How a 1031 Exchange Works w/Ben Carmona
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Episode Description
Welcome to the Freedom Point Real Estate podcast! In today's episode, Jeremy Dyer questions Ben Carmona about all things 1031 exchanges: how they work, how they can help real estate investors defer capital gains taxes, what the key to successfully executing them is, how to use them to build generational wealth, and so much more.
With over 20 years of expertise, Ben is a leader in 1031 exchanges, Delaware Statutory Trusts, and innovative real estate investment strategies. Having worked with top firms like Cantor Fitzgerald, NexPoint Advisors, and Capital Square Advisors, he brings unmatched experience in acquisitions, finance, due diligence, and product syndication. Ben’s in-depth knowledge spans structured 1031 products, including TICs, DSTs, non-listed REITs, private equity, and more. His strategic insight into alternative investments and the financial industry makes him a trusted advisor for clients seeking tailored, well-informed investment solutions.
CONNECT WITH BEN CARMONA!
Website: https://perchwealth.com/
LinkedIn: https://www.linkedin.com/in/benjamin-carmona-5a36b532/
Youtube: https://www.youtube.com/@perchwealth
Call/Email Ben: 818-269-4972 or bcarmona@perchwealth.com
CONNECT WITH JEREMY DYER!
Website: https://startingpointcapital.com/
Instagram: https://www.instagram.com/startingpointcapital/
LinkedIn: https://www.linkedin.com/in/jeremydyer
Facebook: https://www.facebook.com/startingpointcapital
Book a Call! https://calendly.com/startingpointcapital/discuss-investing-with-jeremy-dyer?month=2023-12
Summary
Tip #1: 1031 Exchange as a Wealth-Building Tool
Ben Carmona emphasizes that the 1031 exchange is the "most powerful generational wealth opportunity" because it allows investors to defer taxes indefinitely, enabling continued wealth accumulation. The strategy helps investors avoid taxes until they decide to exit or pass away.
Tip #2: No Income Tax on Reinvested Profits
The ability to "continue to exchange and exchange and pass away" is central to the 1031 exchange strategy, allowing for the deferral of capital gains taxes. "That alone is incredibly powerful" for building long-term wealth.
Tip #3: Dealing with Potential Risks
One risk when utilizing a 1031 exchange is failing to secure a suitable replacement property, as Ben points out, "you don't want to deploy that capital into a bad deal or with a bad sponsor." It’s critical to thoroughly vet potential sponsors and property deals.
Tip #4: Evaluating Sponsors and Operators
According to Ben, a key part of risk management is choosing the right operator. He shared that, after 15 years of experience, he can "immediately lop off 70% of the deals" because of his insider knowledge about the sponsors, making it easier for clients to avoid bad deals.
Tip #5: DSTs and TICS for Passive Investors
DSTs (Delaware Statutory Trusts) and TICS (Tenancy in Common) are crucial tools for investors looking to move from active to passive real estate investments. They allow for the exchange of properties into managed assets, providing "income and tax deferral" without the stress of active management.
Tip #6: The Role of Estate Planning in 1031 Exchanges
Ben highlights the importance of estate planning in maximizing the potential of 1031 exchanges. He notes that DSTs and TICS fit well into an overall estate planning strategy, ensuring wealth transfer remains tax-efficient.
Tip #7: Accredited Investors and Minimum Investment Requirements
The conversation also clarified that investors must meet the "accredited investor" requirement, typically with a net worth of $1 million, excluding personal residences. Some DSTs have low minimum investment amounts, even as low as $50,000.
Tip #8: Income vs. Capital Gains in a 1031 Exchange
A critical detail about 1031 exchanges is that "income received on a monthly or quarterly basis" is not part of the exchange. The exchange only applies to "the initial equity invested plus any appreciation," leaving income distributions out of the equation.
Tip #9: The Depreciation Strategy
Depreciation plays a huge role in the benefits of 1031 exchanges. Ben points out that "you can replenish your depreciation bucket" through a well-timed exchange, which helps offset ordinary income tax on current investments.
Tip #10: Connecting with Experts
For investors new to the process or looking for expert advice, Ben Carmona offers direct communication through his cell phone and email. "We would be happy to speak to anybody to educate them," he says, underlining the value of working with experienced professionals to navigate the complexities of 1031 exchanges.
