Real Estate Investing: 1031 Exchanges and Cost Segregation Studies

Learn about the risks of using 1031 exchanges recklessly and the benefits of cost segregation studies for real estate investors, including accelerated depreciation and improved cash flow. The chapter also touches on the DSCR loan product.

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In this episode, Bill shares his concerns about the hurried approach many take when considering 1031 exchanges, viewing them solely as a tax deferral tool. He emphasizes the importance of long-term thinking and highlights the potential pitfalls if there's a lack of available cash in case of emergencies. Bill advises against the reckless use of 1031 exchanges and urges listeners to conduct a thorough analysis of their cash reserves before proceeding with one. He emphasizes that they do have the potential to work but they also have the potential to hurt your pockets.

Moving on, Bill delves into his apprehensions regarding Cost Segregation Studies, drawing from his recent experience with his Montana condo. He cautions against the common misconception that cost segregation can lead to significant profits without considering the IRS's recaptured money. He also warns of the potential risk of attracting an IRS audit with careless behavior.

Bill then shares insights into the DSCR (Debt Service Coverage Ratio) loan product and his recent utilization of it for his Beach Mountain house. He recounts a costly lesson involving a prepayment penalty that resulted in paying thousands of dollars in recaptured funds due to the way he structured his 1031 exchange and Cost Segregation Study. His message is clear: thoughtless financial maneuvers can have dire consequences.

Wrapping up the discussion, Bill reveals that only 30% of his property portfolio carries any of these financial encumbrances. He underscores the influence of age, advising younger individuals to exercise caution and avoid properties with such encumbrances.

[00:00] Intro

[00:30] Context

[01:41] 1031

[03:48] Cost Segregation Studies

[06:55] DSCR Loan Product

[08:22] Encumbered Properties

[10:11] Age

[11:50] In Closing

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