move just to defer paying the capital gains tax, do it, you know, hold on to it for a year or so, and if you still don't like it, you can always sell it again and get into something you really want when it becomes available or when things calm down. But, I mean, I have people every once in a while, be like, I'm just gonna pay my taxes. I can't find anything.
Julie Bratton [00:12:28]:
And I had this one lady say that. She said, I'm so picky, I can't find anything. And I said, well, why are you so picky? You're not gonna marry the property. She wasn't planning on living in it.
Marina [00:12:37]:
Okay.
Julie Bratton [00:12:37]:
Eventually down the line, and I said, you know, make a lateral move. Don't pay taxes on 200,000. She was like, okay, I'll think about it. And then on the 45th day, she called, and she identified something, and she bought it. Like, she was kind of getting in her own way. She was looking. She didn't realize she was looking for perfect. What does she care as long as it, you know, works for her? It pays for her.
Julie Bratton [00:13:02]:
It. It serves its purpose. It's great.
Marina [00:13:05]:
Yeah, yeah. Don't get in your own way, okay. I feel like there's so many people who are sitting on these properties and they want to move, but they just don't know how to make the move. What advice do you have for them? Where they're just like, they've had it for 20 years. There might not even be on the island. Like, why should they sell? Or, you know, whatever.
Julie Bratton [00:13:22]:
It's just getting up, you know, is it an old property? Is it dilapidated? Does it need a lot of maintenance? Is it still working for you the way it used to?
Marina [00:13:30]:
It's 20 years old condition.
Julie Bratton [00:13:34]:
Yeah. I mean, I. For me, I could look at it as doing estate planning. You know, sell that old property that you've owned for 20 years and buy a few new condos or buy a few new houses, one for each kid or something. I mean, do some estate planning.
Marina [00:13:48]:
Yeah.
Julie Bratton [00:13:48]:
I mean, your kids probably don't want that old and dilapidated property anyway.
Marina [00:13:55]:
Yeah.
Julie Bratton [00:13:55]:
So, you know, it's giving your investment properties a facelift and hopefully your pocketbook. And then. And also because you're not paying any, for any more deferred maintenance, you're getting into something that's newer and fresher and more desirable and people pay more rent for that.
Marina [00:14:11]:
Yeah.
Julie Bratton [00:14:11]:
People take pride in. In their properties.
Marina [00:14:14]:
That's true. And let's kind of roll into that. So if you were to buy new construction, you have one year builder warranty and then a lot of other things are covered for a while, too. So you're getting nothing. No repairs needed. Usually in the first couple of years, the rental value is way, way higher in new construction. Appreciation value is way, way higher in new construction. Like, it's just win on win on win.
Marina [00:14:33]:
So it's like, silly, but I just feel like for some reason everyone's sitting on the bench. Like, I don't feel like anyone's making the move to do a 1031 exchange to new construction, or at least I haven't heard of it, so.
Julie Bratton [00:14:43]:
Well, I think the problem. The problem with that is the new construction. If it's not, if it's new right now, then, yeah, they should just do it. But if it's like one of those new projects that are going to come up in 2025 or 26 or 27, all of those, they're probably timing the sale of their relinquished property. So they sell that and they can close on that new project in 180 days. But I think they're stuck on. They have to put the down payment down today.
Marina [00:15:11]:
Oh, yeah.
Julie Bratton [00:15:13]:
So, you know, they get that down payment back in an exchange. So let's say I put down my own out of pocket deposit today for a new project.
Marina [00:15:22]:
Okay.
Julie Bratton [00:15:23]:
And now down the line, it's going to be done at, let's say, the end of 2026. I'm going to get my loan by the project. I can be refunded for my out of pocket deposits as soon as my relinquished property sells. I'm good. You're going to take those proceeds, do an exchange, replace your out of pocket money. You get that money back. I feel like people think the money's just going to be gone.
Marina [00:15:45]:
Yeah. But it's just.
Julie Bratton [00:15:47]:
It's not going to be gone.
Marina [00:15:48]:
Yeah.
Julie Bratton [00:15:49]:
And like you said, there's, like, zero carrying costs, and yet you have built in appreciation.
Marina [00:15:56]:
Yeah. What's crazy with those build is you're getting the price of 2024, but you don't, like, own it until 2026. What do you think the market's done in those two years? That property value has already gone up. I think that's a huge home run for people. Yeah.
Julie Bratton [00:16:08]:
Yes, I know that. And actually, I'm delving into that myself for the first time, buying into a new project. And I'm like, you know, the prices today versus the prices in three years from now are going to be very different. Yes. So getting into it now was really important to me.
Marina [00:16:28]:
Yeah.
Julie Bratton [00:16:30]:
Cross my fingers. I'm sure it'll be fine.
Marina [00:16:32]:
That's exciting. Yeah.
Julie Bratton [00:16:34]:
But I think people don't pull the trigger because they don't want to spend the money today, but they're going to end up spending the money later and it's going to be more expensive. So it's hard.
Marina [00:16:44]:
Yeah. You're going to be kicking yourself. Okay. Talk to me about the cost of a 1031 exchange. What's, like, the closing transfer fee, all of that, like, from title and exchange.
Julie Bratton [00:16:53]:
So it's fairly easy. I mean, you're going to have your normal 1031. I'm sorry. You're going to have your more. Your normal escrow fees. And usually when you go to escrow, fees are usually about 1% of the sales price. And I think the escrow company gives you a 30% discount on title and escrow if you're an investor. So that's always nice.
Julie Bratton [00:17:10]:
But my fee is the 1031 fee is usually $950 when you sell the relinquished property.
Marina [00:17:16]:
Okay.
Julie Bratton [00:17:17]:
And $575 when you buy the replacement property. So you pay as you go. For example, if you don't find anything, obviously we're not going to charge you. So that's like, nothing compared to what you're going to pay in taxes. Like, yeah.
Marina [00:17:31]:
Okay. Do you see any common mistakes or like whoopsies that people are making with 1031 exchanges?
Julie Bratton [00:17:38]:
The only real mistake. Two mistakes, I guess. And I don't know if this is the first one's a mistake. They don't start looking early enough.
Marina [00:17:44]:
Okay.
Julie Bratton [00:17:45]:
So they really get stressed out.
Marina [00:17:47]:
Yeah.
Julie Bratton [00:17:47]:
And secondly, when they identify property. They have to put the correct addresses down. I'm not kidding. If they put the wrong address down. They can't make any changes to their identification notice after the 45 days.
Marina [00:18:01]:
Yikes.
Julie Bratton [00:18:02]:
So if the address is wrong and it's after the 45 days. I cannot fund it. And they'll pay taxes.
Marina [00:18:11]:
Yeah. That sucks.
Julie Bratton [00:18:13]:
I mean that's. It's just so weird. But it happens.
Marina [00:18:16]:
Yeah.
Julie Bratton [00:18:16]:
It happens once in a while. And you know the IR's does not have wiggle room for mistake on that.
Marina [00:18:22]:
Yeah.
Julie Bratton [00:18:23]:
They just don't.
Marina [00:18:24]:
Okay. So we're shopping for properties. Hypothetically. We're just emailing them to you. As we are looking at them and considering them. Or how does it work?
Julie Bratton [00:18:31]:
Okay. So I give you guys an identification notice.
Marina [00:18:34]:
Okay.
Julie Bratton [00:18:35]:
And you're going to list the addresses. The complete addresses. Including the unit number of what you think you're going to buy. You don't have to have an accepted offer when you identify. But it has to be on your list. So I'll give you the identification notice. And I need it by midnight of the 45th day. And so there's two ways to identify on that list.
Julie Bratton [00:18:54]:
There's the three property rule. Where you can identify just up to three.
Marina [00:18:58]:
Okay.
Julie Bratton [00:18:59]:
You might only want to buy one. But a lot of people put backups down. Just because they're not sure what they're going to get. So just because. Which is fine. I think that's the most common way. If you wanted to identify more than three. So four or more you can.
Julie Bratton [00:19:13]:
But the fair market value of all of them combined. Cannot exceed double or 200%. Same thing of what you sell the relinquished property for. So if you sell something for a million. And you want to identify four or five or ten. That whole list cannot exceed one penny over 2 million. It's like you can't go crazy and identify all of couple and pick one later.
Marina [00:19:34]:
Yes. Got it.
Julie Bratton [00:19:36]:
So identification. I mean, there's a lot of gray area and exchanges. But there's also some black and white. And identifying timely and properly is black and white.
Marina [00:19:46]:
Yes.
Julie Bratton [00:19:47]:
It's really important that it's done timely and properly.
Marina [00:19:49]:
Yeah. Good to know. Hey, I'm sorry to interrupt.
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Marina [00:20:42]:
Do you find that when people are buying the next property that they're just bringing in cash to make up the difference in the new price? Or are they doing loans? Like, what do you see most commonly?
Julie Bratton [00:20:51]:
It's a combination. I think if people have cash, they're probably using their cash because, you know, the lending environment is a little bit sticky right now. But if they can get their loans, they'll get their loans. Which is a good comment for you to bring up because in an exchange, when you sell the relinquished property, everything you read online, even my brochures, the. The. It says you need to replace the mortgage that you had on the relinquished property in the new property. And that translates into, you have to get another mortgage. You don't have to get another mortgage.
Julie Bratton [00:21:30]:
You can replace it with cash. Yeah, but I think a lot of people take that for face value, that it needs to be a mortgage because it says you need to replace the mortgage. You don't get debt relief.
Marina [00:21:41]:
Yeah.
Julie Bratton [00:21:41]:
So people are like, I can't get a mortgage. Or maybe I'm retired and I can't afford, you know, I can't get a mortgage now. Well, okay, well, you can go to the bank and bring in cash if you want. You just have to replace it.
Marina [00:21:51]:
Got it. Okay. That's helpful.
Julie Bratton [00:21:55]:
One other thing. One other thing that I could have brought up earlier is like kind when you do an exchange, and remember I said investment property for investment, it also needs to be like, kind property. And like, kind property is any combination of real property that also translates a little bit funny to the client. It translates as. It's as if it needs to be condo for condo, single family. For single family. Vacant land. For vacant land.
Julie Bratton [00:22:20]:
And although all of those examples are perfectly fine, it's any combination of real property.
Marina [00:22:25]:
Got it.
Julie Bratton [00:22:27]:
So you can sell a condo and buy a commercial building. You can sell a commercial building and buy houses if you want. As long as you're using them for investment, you're good.
Marina [00:22:34]:
Yeah, I mean, the world's wide open. You can get into so many fun things. Like, I feel like could be where it's at. Do you do a lot of commercial ones?
Julie Bratton [00:22:43]:
I do, yeah, I do a lot of commercial.
Marina [00:22:45]:
What's like, pros and cons of switching from residential to commercial? I don't know anything about the commercial world.
Julie Bratton [00:22:55]:
I don't know. I think you just look at the numbers a little bit differently. But it's still real estate as far as the exchange is concerned. You're still deferring the capital gains tax just like you would a residential one. But commercial, there's a lot more avenues you have to look at than I thought.
Marina [00:23:10]:
In the commercial zone, like, is the appreciation just as fast as residential?
Julie Bratton [00:23:16]:
You know, that's a good question. I don't know the answer to that, per se. But on a commercial building, you want to make sure all your spaces are leased out. So the world has changed since the pandemic.
Marina [00:23:30]:
Yes.
Julie Bratton [00:23:31]:
So does that lessen the value and the. Of the commercial building? Probably, but I'm thinking the cap rates are really important. Yeah, but if you can. If you have a good house or a good condo, and it's making, you know, making a lot of money, you know that it's going to be rented.
Marina [00:23:49]:
Yeah, yeah, that's true. Like, commercial space and wine, I. And there's like a tire shop for sale. And I'm like, I wonder what that would be like. Or there's another one that's, um. It's an auto body shop, but people are looking for those all the time because so many warehouses don't allow car areas. And so it's just interesting to think.
Julie Bratton [00:24:05]:
Well, that would be good.
Marina [00:24:06]:
Yeah.
Julie Bratton [00:24:06]:
But, like, the first one that you mentioned, like, why isn't it surviving? Is it the business itself or is it the location? Is it the property? You know, what's the maintenance fee? You know, what's all of that stuff? All matters. And I think on commercial financing, the lending is different. The lending requirements are a little bit different.
Marina [00:24:26]:
Yes, for sure. And the rates are way cheaper too. But the income requirements are different. Yep.
Julie Bratton [00:24:32]:
Yeah. So, you know, you have the smaller or the newer or the younger, if that's what you want to call it, investors moving up into commercial, and then you have the commercial people maybe doing some estate planning and getting into residential and 1021 exchange is a great way to do some estate planning.
Marina [00:24:48]:
Yeah, that's awesome.
Julie Bratton [00:24:49]:
Also, besides building wealth, you're building wealth for your family or you're building wealth for you. I mean, it goes both ways, so it's pretty interesting.
Marina [00:24:57]:
That's true for the people who want to live in it eventually. What's the rule? How long does it have to be an investment until they can actually occupy?
Julie Bratton [00:25:05]:
There is no rule or law on how long you have to hold investment property for investment. So just know that it's all about your intent. Did you intend to hold it for investment? And if you were audited, you should prove it. I mean, I like to say at least a year. Yeah. Because you can clearly show on one year's tax returns your intent, how you reported one year of income to the IR's. How are they going to argue that? But really the writing, and I only like to say that the right answer is the longer the better. So it's not measured by days, weeks, months or years.
Marina [00:25:31]:
Yeah.
Julie Bratton [00:25:32]:
So, okay. Yeah.
Marina [00:25:34]:
That's helpful. Yeah.
Julie Bratton [00:25:36]:
Yeah. I mean, I have people that say, oh my gosh, my life changed. I had to move into it. Okay.
Marina [00:25:40]:
Okay.
Julie Bratton [00:25:41]:
That's between you and your CPA. But upfront, it needs to be held for investment.
Marina [00:25:47]:
Yes. Yep. And same thing for the VA loan or whatever. Like, you have to have intent to live there for one year. Life can happen. But that makes sense. Okay. I feel like this is really good.
Marina [00:25:56]:
Do we miss any area that you feel like common faqs or people might want to know? No.
Julie Bratton [00:26:01]:
Well, one thing that seems to be very popular right now, again, everybody is stressed out about finding a replacement property because of the inventory that we're in. There is a reverse exchange.
Marina [00:26:13]:
Oh.
Julie Bratton [00:26:14]:
Where you buy first and then sell.
Marina [00:26:16]:
Yes.
Julie Bratton [00:26:17]:
It's more expensive to do it and you have to have cash on hand to do it because you have to be able to buy it. There's a lot more involved in it. But you can buy first and then sell. It's called a reverse exchange. And that timeframes are in reverse also. So you would have to sell your relinquished property in 180 days. But some people are liking or warming up to the idea because they're so stressed out about finding a replacement property.
Marina [00:26:44]:
Yeah.
Julie Bratton [00:26:44]:
They rather just find one first because they always know they can sell a relinquished.
Marina [00:26:48]:
Yeah.
Julie Bratton [00:26:48]:
So as long as they don't mind the fees on that, they can do it. It's just, you know, if from a fee perspective, if you can sell first and then buy, you should do it.
Marina [00:26:56]:
Yes. Got it. It's more like if you're a worrywart, then you can buy first. We get it. This is a dumb question, but you can do a 1031 exchange in between states, right? It doesn't have to be like, I have to sell Hawaii to buy Hawaii.
Julie Bratton [00:27:09]:
Yes. Good question. Anywhere in the US. The US. Virgin Islands and Guam.
Marina [00:27:16]:
Cool.
Julie Bratton [00:27:17]:
Just not Puerto Rico. And I don't know why they left that out, but. Yeah. So foreign sellers can do exchanges, but all the properties that they sell and buy still need to be within the United States.
Marina [00:27:28]:
Got it. Okay. Yeah, no, I think this is really good to, like, trigger some thought provoking ideas for people who maybe have heard of the term but never knew exactly what it was or how to do it. We'll make sure that the editors will throw in here your contact information at the end, too. So we'll get your little picture up and all of that. But I think people just need to have the conversation. They need to call you and say, hey, Julie, this is my property. What does it look like to do 1031 exchange?
Julie Bratton [00:27:52]:
Yeah. I mean, there's no. There's no harm in asking about it, learning about it, planning for it for the future. I mean, you just don't know. But it is one of the last tax loopholes we have, and it's. It's good. It's really good. And everybody wants a piece of Hawaii.
Marina [00:28:08]:
Yeah.
Julie Bratton [00:28:09]:
Like, maybe you have clients that own property here, but they have family members on the mainland that are dying to get here. Okay. They sell that property or their investment property, buy, doing exchange, come into Hawaii, rent that out for however long, and then, hey, they move here one day. You know, there's just so many.
Marina [00:28:26]:
Yeah.
Julie Bratton [00:28:27]:
So many ways to make that happen. But I do like the new construction situation.
Marina [00:28:32]:
Yeah. I think it's a home run. It's just people got to be open minded to it, so.
Julie Bratton [00:28:36]:
I know. And I remember when I. When I talked to you at that. That presentation, my. My light bulbs were going off, too. I was like, oh, my gosh. Yeah, you have a lot of. You have a lot of great ideas.
Julie Bratton [00:28:46]:
I was just like, I came home and I was like, we should do that.
Marina [00:28:51]:
Yeah. Literally right after that we put ours for rent, our two bed with a bonus room, and we had five applications within three days and it rented at 3600 for a two bed. I was like, oh, that's just. Yeah, easy. Crazy.
Julie Bratton [00:29:05]:
I mean, those stories, you have to tell that story more often.
Marina [00:29:09]:
Yeah.
Julie Bratton [00:29:09]:
Because I don't think people realize how easy it is. I shouldn't. I'm using that word life lightly, but easy it is to build wealth with real estate.
Marina [00:29:21]:
Yep.
Julie Bratton [00:29:22]:
It's really easy.
Marina [00:29:24]:
Anyways, we just need the right people to link arms and we're going to take you to the finish line.
Julie Bratton [00:29:28]:
Exactly. Yeah, exactly. Sounds good. Well, thanks for having me.
Marina [00:29:32]:
Yes, absolutely. This was fun. So again, we'll push out all your information so people can get to contact. I think you also just share so much. You have these brochures and you have information. So when we have listings, I'll make sure that we get little flyers from you. That'll be really helpful, too. Thank you.
Julie Bratton [00:29:49]:
Thanks. I look forward to working with you.
Marina [00:29:50]:
We got to get together. Okay. Bye.
