Ashley Romiti - 1031 Exchanges and DSTs Explained | Real Estate Educators Podcast with Kevin Amolsch

Description

What happens when you want to sell your investment property—but don’t want to lose 30–40% of your profits to taxes?

In this episode of the Real Estate Educators Podcast, Kevin talks with Ashley Romitti about 1031 exchanges, Delaware Statutory Trusts (DSTs), estate planning, and how investors can turn active real estate into passive income while deferring taxes.

Ashley shares how she got started in commercial real estate during the 2010 market, why one cold call changed her life, and how investors can avoid common 1031 exchange mistakes. They also discuss DSTs, triple-net properties, timing traps, and how to pass real estate to your heirs tax-free through a stepped-up basis.

If you own rental properties, commercial buildings, or are thinking about your long-term exit strategy, this episode is packed with ideas that could save you a lot of money.

TIMESTAMPS
00:00 Meet Ashley Romitti and her 15 years in real estate
09:15 Why cold calling still works in real estate
15:23 What is a Delaware Statutory Trust (DST)?
18:03 The biggest 1031 exchange timing trap
22:31 Why debt can create problems in a 1031 exchange
27:32 How DSTs can simplify estate planning
34:00 Ashley’s best advice for planning your real estate exit strategy

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Transcription

Speaker #0
And so I remember, you know, my first deal, he owned a huge portfolio of real estate. And he gave me a $300,000 listing. Whenever someone's new and they're coming into the real estate world, having the mindset that like one phone call can change your, essentially your life, your trajectory. It's really amazing to think that that kind of interaction, picking up the phone, calling someone you don't know. just having a conversation can do a lot for your business. Building a portfolio, I'm thinking about how to build out a portfolio for my daughter to set her up so I don't need that stable income. I can take a little bit more risk. So that's where the different asset classes and the different investment strategies will come in.
Speaker #1
We're in negotiations. They're winning. They're making money.
Speaker #2
What's up, everyone? Welcome to the Real Estate Educators Podcast, where we provide the education you can build on. I am your host, Kevin Amos. We are back having so much fun with this podcast with a new episode here. Are you a real estate investor or a real estate educator out there building a portfolio? Maybe you're fixing and flipping, or are you providing content to real estate investors? This is the podcast for you. We have some information for you today that I know is going to save you a ton of money. So you're going to love the episode. When you do, please five-star review, share it with a friend and let's introduce this week's guest. So Ashley. Ramidi, did I get that right again? You did.
Speaker #0
I did,
Speaker #2
Ashley. All right. So Ashley, you're from Southern California, nice and sunny down there, you told me today. And you've been in real estate for 15 years, so you know what you're talking about. You've been on the broker side, I think you said, you got into the security side, and now you're really hyper-focused on exit strategies and helping the listener or your clients save money on taxes. So welcome to the show.
Speaker #0
Thank you. Thank you for having me.
Speaker #2
Well, I'm really excited to have you here. So generally what we like to do here is get to know our guests a little bit. Like what gives you the authority to even be on the podcast? Right. Why? Why should I be listening to Ashley? So take me back 15 years ago. You got interested in real estate, became a broker. Take me back to that time. How'd you get started?
Speaker #0
Yeah. So so I kind of fell into real estate. It was never on my radar. Just, yeah, I graduated. 2000, like late 2010, was looking for opportunities, not a lot of jobs out there, and knew someone in real estate. And I just happened to get an opportunity. At the time, I started working at a, you know, small firm, Marcus and Mellichap, which many of you have heard of it.
Speaker #2
And very small, right?
Speaker #0
And for those who don't know, that is a very large firm, one of the nation's largest firms. And so I... So I started working there as a real estate agent, came on, started doing training. And funny story, so I'm from Southern California, born and raised. And the goal was to work with retail investors here in Orange County. I was in my early 20s. I looked like I was in high school and I would go on meetings with my senior agents. And I would kind of get laughed at in meetings, like, who is this high school intern you have with you? And so I was really struggling getting in the business. So I went and kind of strategized with the team on what I was going to be able to do. And so what we fell into was I was going to work with exchange buyers and sellers and helping them reposition portfolios and net leased assets. At the time, net leased assets were trading at really aggressive cap rates, especially when we looked at, you know, what these investors bought them at. They bought them at eight, nine caps. We were proposing them. four or five caps. And so it was a really good time to get into that strategy. So we would work a lot with California investors, helping them reposition out of state, diversify all of those good things. And through the years, I've just fell into this niche of working with these retiring investors and helping them strategize. It just kind of over time, got more and more specific. DSTs weren't as popular back then. As they become more prominent in the market, I was recruited on that side of the business. And I love this side of the business. Now what I really focus on is helping real estate investors strategize on their exit, right? They've owned the property for a long time. They owe immense amount of taxes. And we want to look at how they can most of the time utilize a 1031 exchange and reposition their portfolios to get out of that active day-to-day management. So, yeah. I came into the industry by accident, but my husband always laughs because I stop at every window to look at real estate. So I fell into. The world that I was meant to be in.
Speaker #2
The 2010, I want to dig into that a little bit because that was literally the best time to be in the business in the history of real estate, which is forever, right? So my opinion, best time ever. So I want to get into that. But before that, net lease, you said that a couple of times. Most of our listeners are residential investors, so they might not understand that. Can you just briefly describe what you're talking about with that?
Speaker #0
Yeah, so when we're talking about net lease, we're looking at a commercial lease. So a lot of times when you go and you buy a commercial asset as a landlord, you're going to have certain responsibilities. You'll be responsible for paying taxes and insurance and maintenance. So when we look at net lease or more specifically absolute net lease properties, that means that the tenant is responsible for all CAMS, insurance, taxes, maintenance. So for the landlord, it's a strategy to get them into a hundred. What we want to be is 100% passive income, right? They're not having to worry about management. So it's another strategy to get into that passive opportunity.
Speaker #2
Yes. And she said CAMs, CAM, C-A-M, common area maintenance. So that's just basically everything. You build back everything to the tenant. So very different than the residential leases. And you see these a lot of times with... larger tenants. Retail is very popular, but like a Starbucks, for example, and I have a story about a Starbucks as a tenant for you. And I'm curious your opinion on this, but take me before we get to that, take me back to 2010. You entered when it was absolute chaos, right? So how was that? Like, what was the, like, how did you get going when you couldn't get loans?
Speaker #0
You know, I was new. I really, I had never even thought about real estate. So I was coming in complete newbie just really, I mean, if you work in one of those larger firms, you know what it's like. You're on the phones doing 500 dials a week, just trying to get a grasp. At that time, I didn't even realize what the market was like because I didn't understand it. A few years later, I was able to look back and understand. But I mean, frankly, the first two years, you don't do a lot of business as a new real estate agent when you come in brand new. And so I remember, you know, my first deal, I'll thank him forever. It was a cold call. He owned a huge portfolio of real estate and he gave me a $300,000 listing. And he's like, Hey, you're new. We'll give you a shot. We'll give you a chance at this. I sold two buildings for him that year, both around three to 500,000.
Speaker #2
It was great.
Speaker #0
And that was my launch into real estate. My next deal was a $5 million transaction here locally that I got and just kind of slowly built. But I don't recall what that market was like because I was just in the weeds of things.
Speaker #2
That's fair enough. That's maybe unfair because you were just brand new. But now I'm interested in this very first client you had. So this is obviously a seasoned guy and you're brand new. How did you sell that?
Speaker #0
Coles called him. I got a meeting. And frankly, I think he just liked me. You know, he had, I think at the time, over 60 single tenant properties, much stronger corporate guarantees than the one I was selling. And yeah, he just gave me a shot, I guess. And so we sold one. And then he had another small deal that we sold for him.
Speaker #2
Okay. That's a really cool story. You just caught him.
Speaker #0
Called them, you set a meeting, drove down to San Diego, and he gave me the list.
Speaker #2
And that's his history. Congratulations, Ashley, on that. And then that will launch into your success. That's really cool.
Speaker #0
Yeah, and I'll never forget because people hate cold calling. And I always tell someone, like, if you understand that, you know, I don't get the opportunity to, you know, fortunately do a lot of cold calling anymore. Business has picked up over 15 years. you whenever someone's new and they're coming into the real estate world, having the mindset that like one phone call can change your, essentially your life, your trajectory. You know, my next deal, one of the deals in those first few years, it was a $5 million transaction. That was a cold call. So it's really amazing to think that that kind of interaction, picking up the phone, calling someone you don't know, just having a conversation. can do a lot for your business.
Speaker #2
5 million, even at 1%. I mean, we're talking about changing your year.
Speaker #0
Yeah. Yeah, I mean, back then, right, you're a newbie. There's so many commission splits. But, yeah.
Speaker #2
It's significant either way.
Speaker #0
Yeah. And at that, I mean, you know, put in comparison, I think my rent was like $1,100 at the time for an apartment. So that was my own apartment. I don't think you even get that.
Speaker #2
Pre-panty year?
Speaker #0
I had a place in Newport Beach that was. It was $1,200 a month for my place. So at that time, yeah, that was a huge transaction.
Speaker #2
Yeah, well, congratulations. All right, I want to tell you my little story here. Since you're a strategist, you can maybe help me with this. So I was in a Tiger 21 meeting. For those of you that don't know, it's a peer group, like basically a mastermind where people get together and they talk about life and business and that sort of thing. In this meeting... We talked about commercial real estate and we were looking at it as a return on equity, which is very different than a lot of people. A lot of people look at deals as return on investment, right? So we'd like to look at it as return on equity after you've owned a building for a certain amount of time. At some point that gets so low that it makes sense, right? So this portfolio we were analyzing had maybe six buildings, they're all retail centers, and it was four and a half percent return. on equity. So we're now thinking maybe we sell this, but there's been cost seg studies. It's like depreciated to the hilt, big time capital gain taxes if it's just sold. So one of the things I thought of was why don't you use 1031 that into some Starbucks? You could probably buy a Starbucks at four or five cap right now and have it free and clear and get the same return. What are your thoughts?
Speaker #0
Yeah, I mean, it just depends on, right, if we're only looking at return on equity, you, depending on if there's debt, right, if there's debt on the property, and you put the financing in place a few years back, that's going to look a lot different in the exchange, because you're not going to get the same terms that you got, you know, four years ago, three, four years ago. Theoretically, yeah, but they're, like I said, so you've got that part. you're going to do the exchange. You're going to lose a little bit of equity through the exchange. It's making sure that you can recapture that. There's a big difference between owning, right, a retail, like is it a multi-tenant retail building?
Speaker #2
Yeah, they're like neighborhood centers. There's some national credit anchors, but a lot of neighborhood type businesses.
Speaker #0
Yeah, so there's, when we look at, you know, one of the first questions I always ask clients is why are you selling the property? Because we want to understand what are the overall goals of the investor. If the investor's primary goal is to maintain a 4.5% cash flow, the exchange could be a good option. If they want to have the appreciation, if they want to have the opportunity to grow that portfolio, then we have to start analyzing asset classes. If you look at the absolute triple net, and Starbucks are typically double net, so you still do have some responsibility. out. we don't see as much appreciation in those assets because the value is driven by the lease term. And so from a return on equity standpoint, that is, it's funny you bring that up because that's one of the first questions I always ask investors. But most of the clients that I work with are, you know, over the age of 60 or 70. And so we're really focused on that cash flow and that capital preservation. If your focus is more heavily on appreciation, that's where that strategy can kind of have its plot.
Speaker #2
That's a good point you're making. So the, what I'm hearing is your goal, what you're trying to accomplish will drive the decision.
Speaker #0
Yeah.
Speaker #2
If you're looking at it at a high level, do you want life simplicity? Then maybe a Starbucks is a good investment. Or are you looking for growth and you're still building for something, retirement or whatever, then maybe a Starbucks isn't a good option.
Speaker #0
Yeah, because like I'll have clients all the time ask me, so most of what I do is represent in what are known as... DSTs or Delaware Statutory Trusts. And they are, you're going to get, you know, there's no guarantee, but the underwriting today is like similar to your triple net, where you're going to get that lower income capital preservation, maybe a little bit of appreciation. And a lot of clients will, Ashley, do you invest in those? And so I always tell them no, because I am at a spot in my career where I'm in growth mode. I'm building a portfolio. I'm thinking about how to build out. a portfolio for my, for my daughter to set her up. So I don't need that stable income. I can take a little bit more risk. So that's where the different asset classes and the different investment strategies will come into play.
Speaker #2
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Speaker #0
Lower. I mean, they're still considered more aggressive just because they are a security, they're a liquid. There's a lot of aspects. But when we're looking at the underlying real estate within a DST, what you'll typically see is a core asset in a strong growing market where there's different economic patterns that show. you know, migrate like positive migration, we're seeing new industries move to the space, we're seeing high occupancy, new developments, or these class A where maybe income is four and a half to five and a half percent. Whereas, you know, other investments that you can go you can get 79 plus percent. But yeah, that's historically what you want to see in a DST is that more conservative offering, I have to say, we don't want to necessarily use the word conservative, because there's always risk. So I get hesitant. But if we're comparing it to going out and buying a value add value retail center where I've got a retenant and put in tenant improvements, it's going to be very different.
Speaker #2
So one of the risks I see with 1031s and why I don't love them, Ashley, is because there's some time restrictions around it and you could become a forced buyer pretty easily. And then when you get into that situation, now you're paying too much for the replacement property. Can you tell me a little bit about what I'm talking about here, the timing of that and that risk? And tell me, does DST help avoid that risk?
Speaker #0
Good question and short answer, yes. But I'm going to, for those who aren't familiar with the 1031 exchange, so, right, it's a like-kind exchange. You can buy and sell real estate all while deferring your taxes. And it's really valuable to help people, right, grow their portfolios. Because if you had to pay 30, 40 percent. on every sale, it'd be really hard to grow. And so the IRS has put on certain restrictions though, when you're doing the exchange. So let's say I sold the property on March 1st. When I close after that date, I only have 45 days to identify my potential replacement properties. And that is calendar days. So let's say that brings me to April 14th. So that's a pretty quick timeline to go out and try to find replacement properties. You only need to identify your options and there are certain ID rules. You actually have 180 days from when you close. So that'd be 180 days from March 1st to actually close on the properties. But yeah, let's say you close on March 1st and you went out and you, you know, the most common rule used is the three property rule where you can identify any three properties and put them on your ID sheet. inventory is pretty limited today with financing. It's really hard to get deals done, or can be hard. And so you might get to day 44 and you don't have property. So you just ID three and you're stuck. You're stuck with those or you're stuck paying taxes. So I tell investors if they're not so DSTs, the way that they work is the sponsor. The sponsor is the company that goes out and puts the deal together. They, by the time a deal gets to me, We already have all the underwriting. It's all outlined in what's known as a PPM. So usually when investors come to me, we can, once we have the portfolio identified, we're closed, right, within five to 10 business days. There is not the follow-up due diligence. I can have all the questions answered, right? You and I are talking about a deal. I can pretty much answer everything today about that deal for you. And so for the timeline, We don't need to worry about that with the DSTs. And so for clients, it's fine. If you're going into a DST, I tell clients, let's do it early, right after you close, because you'll start earning income. If you get to day 44, we can ID DSTs and have you close that next week. So it takes a lot of that anxiety from the transactional.
Speaker #2
So are you only working on the DST side or are you still seeing or doing 1031?
Speaker #0
Well, so when you invest in a DST, you still do a 1031 exchange. I am not a qualified intermediary, so I don't facilitate the exchanges. Most of what I do today is representing investors who go into Delaware's statutory trust. Um, but we look at other tax mitigation strategies to write, um, to make sure it's a good fit for them because the purpose of the 1031 exchange is the tax deferral. So if you come to me and, you know, you've only owned the property for two years, you need to think about as a 1031 exchange of best fit, or do you want to take the tax hit for let's call it the 6% appreciate 8% appreciation versus... Most of my clients come to me because they've owned the property and they've exchanged for decades and they're going to owe upwards of 30% or 40% of their sale price. So most of what I do is DSTs, but we want to make sure it's a good fit.
Speaker #2
And you said something earlier. We went over that really fast, Ashley, but you said the debt can create. What did you say? The debt can create or debt can trip you up, I think you said. So if you like depreciate a property and you and then you lay your debt on it like a cash out refinance and then sell it, you could potentially owe more taxes and you get in proceeds.
Speaker #0
Well, there's kind of a few things that you said there. So if you're going to in the 1031 exchange. Right. So when you do the exchange, you need to replace the equity and the debt. You're replacing the full sale price. minus closing costs. So if you sell a property for a million bucks, you have $400,000 equity, $600,000 in debt. When you do the exchange, you still have to replace that. Pulling out equity before you sell it is very much a conversation to have with your CPA because the IRS might frown upon that and see that as taxable. So you don't want to... to mess with the financing too close to the exchange without talking to your CPA to make sure that you don't create some sort of taxable event.
Speaker #2
That's interesting. And I guess my point was, and some of the listeners may be in this situation, this is another trap. So I described one 1031 trap with being a forced buyer. Another one is if you have leveraged it up before you put the property for sale, if you don't, if you do not, if you choose not to do the exchange, you might have a hard time paying off the debt because your taxes will be so high, right? So some people get into this trap and so they're forced to do a 1031, maybe a DST if they're getting a little bit older and they don't want the effort of finding the replacement property or managing it. So this is a way out, I guess, is where I was leading.
Speaker #0
Oh, yeah. So sometimes what I'll see is, you know, you'll be leveraged. And once the... right you're in escrow the debt's paid through escrow the equity you get from the sale is going to be less than what you owe in taxes so you're at a loss um and that happens a lot because you've been doing exchanges so yeah you want to there i do have clients who say oh i'm not going to do a 1031 i'm going to pay taxes but there's typically a reason maybe it's a very small portion of their portfolio. Maybe they have this investment opportunity where they're going to develop and they're going to get 20, 25% return profile on that. But otherwise, you've got to be very careful if you have leverage and you're selling or if you're doing anything, you need to look at how that debt's going to play into the tax implications from the sale.
Speaker #2
Yeah, I really like what you're saying here that I want to dig into the DST just for a minute here. This is a newer thing and I don't know that everyone really understands it. So can you describe like maybe the most recent deal you did or one of your favorites in the past five or 10 that you really like? Like what was the deal and what did the investor get?
Speaker #0
Yeah. So I guess even before I get to that, I want to highlight a little bit more. What is a DST? Because, yeah. Most investors I talk to have no idea what a DST is. So it's Delaware Statutory Trust became 1031 eligible in around 2002. So relatively new, but they really didn't start to become popular until after 2010 because all those tick deals, the tenant in common didn't do too well in that time. So what the DST is, it's either one piece of real estate or a portfolio of real estate. So this can be a 300-unit apartment building in Atlanta, Georgia. It can be a portfolio of industrial properties. It can be a portfolio of those net lease properties we were talking about. And it's all bundled into this DST. And so the sponsor puts it together. They bring it out to the retail market where advisors like myself introduce it, show it to clients. And some of the biggest benefits of these investments is if the minimum investment is $100,000. So investors, let's say they sell for a million, they can divvy up those proceeds into four different deals. And they're what we would call institutional assets. So institutional quality deals, most of the time deals that you and I wouldn't be able to go out and buy. I don't know about you, I don't have $100 million sitting around. So those aren't in my portfolio yet, but you could bring them into your portfolio by going into the DST. And so you sell for a million, you go out, you invest in four different DSTs. Now you've got a diversified portfolio spread across the country, maybe split into different asset classes. And so you get a lot of the benefits of real estate ownership, right? So you still get the depreciation carried forward. you still get appreciation. As for current offerings, I can't discuss specific offerings because they are securities. So in order to invest, you have to be an accredited investor. But like I said, so recent deals are typically your class A multifamily properties, strong growing markets. We see a lot in the Sunbelt States, Florida. We don't see so much in Texas today, the Carolinas, Georgia. there'll be portfolios of self-storage facilities. There'll be portfolios of, you know, the corporately guaranteed net lease properties. And they all have their own pros and cons, right? They all have, why would I invest here versus there, different aspects, like we talked about earlier, why you invest in different assets for different strategies. So similar on the DSTs. Return profiles are... They range, not guaranteed, right? But where the market today is anywhere from four and a quarter up, typically you're going to see four and a quarter to five and a quarter. Just like when you go buy real estate though, right? You start getting up in the distributions. We want to see why, because that usually aligns with risk profile. And then another unique one that I'll just touch on real quick is mineral and oil rights. they're also 1031 eligible. So that's another asset class you can pull in through the strategy.
Speaker #2
And they are probably doing pretty well right now.
Speaker #0
Yes. And those are not right. So that's getting into the commodities, you're getting into global investing. We're not reliant on just the US market. It's so much broader than that. So yeah, the, you know, oil prices have fight if you followed the news recently, right? But in order to really translate to investors, frankly, we'll have to see long-term pricing increases and it's also dependent on production. So there's different variables. But yeah, I do anticipate those particular investments to do well in the near-term future, but they are a more volatile investment opportunity because you and I can sit and talk about real estate and, oh, this... you know, this retail center, it's going to do well because they're building over here and they're doing this well with oil and gas and commodities. We cannot, we don't have those types of predictions. I could not have told you the things that were going to happen in the last year or so.
Speaker #2
Yeah. Before we wrap up here, Ashley, we talked a lot about 1031s and how they're used to defer taxes. And I've heard you say that word a couple of times. Now, it is a deferral. I will agree with you, but not necessarily, right, because of the step up. So tell us about the step up and how we can avoid taxes completely, 100% tax free gains. And then I want to get into my notes and go over what I learned from the episode.
Speaker #0
All right. Yeah. So 1031 exchange, right? You're selling a property. We call it, you know, swap till you drop, defer till you die. Maybe morbid, but it's the theory where you can continue to do a 1031 exchange until you pass away. At that point with real estate, your beneficiaries get a step up in basis, meaning that all of those gains or your properties reassessed and all those gains are essentially kind of wiped out. And at that point, you're going to be dealing with estate taxes. So you need to figure out that portion. But, you know, let's say my grandmother owned a property for 60 years. She passed away and passed it on to me. That's going to be reassessed at her passing. And so now I is. as the inheriting the property can go and I can sell it and I'm not going to owe all those. It's not only capital gains either. It's capital gains, it's depreciation recapture, it's net investment income tax, if applicable. So there's a lot that if you hold onto the real estate or you stay in the real estate cycle for your life, your kids or whoever you pass your real estate along to will get what's known as that step up in basis. And it's a great estate planning tool.
Speaker #1
So if you literally, if you're inherited property and you sell it the same day, I know I'm oversimplifying, but you owe zero tax. So you get the money, you sell the asset, get all the income with no tax at all because your basis is at what it's worth at the time you sell it. Now, I assume that's true with the DSTs, but I don't know that.
Speaker #0
Yeah, and it's all true. So if I have a minute, I do want to highlight. DSTs are... Like most of my clients who go into Delaware Statutory Trust are going to be older. They've owned the real estate for a long time and they're tired of managing it, but also they're putting their estate plan together. And what we see a lot and what I saw a lot when I worked on the commercial brokerage side was you'd have two or three kids inherit a property and then they have to decide what to do. So when you invest in a DST, let's say you have $3 million and three kids. They'll each be allocated a million dollars per the trust. So they each have the 33.3% ownership. So when the DST sells, there's a life cycle, right? We didn't get too into details, but you'll be in the DST for five to seven years. When that DST sells, the allocated portion just goes to the beneficiaries. So there's no, oh, who wants to hold it? Who wants to manage it? Who wants cash? It simplifies it a lot. And then they get that step up in basis. So they can take the cash. They can reinvest. They can do another exchange. It simplifies that process a lot for the estate.
Speaker #1
I was actually going to go exactly where you went. So I'm glad you did that, Ashley. If you have multiple kids or grandkids or whatever, and you want to invest in, say it's five different DST, you can allocate in your will or in your trust or however your stuff is set up, you know, one for each kid. And that'll eliminate the headaches and the hassle and eliminate the, have to clean up and sell the property. and the fighting, right? It just, it seems to me in my mind, as I'm thinking about estate planning, this is probably a decent strategy.
Speaker #0
Yeah. Like I have a client right now who has, let's call it, I don't know the exact number, but 10 single family homes. You sell each of those. You don't have a lot of options for tax deferral, but you sell each of those and you put it in a DST. Well, now everything's structured. The income's coming monthly. There's absolutely no management. There's no decisions to be made until that real estate sells, until that DST sells. And for those who have a portfolio, it's a great way to not have to worry about the timeline and making sure you have enough equity. And we didn't even get into it, but debt replacement, there's a lot of benefits to it.
Speaker #1
Yeah. Well, this has been really fantastic. I know you're busy and you chose to hang out with me for 40 minutes. I really appreciate everything, Ashley.
Speaker #0
Oh, thank you. I enjoyed the conversation.
Speaker #1
I actually didn't go through my notes. So before I do my close, before I do my close here, let me go through my notes. So this is what we do. I like to do on the show is I want to go through what I learned and you just tell me if I missed anything and then whatever final piece of advice you want to say and then your contact info. All right. So we talked about you getting started and how you started out in the commercial space with a very small company and you were doing net leases. And we defined what a net lease was. And you could have multi-tenant or single-tenant net leases. Very good properties to own for passive income, you said. Debt can trip you up on assets. We talked about that early and then we came back to it. So be careful with debt on these assets. You said, what is your goal? So if you're talking about doing a 1031 into a DST or other asset, the replacement asset and the exchange in general, It's really going to come down to what you're trying to accomplish. So make sure you have a good understanding of what that is. DSTs, your words were low growth, low risk. I'll let you back off of that a little bit and said it's maybe higher risk. You can't really say that. This is the security, so I get it. 1031 is 45 days for a replacement identification. That's one of the traps. And then 180 days to actually close. And what we didn't talk about is on the seller side. It's important to understand these 1031s on the seller side too, because one, you can get a desperate buyer and maybe get a higher price. But if you're one of three and they're only planning to close on one, they might be tying you up also. So there's two things on the seller side and I've experienced both. So be careful. Make sure you understand what they're trying to accomplish as a seller as well. Um, we talked about the two traps on 1031s, mineral and oil rights that you could 1031 into. That is awesome by the way. And you could, it sounds like you might be able to help with that. And then DST, DSTs for estate planning. Um, it could be a really good way to simplify your estate before, you know, the thing happens. So how did I do?
Speaker #0
Perfect. Yep. Yep. You did good. Um, and what I What I try to emphasize with GCA 1031 is, right, we all, investors, everyone wants to get into real estate. And there's all these plans and we strategize. And what I find is that no one is strategizing on the back end. They make impulsive decisions. They see a price point and they say, oh, that's way more than what I paid for it. I want to sell it. And what I want to emphasize to investors and anyone working with investors is to start the conversation early on what are those exit strategies? What are those tax deferral strategies? What are those reinvestment options? Because it's not sell one property, buy another property. There are a plethora of options and opportunities out there that investors don't get to see because they wait until that 45 day to start looking at what their options are. And I'm always shocked that people put so much effort into building these portfolios and this wealth, and then they don't focus on how they're going to preserve it on the exit. And so that's what I want to emphasize for investors.
Speaker #1
That's a fantastic final piece of advice here. Focus on a strategy going in and out of your investments. Okay. How do we get ahold of you?
Speaker #0
Sure. So Ashley Romitti, I am president at GCA 1031. You can visit my website. All my contact information is there. My cell phone is posted. I love talking to investors about real estate. So you can just call if you have questions.
Speaker #1
All right, Ashley. Well, thank you again. I know I just said this, but you're busy. You came on the show. Thank you.
Speaker #0
Thanks, Kevin.
Speaker #1
All right. And for the listener, you have other podcasts you could be listening to, and you chose the Real Estate Educators podcast. And for that, I am very, very grateful. I hope you got value. Like, I learned something here today, guys. So I hope you did too. If you did, please, five-star review, share it with a friend, and I hope you make this day a great one. I really hope you enjoyed this episode as much as I did. If you did, please be sure to follow and leave a five-star review. Oh, yeah. and tell a friend.

Description

What happens when you want to sell your investment property—but don’t want to lose 30–40% of your profits to taxes?

If you own rental properties, commercial buildings, or are thinking about your long-term exit strategy, this episode is packed with ideas that could save you a lot of money.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Transcription

Speaker #0
And so I remember, you know, my first deal, he owned a huge portfolio of real estate. And he gave me a $300,000 listing. Whenever someone's new and they're coming into the real estate world, having the mindset that like one phone call can change your, essentially your life, your trajectory. It's really amazing to think that that kind of interaction, picking up the phone, calling someone you don't know. just having a conversation can do a lot for your business. Building a portfolio, I'm thinking about how to build out a portfolio for my daughter to set her up so I don't need that stable income. I can take a little bit more risk. So that's where the different asset classes and the different investment strategies will come in.
Speaker #1
We're in negotiations. They're winning. They're making money.
Speaker #2
What's up, everyone? Welcome to the Real Estate Educators Podcast, where we provide the education you can build on. I am your host, Kevin Amos. We are back having so much fun with this podcast with a new episode here. Are you a real estate investor or a real estate educator out there building a portfolio? Maybe you're fixing and flipping, or are you providing content to real estate investors? This is the podcast for you. We have some information for you today that I know is going to save you a ton of money. So you're going to love the episode. When you do, please five-star review, share it with a friend and let's introduce this week's guest. So Ashley. Ramidi, did I get that right again? You did.
Speaker #0
I did,
Speaker #2
Ashley. All right. So Ashley, you're from Southern California, nice and sunny down there, you told me today. And you've been in real estate for 15 years, so you know what you're talking about. You've been on the broker side, I think you said, you got into the security side, and now you're really hyper-focused on exit strategies and helping the listener or your clients save money on taxes. So welcome to the show.
Speaker #0
Thank you. Thank you for having me.
Speaker #2
Well, I'm really excited to have you here. So generally what we like to do here is get to know our guests a little bit. Like what gives you the authority to even be on the podcast? Right. Why? Why should I be listening to Ashley? So take me back 15 years ago. You got interested in real estate, became a broker. Take me back to that time. How'd you get started?
Speaker #0
Yeah. So so I kind of fell into real estate. It was never on my radar. Just, yeah, I graduated. 2000, like late 2010, was looking for opportunities, not a lot of jobs out there, and knew someone in real estate. And I just happened to get an opportunity. At the time, I started working at a, you know, small firm, Marcus and Mellichap, which many of you have heard of it.
Speaker #2
And very small, right?
Speaker #0
And for those who don't know, that is a very large firm, one of the nation's largest firms. And so I... So I started working there as a real estate agent, came on, started doing training. And funny story, so I'm from Southern California, born and raised. And the goal was to work with retail investors here in Orange County. I was in my early 20s. I looked like I was in high school and I would go on meetings with my senior agents. And I would kind of get laughed at in meetings, like, who is this high school intern you have with you? And so I was really struggling getting in the business. So I went and kind of strategized with the team on what I was going to be able to do. And so what we fell into was I was going to work with exchange buyers and sellers and helping them reposition portfolios and net leased assets. At the time, net leased assets were trading at really aggressive cap rates, especially when we looked at, you know, what these investors bought them at. They bought them at eight, nine caps. We were proposing them. four or five caps. And so it was a really good time to get into that strategy. So we would work a lot with California investors, helping them reposition out of state, diversify all of those good things. And through the years, I've just fell into this niche of working with these retiring investors and helping them strategize. It just kind of over time, got more and more specific. DSTs weren't as popular back then. As they become more prominent in the market, I was recruited on that side of the business. And I love this side of the business. Now what I really focus on is helping real estate investors strategize on their exit, right? They've owned the property for a long time. They owe immense amount of taxes. And we want to look at how they can most of the time utilize a 1031 exchange and reposition their portfolios to get out of that active day-to-day management. So, yeah. I came into the industry by accident, but my husband always laughs because I stop at every window to look at real estate. So I fell into. The world that I was meant to be in.
Speaker #2
The 2010, I want to dig into that a little bit because that was literally the best time to be in the business in the history of real estate, which is forever, right? So my opinion, best time ever. So I want to get into that. But before that, net lease, you said that a couple of times. Most of our listeners are residential investors, so they might not understand that. Can you just briefly describe what you're talking about with that?
Speaker #0
Yeah, so when we're talking about net lease, we're looking at a commercial lease. So a lot of times when you go and you buy a commercial asset as a landlord, you're going to have certain responsibilities. You'll be responsible for paying taxes and insurance and maintenance. So when we look at net lease or more specifically absolute net lease properties, that means that the tenant is responsible for all CAMS, insurance, taxes, maintenance. So for the landlord, it's a strategy to get them into a hundred. What we want to be is 100% passive income, right? They're not having to worry about management. So it's another strategy to get into that passive opportunity.
Speaker #2
Yes. And she said CAMs, CAM, C-A-M, common area maintenance. So that's just basically everything. You build back everything to the tenant. So very different than the residential leases. And you see these a lot of times with... larger tenants. Retail is very popular, but like a Starbucks, for example, and I have a story about a Starbucks as a tenant for you. And I'm curious your opinion on this, but take me before we get to that, take me back to 2010. You entered when it was absolute chaos, right? So how was that? Like, what was the, like, how did you get going when you couldn't get loans?
Speaker #0
You know, I was new. I really, I had never even thought about real estate. So I was coming in complete newbie just really, I mean, if you work in one of those larger firms, you know what it's like. You're on the phones doing 500 dials a week, just trying to get a grasp. At that time, I didn't even realize what the market was like because I didn't understand it. A few years later, I was able to look back and understand. But I mean, frankly, the first two years, you don't do a lot of business as a new real estate agent when you come in brand new. And so I remember, you know, my first deal, I'll thank him forever. It was a cold call. He owned a huge portfolio of real estate and he gave me a $300,000 listing. And he's like, Hey, you're new. We'll give you a shot. We'll give you a chance at this. I sold two buildings for him that year, both around three to 500,000.
Speaker #2
It was great.
Speaker #0
And that was my launch into real estate. My next deal was a $5 million transaction here locally that I got and just kind of slowly built. But I don't recall what that market was like because I was just in the weeds of things.
Speaker #2
That's fair enough. That's maybe unfair because you were just brand new. But now I'm interested in this very first client you had. So this is obviously a seasoned guy and you're brand new. How did you sell that?
Speaker #0
Coles called him. I got a meeting. And frankly, I think he just liked me. You know, he had, I think at the time, over 60 single tenant properties, much stronger corporate guarantees than the one I was selling. And yeah, he just gave me a shot, I guess. And so we sold one. And then he had another small deal that we sold for him.
Speaker #2
Okay. That's a really cool story. You just caught him.
Speaker #0
Called them, you set a meeting, drove down to San Diego, and he gave me the list.
Speaker #2
And that's his history. Congratulations, Ashley, on that. And then that will launch into your success. That's really cool.
Speaker #0
Yeah, and I'll never forget because people hate cold calling. And I always tell someone, like, if you understand that, you know, I don't get the opportunity to, you know, fortunately do a lot of cold calling anymore. Business has picked up over 15 years. you whenever someone's new and they're coming into the real estate world, having the mindset that like one phone call can change your, essentially your life, your trajectory. You know, my next deal, one of the deals in those first few years, it was a $5 million transaction. That was a cold call. So it's really amazing to think that that kind of interaction, picking up the phone, calling someone you don't know, just having a conversation. can do a lot for your business.
Speaker #2
5 million, even at 1%. I mean, we're talking about changing your year.
Speaker #0
Yeah. Yeah, I mean, back then, right, you're a newbie. There's so many commission splits. But, yeah.
Speaker #2
It's significant either way.
Speaker #0
Yeah. And at that, I mean, you know, put in comparison, I think my rent was like $1,100 at the time for an apartment. So that was my own apartment. I don't think you even get that.
Speaker #2
Pre-panty year?
Speaker #0
I had a place in Newport Beach that was. It was $1,200 a month for my place. So at that time, yeah, that was a huge transaction.
Speaker #2
Yeah, well, congratulations. All right, I want to tell you my little story here. Since you're a strategist, you can maybe help me with this. So I was in a Tiger 21 meeting. For those of you that don't know, it's a peer group, like basically a mastermind where people get together and they talk about life and business and that sort of thing. In this meeting... We talked about commercial real estate and we were looking at it as a return on equity, which is very different than a lot of people. A lot of people look at deals as return on investment, right? So we'd like to look at it as return on equity after you've owned a building for a certain amount of time. At some point that gets so low that it makes sense, right? So this portfolio we were analyzing had maybe six buildings, they're all retail centers, and it was four and a half percent return. on equity. So we're now thinking maybe we sell this, but there's been cost seg studies. It's like depreciated to the hilt, big time capital gain taxes if it's just sold. So one of the things I thought of was why don't you use 1031 that into some Starbucks? You could probably buy a Starbucks at four or five cap right now and have it free and clear and get the same return. What are your thoughts?
Speaker #0
Yeah, I mean, it just depends on, right, if we're only looking at return on equity, you, depending on if there's debt, right, if there's debt on the property, and you put the financing in place a few years back, that's going to look a lot different in the exchange, because you're not going to get the same terms that you got, you know, four years ago, three, four years ago. Theoretically, yeah, but they're, like I said, so you've got that part. you're going to do the exchange. You're going to lose a little bit of equity through the exchange. It's making sure that you can recapture that. There's a big difference between owning, right, a retail, like is it a multi-tenant retail building?
Speaker #2
Yeah, they're like neighborhood centers. There's some national credit anchors, but a lot of neighborhood type businesses.
Speaker #0
Yeah, so there's, when we look at, you know, one of the first questions I always ask clients is why are you selling the property? Because we want to understand what are the overall goals of the investor. If the investor's primary goal is to maintain a 4.5% cash flow, the exchange could be a good option. If they want to have the appreciation, if they want to have the opportunity to grow that portfolio, then we have to start analyzing asset classes. If you look at the absolute triple net, and Starbucks are typically double net, so you still do have some responsibility. out. we don't see as much appreciation in those assets because the value is driven by the lease term. And so from a return on equity standpoint, that is, it's funny you bring that up because that's one of the first questions I always ask investors. But most of the clients that I work with are, you know, over the age of 60 or 70. And so we're really focused on that cash flow and that capital preservation. If your focus is more heavily on appreciation, that's where that strategy can kind of have its plot.
Speaker #2
That's a good point you're making. So the, what I'm hearing is your goal, what you're trying to accomplish will drive the decision.
Speaker #0
Yeah.
Speaker #2
If you're looking at it at a high level, do you want life simplicity? Then maybe a Starbucks is a good investment. Or are you looking for growth and you're still building for something, retirement or whatever, then maybe a Starbucks isn't a good option.
Speaker #0
Yeah, because like I'll have clients all the time ask me, so most of what I do is represent in what are known as... DSTs or Delaware Statutory Trusts. And they are, you're going to get, you know, there's no guarantee, but the underwriting today is like similar to your triple net, where you're going to get that lower income capital preservation, maybe a little bit of appreciation. And a lot of clients will, Ashley, do you invest in those? And so I always tell them no, because I am at a spot in my career where I'm in growth mode. I'm building a portfolio. I'm thinking about how to build out. a portfolio for my, for my daughter to set her up. So I don't need that stable income. I can take a little bit more risk. So that's where the different asset classes and the different investment strategies will come into play.
Speaker #2
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Speaker #0
Lower. I mean, they're still considered more aggressive just because they are a security, they're a liquid. There's a lot of aspects. But when we're looking at the underlying real estate within a DST, what you'll typically see is a core asset in a strong growing market where there's different economic patterns that show. you know, migrate like positive migration, we're seeing new industries move to the space, we're seeing high occupancy, new developments, or these class A where maybe income is four and a half to five and a half percent. Whereas, you know, other investments that you can go you can get 79 plus percent. But yeah, that's historically what you want to see in a DST is that more conservative offering, I have to say, we don't want to necessarily use the word conservative, because there's always risk. So I get hesitant. But if we're comparing it to going out and buying a value add value retail center where I've got a retenant and put in tenant improvements, it's going to be very different.
Speaker #2
So one of the risks I see with 1031s and why I don't love them, Ashley, is because there's some time restrictions around it and you could become a forced buyer pretty easily. And then when you get into that situation, now you're paying too much for the replacement property. Can you tell me a little bit about what I'm talking about here, the timing of that and that risk? And tell me, does DST help avoid that risk?
Speaker #0
Good question and short answer, yes. But I'm going to, for those who aren't familiar with the 1031 exchange, so, right, it's a like-kind exchange. You can buy and sell real estate all while deferring your taxes. And it's really valuable to help people, right, grow their portfolios. Because if you had to pay 30, 40 percent. on every sale, it'd be really hard to grow. And so the IRS has put on certain restrictions though, when you're doing the exchange. So let's say I sold the property on March 1st. When I close after that date, I only have 45 days to identify my potential replacement properties. And that is calendar days. So let's say that brings me to April 14th. So that's a pretty quick timeline to go out and try to find replacement properties. You only need to identify your options and there are certain ID rules. You actually have 180 days from when you close. So that'd be 180 days from March 1st to actually close on the properties. But yeah, let's say you close on March 1st and you went out and you, you know, the most common rule used is the three property rule where you can identify any three properties and put them on your ID sheet. inventory is pretty limited today with financing. It's really hard to get deals done, or can be hard. And so you might get to day 44 and you don't have property. So you just ID three and you're stuck. You're stuck with those or you're stuck paying taxes. So I tell investors if they're not so DSTs, the way that they work is the sponsor. The sponsor is the company that goes out and puts the deal together. They, by the time a deal gets to me, We already have all the underwriting. It's all outlined in what's known as a PPM. So usually when investors come to me, we can, once we have the portfolio identified, we're closed, right, within five to 10 business days. There is not the follow-up due diligence. I can have all the questions answered, right? You and I are talking about a deal. I can pretty much answer everything today about that deal for you. And so for the timeline, We don't need to worry about that with the DSTs. And so for clients, it's fine. If you're going into a DST, I tell clients, let's do it early, right after you close, because you'll start earning income. If you get to day 44, we can ID DSTs and have you close that next week. So it takes a lot of that anxiety from the transactional.
Speaker #2
So are you only working on the DST side or are you still seeing or doing 1031?
Speaker #0
Well, so when you invest in a DST, you still do a 1031 exchange. I am not a qualified intermediary, so I don't facilitate the exchanges. Most of what I do today is representing investors who go into Delaware's statutory trust. Um, but we look at other tax mitigation strategies to write, um, to make sure it's a good fit for them because the purpose of the 1031 exchange is the tax deferral. So if you come to me and, you know, you've only owned the property for two years, you need to think about as a 1031 exchange of best fit, or do you want to take the tax hit for let's call it the 6% appreciate 8% appreciation versus... Most of my clients come to me because they've owned the property and they've exchanged for decades and they're going to owe upwards of 30% or 40% of their sale price. So most of what I do is DSTs, but we want to make sure it's a good fit.
Speaker #2
And you said something earlier. We went over that really fast, Ashley, but you said the debt can create. What did you say? The debt can create or debt can trip you up, I think you said. So if you like depreciate a property and you and then you lay your debt on it like a cash out refinance and then sell it, you could potentially owe more taxes and you get in proceeds.
Speaker #0
Well, there's kind of a few things that you said there. So if you're going to in the 1031 exchange. Right. So when you do the exchange, you need to replace the equity and the debt. You're replacing the full sale price. minus closing costs. So if you sell a property for a million bucks, you have $400,000 equity, $600,000 in debt. When you do the exchange, you still have to replace that. Pulling out equity before you sell it is very much a conversation to have with your CPA because the IRS might frown upon that and see that as taxable. So you don't want to... to mess with the financing too close to the exchange without talking to your CPA to make sure that you don't create some sort of taxable event.
Speaker #2
That's interesting. And I guess my point was, and some of the listeners may be in this situation, this is another trap. So I described one 1031 trap with being a forced buyer. Another one is if you have leveraged it up before you put the property for sale, if you don't, if you do not, if you choose not to do the exchange, you might have a hard time paying off the debt because your taxes will be so high, right? So some people get into this trap and so they're forced to do a 1031, maybe a DST if they're getting a little bit older and they don't want the effort of finding the replacement property or managing it. So this is a way out, I guess, is where I was leading.
Speaker #0
Oh, yeah. So sometimes what I'll see is, you know, you'll be leveraged. And once the... right you're in escrow the debt's paid through escrow the equity you get from the sale is going to be less than what you owe in taxes so you're at a loss um and that happens a lot because you've been doing exchanges so yeah you want to there i do have clients who say oh i'm not going to do a 1031 i'm going to pay taxes but there's typically a reason maybe it's a very small portion of their portfolio. Maybe they have this investment opportunity where they're going to develop and they're going to get 20, 25% return profile on that. But otherwise, you've got to be very careful if you have leverage and you're selling or if you're doing anything, you need to look at how that debt's going to play into the tax implications from the sale.
Speaker #2
Yeah, I really like what you're saying here that I want to dig into the DST just for a minute here. This is a newer thing and I don't know that everyone really understands it. So can you describe like maybe the most recent deal you did or one of your favorites in the past five or 10 that you really like? Like what was the deal and what did the investor get?
Speaker #0
Yeah. So I guess even before I get to that, I want to highlight a little bit more. What is a DST? Because, yeah. Most investors I talk to have no idea what a DST is. So it's Delaware Statutory Trust became 1031 eligible in around 2002. So relatively new, but they really didn't start to become popular until after 2010 because all those tick deals, the tenant in common didn't do too well in that time. So what the DST is, it's either one piece of real estate or a portfolio of real estate. So this can be a 300-unit apartment building in Atlanta, Georgia. It can be a portfolio of industrial properties. It can be a portfolio of those net lease properties we were talking about. And it's all bundled into this DST. And so the sponsor puts it together. They bring it out to the retail market where advisors like myself introduce it, show it to clients. And some of the biggest benefits of these investments is if the minimum investment is $100,000. So investors, let's say they sell for a million, they can divvy up those proceeds into four different deals. And they're what we would call institutional assets. So institutional quality deals, most of the time deals that you and I wouldn't be able to go out and buy. I don't know about you, I don't have $100 million sitting around. So those aren't in my portfolio yet, but you could bring them into your portfolio by going into the DST. And so you sell for a million, you go out, you invest in four different DSTs. Now you've got a diversified portfolio spread across the country, maybe split into different asset classes. And so you get a lot of the benefits of real estate ownership, right? So you still get the depreciation carried forward. you still get appreciation. As for current offerings, I can't discuss specific offerings because they are securities. So in order to invest, you have to be an accredited investor. But like I said, so recent deals are typically your class A multifamily properties, strong growing markets. We see a lot in the Sunbelt States, Florida. We don't see so much in Texas today, the Carolinas, Georgia. there'll be portfolios of self-storage facilities. There'll be portfolios of, you know, the corporately guaranteed net lease properties. And they all have their own pros and cons, right? They all have, why would I invest here versus there, different aspects, like we talked about earlier, why you invest in different assets for different strategies. So similar on the DSTs. Return profiles are... They range, not guaranteed, right? But where the market today is anywhere from four and a quarter up, typically you're going to see four and a quarter to five and a quarter. Just like when you go buy real estate though, right? You start getting up in the distributions. We want to see why, because that usually aligns with risk profile. And then another unique one that I'll just touch on real quick is mineral and oil rights. they're also 1031 eligible. So that's another asset class you can pull in through the strategy.
Speaker #2
And they are probably doing pretty well right now.
Speaker #0
Yes. And those are not right. So that's getting into the commodities, you're getting into global investing. We're not reliant on just the US market. It's so much broader than that. So yeah, the, you know, oil prices have fight if you followed the news recently, right? But in order to really translate to investors, frankly, we'll have to see long-term pricing increases and it's also dependent on production. So there's different variables. But yeah, I do anticipate those particular investments to do well in the near-term future, but they are a more volatile investment opportunity because you and I can sit and talk about real estate and, oh, this... you know, this retail center, it's going to do well because they're building over here and they're doing this well with oil and gas and commodities. We cannot, we don't have those types of predictions. I could not have told you the things that were going to happen in the last year or so.
Speaker #2
Yeah. Before we wrap up here, Ashley, we talked a lot about 1031s and how they're used to defer taxes. And I've heard you say that word a couple of times. Now, it is a deferral. I will agree with you, but not necessarily, right, because of the step up. So tell us about the step up and how we can avoid taxes completely, 100% tax free gains. And then I want to get into my notes and go over what I learned from the episode.
Speaker #0
All right. Yeah. So 1031 exchange, right? You're selling a property. We call it, you know, swap till you drop, defer till you die. Maybe morbid, but it's the theory where you can continue to do a 1031 exchange until you pass away. At that point with real estate, your beneficiaries get a step up in basis, meaning that all of those gains or your properties reassessed and all those gains are essentially kind of wiped out. And at that point, you're going to be dealing with estate taxes. So you need to figure out that portion. But, you know, let's say my grandmother owned a property for 60 years. She passed away and passed it on to me. That's going to be reassessed at her passing. And so now I is. as the inheriting the property can go and I can sell it and I'm not going to owe all those. It's not only capital gains either. It's capital gains, it's depreciation recapture, it's net investment income tax, if applicable. So there's a lot that if you hold onto the real estate or you stay in the real estate cycle for your life, your kids or whoever you pass your real estate along to will get what's known as that step up in basis. And it's a great estate planning tool.
Speaker #1
So if you literally, if you're inherited property and you sell it the same day, I know I'm oversimplifying, but you owe zero tax. So you get the money, you sell the asset, get all the income with no tax at all because your basis is at what it's worth at the time you sell it. Now, I assume that's true with the DSTs, but I don't know that.
Speaker #0
Yeah, and it's all true. So if I have a minute, I do want to highlight. DSTs are... Like most of my clients who go into Delaware Statutory Trust are going to be older. They've owned the real estate for a long time and they're tired of managing it, but also they're putting their estate plan together. And what we see a lot and what I saw a lot when I worked on the commercial brokerage side was you'd have two or three kids inherit a property and then they have to decide what to do. So when you invest in a DST, let's say you have $3 million and three kids. They'll each be allocated a million dollars per the trust. So they each have the 33.3% ownership. So when the DST sells, there's a life cycle, right? We didn't get too into details, but you'll be in the DST for five to seven years. When that DST sells, the allocated portion just goes to the beneficiaries. So there's no, oh, who wants to hold it? Who wants to manage it? Who wants cash? It simplifies it a lot. And then they get that step up in basis. So they can take the cash. They can reinvest. They can do another exchange. It simplifies that process a lot for the estate.
Speaker #1
I was actually going to go exactly where you went. So I'm glad you did that, Ashley. If you have multiple kids or grandkids or whatever, and you want to invest in, say it's five different DST, you can allocate in your will or in your trust or however your stuff is set up, you know, one for each kid. And that'll eliminate the headaches and the hassle and eliminate the, have to clean up and sell the property. and the fighting, right? It just, it seems to me in my mind, as I'm thinking about estate planning, this is probably a decent strategy.
Speaker #0
Yeah. Like I have a client right now who has, let's call it, I don't know the exact number, but 10 single family homes. You sell each of those. You don't have a lot of options for tax deferral, but you sell each of those and you put it in a DST. Well, now everything's structured. The income's coming monthly. There's absolutely no management. There's no decisions to be made until that real estate sells, until that DST sells. And for those who have a portfolio, it's a great way to not have to worry about the timeline and making sure you have enough equity. And we didn't even get into it, but debt replacement, there's a lot of benefits to it.
Speaker #1
Yeah. Well, this has been really fantastic. I know you're busy and you chose to hang out with me for 40 minutes. I really appreciate everything, Ashley.
Speaker #0
Oh, thank you. I enjoyed the conversation.
Speaker #1
I actually didn't go through my notes. So before I do my close, before I do my close here, let me go through my notes. So this is what we do. I like to do on the show is I want to go through what I learned and you just tell me if I missed anything and then whatever final piece of advice you want to say and then your contact info. All right. So we talked about you getting started and how you started out in the commercial space with a very small company and you were doing net leases. And we defined what a net lease was. And you could have multi-tenant or single-tenant net leases. Very good properties to own for passive income, you said. Debt can trip you up on assets. We talked about that early and then we came back to it. So be careful with debt on these assets. You said, what is your goal? So if you're talking about doing a 1031 into a DST or other asset, the replacement asset and the exchange in general, It's really going to come down to what you're trying to accomplish. So make sure you have a good understanding of what that is. DSTs, your words were low growth, low risk. I'll let you back off of that a little bit and said it's maybe higher risk. You can't really say that. This is the security, so I get it. 1031 is 45 days for a replacement identification. That's one of the traps. And then 180 days to actually close. And what we didn't talk about is on the seller side. It's important to understand these 1031s on the seller side too, because one, you can get a desperate buyer and maybe get a higher price. But if you're one of three and they're only planning to close on one, they might be tying you up also. So there's two things on the seller side and I've experienced both. So be careful. Make sure you understand what they're trying to accomplish as a seller as well. Um, we talked about the two traps on 1031s, mineral and oil rights that you could 1031 into. That is awesome by the way. And you could, it sounds like you might be able to help with that. And then DST, DSTs for estate planning. Um, it could be a really good way to simplify your estate before, you know, the thing happens. So how did I do?
Speaker #0
Perfect. Yep. Yep. You did good. Um, and what I What I try to emphasize with GCA 1031 is, right, we all, investors, everyone wants to get into real estate. And there's all these plans and we strategize. And what I find is that no one is strategizing on the back end. They make impulsive decisions. They see a price point and they say, oh, that's way more than what I paid for it. I want to sell it. And what I want to emphasize to investors and anyone working with investors is to start the conversation early on what are those exit strategies? What are those tax deferral strategies? What are those reinvestment options? Because it's not sell one property, buy another property. There are a plethora of options and opportunities out there that investors don't get to see because they wait until that 45 day to start looking at what their options are. And I'm always shocked that people put so much effort into building these portfolios and this wealth, and then they don't focus on how they're going to preserve it on the exit. And so that's what I want to emphasize for investors.
Speaker #1
That's a fantastic final piece of advice here. Focus on a strategy going in and out of your investments. Okay. How do we get ahold of you?
Speaker #0
Sure. So Ashley Romitti, I am president at GCA 1031. You can visit my website. All my contact information is there. My cell phone is posted. I love talking to investors about real estate. So you can just call if you have questions.
Speaker #1
All right, Ashley. Well, thank you again. I know I just said this, but you're busy. You came on the show. Thank you.
Speaker #0
Thanks, Kevin.
Speaker #1
All right. And for the listener, you have other podcasts you could be listening to, and you chose the Real Estate Educators podcast. And for that, I am very, very grateful. I hope you got value. Like, I learned something here today, guys. So I hope you did too. If you did, please, five-star review, share it with a friend, and I hope you make this day a great one. I really hope you enjoyed this episode as much as I did. If you did, please be sure to follow and leave a five-star review. Oh, yeah. and tell a friend.

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