How to Avoid Capital Gains Tax Using 1031 Exchange Real Estate Strategy

Brandon Bruckman (00:00)
Yeah, absolutely. Michelle, thank you for— for having me on the show. I really appreciate it. What we do is very niche and nuanced, and— and we were talking before, like this is really a— awareness game that we’re playing about the options that are available for investors. So I’ll talk about who we serve. So we serve real estate investors, real estate professionals that have been managing their property for many, many years, and it’s occurred to them, “Hey, I might not want to do this on an active basis going forward. I think I want to sell these and do something a little bit different with my life.” But they’re presented with two problems, one real big one—

Michelle Tack (02:08)
Hi everyone, I’m Michelle Tack. I am the podcast leader for today’s Real Estate Pros Podcast. I have a great operator, Brandon Bruckman, from Milwaukee, and he has incredible amount of intelligence and experience with 1031 exchanges and has done a lot of high-end exchanges as well. And so we’re really psyched to have you here as part of your— you know, you were part of the advisor board for your company, et cetera, and an investment advisor. So, Brandon, for those that don’t come from your world, but may have some interest in what you do, can you explain what you do and what markets you serve, please?

Brandon Bruckman (02:53)
Yeah, absolutely. Michelle, thank you for— for having me on the show. I really appreciate it. What we do is very niche and nuanced, and— and we were talking before, like this is really a— awareness game that we’re playing about the options that are available for investors. So I’ll talk about who we serve. So we serve real estate investors, real estate professionals that have been managing their property for many, many years, and it’s occurred to them, “Hey, I might not want to do this on an active basis going forward. I think I want to sell these and do something a little bit different with my life.” But they’re presented with two problems, one real big— likely if they’ve held that for an extended period of time, there’s been appreciation in that property, they probably have a tax bill. And it’s probably a lot, 30, 35, maybe 40% all in when you talk about capital gains and depreciation recapture and all these fun things that— that the tax code wants when you sell your property, those all come due when you do that. That doesn’t sound very appealing to sacrifice that considering how much hard you’ve worked, right? So we’re solving two problems for them. One, we’ll take you through a 1031 exchange process and have you defer that tax bill. But two, where we’re really add the value is we’re finding replacement solutions that are passive. So then this meets the goals that you want for your life, which for most of our clients is to simply take a step back. I almost don’t want to say retiring because it— it— it has a connotation to it and I don’t think our clients like that terminology, but that’s what we’re talking about. We’re talking about retiring you from what is your active business and job of being a real estate investor.

Michelle Tack (04:22)
That’s a great explanation. Thank you. Do you operate across the United States or do you operate in one specific area that you prefer, or help me understand that a little bit?

Brandon Bruckman (04:32)
We’re focused— we’re focused on the Midwest, but our clients are everywhere. Number two state for me in terms of number of clients is California. Number one is, as you mentioned, Milwaukee area behind us, if you’re watching on— on video, is downtown Milwaukee. So that’s second for us. We also have our home office in Kansas City. So you can kind of see that Midwest geographic focus, but we can work with anyone anywhere in the country. And then the passive solutions are also any sort of property types anywhere in the country as well. So there’s a lot of variety there too.

Michelle Tack (05:00)
So just to clarify, Brandon, so you do commercial as well as residential, correct?

Brandon Bruckman (05:06)
Yeah, the majority of— of properties we see that are on the— the investment side that are being relinquished are typically commercial. We do see some— some folks with residential as well. It really doesn’t matter. As long as it’s investment property that you’re relinquishing, you can do that 1031 exchange. And then the replacement options that— that we’re evaluating for our clients are all commercial. And think large commercial, right? You really become a fractional shareholder of some these very large properties that have more of a, quote unquote, institutional quality attached to them. so think of it that way when you think about that as a replacement.

Michelle Tack (06:27)
What impressed me when we got together to prepare for this podcast was that you were very clear what you do and the value to it. And you also mentioned that you’re looking to expand, you know, getting more feet on the ground from advisors. But how do you keep your business operationally efficient? Because it seems to me from our discussion it’s running smoothly, although there’s things that you wanna change and grow and deal with. Can you talk to that for the audience, you know, what— what items that you’ve instituted to ensure that your business, you know, stays on point?

Brandon Bruckman (07:05)
Yeah, it’s a great question. And it’s very interesting too in the time of the rampant acceptance and usage of AI to have this conversation because we’re thinking about it a lot. So I’ll talk about that a little bit. We’re actually using that in three ways. One to— to take a lot of our repetitive tasks and really push them into the machine and build a process around that. And then it’s really helping us also get to things that we’ve never gotten— gotten to before, just from a time constraint perspective. And then third, we’ve really had a huge help on improving the quality of deliverables we can give to our clients as well. So the AI— AI tools have been excellent to do that. But ultimately, as we talked about, our business is people. And so as much as I love the tools, I need great people that want to work for us and want to understand this mission and want to support our clients. Because very often when I’ll have a new advisor, a new addition to our team, sit with us and talk to families that are going through this process, this is one of, if not the most important financial decision of their lives that they’re making. And we’re seeing those people at nine a.m., ten a.m., eleven a.m. Every single one of them requires our attention and care that way, right? And so I have to have great people to do that.

Michelle Tack (08:11)
It— it begs one more question I have for you on operating smoothly. Would you— do you have a percentage in mind, and maybe this is an unfair question, of because you— you the face to face, the relationship, the all of that is so important to your business, what percentage of your business do you want to not exceed to have AI take over?

Brandon Bruckman (08:35)
Yeah, that’s a tough one. There’s so much change that we’re trying to be careful. So I’ll put it this way. I’m— we’re trying to be very careful about the processes that we use through that tool. and we’ve become very disciplined in building operating procedures around using it and verifying and checking every single number and thing that comes out of there. We find errors. We find mathematical errors, right? So pro— again, we go back to people, like everyone concerned that AI is gonna take your job. It’s not because we’re gonna need people still around these processes to make sure that they’re accurate and that they’re efficient. Sometimes this isn’t efficient in some of the things that we’re doing the process to, right? So ideally, would I love the entire business to run through the AI machine? Yes. Is it capable yet? No, it’s just not. And so we’re just not there yet. I don’t know where that percentage gets to. It depends on the improvement, I think, that we see from LLMs and— and extensions of that. It depends on us getting better at it too. Like we’re by no means experts at it, to say the least. So it’s an— it’s an evolving process, but it’s a tool that we can’t ignore, but we can’t overrely on yet either.

Michelle Tack (09:40)
Yeah. As you go through this, I mean, every business continues to morph and change as you’ve described. Can you tell me based on your experience— you’ve been doing this for a while— if you’ve had a situation where a deal or a situation with a client was going south and you had to pivot quickly to redress it, and that you’re able to do that? Or if not, it was really instrumental in developing your skill sets and you as a professional. I— I’m sure our audience would love to hear something like that.

Brandon Bruckman (10:48)
Yeah, and— and there are a few of those situations, unfortunately, where, you know, I looked at our log since twenty eighteen. We’ve been doing specifically a ten thirty one side of this business. We’ve done five hundred plus transactions as an organization on there. I was kind of like, “Wow, that’s a lot. Didn’t realize there was that many.” Frankly, when you do five hundred plus transactions, the expectation all those are gonna go perfect in real estate is un— is unfair to have that as an expectation. So I think it’s— it’s a communication thing and it happens up front. It’s helping people understand that we’re not buying US Treasury bonds here. Like, this is still real estate at the end of the day, and it comes with all the subsequent risks that real estate comes with. I don’t think the vast majority of the general public understands what those risks are or where those risks come from. So it’s— it’s starting with that education component. And then ultimately when we have things that do perform poorly, it’s just over— over communication, overcommunication. Unfortunately for us being in the middle of this transaction, I can’t go to the property and fix the problem. I’m relying on another outcome— outside company to do that. We have to evaluate them first when they come to us to make sure that they’re good at what they do. But we also have to understand that they’re gonna have problems too eventually. They’re doing the same number of transactions. How are they going to handle it? Are they going to stand behind their product? Are they gonna communicate clearly to investors? And if they’re not doing that, it’s incumbent upon us to push on them. And so you’ll see us do that in some of those situations. Sometimes that’s successful, other times it’s not. But again, it sort of goes back to expectation setting for our clients and then communicating when there’s issues and getting to, all right, simple stuff. What’s wrong? How are you gonna fix it? When will it be fixed? Like, that is very hard for a lot of people to work their way through, which is shocking to us, right? So we try to hold everyone accountable to doing that.

Michelle Tack (12:25)
Yes.

Brandon Bruckman (12:32)
And it’s all the better for our clients. And our clients do understand like these things do happen and— and are you doing everything you can to solve the problem? The answer is yes, then by and large they’re very happy with what we’re able to do.

Michelle Tack (12:43)
I was interested in when we spoke about your network, what you can and cannot do in referrals. But can you for the audience, for those that may want to refer business to you, what have you, can you explain a little bit about how you’re using your network and what it looks like and— and maybe where you want the network to be in the future?

Brandon Bruckman (13:03)
It’s incredibly important to us. So we talked about really two channels to market for us. One is obviously going direct to folks that own property and saying, “Hey, here’s a solution for you.” But the second channel is almost more important, and that’s everyone— every professional that might be listening to that’s around this and knows their clients that could use the solution. They’re incredibly important. they’ve already built that trust with those folks, and they can bring a solution to them that probably others aren’t as— as their competitor peer set. So you think about we’ll have some commercial real estate brokers, for example, in our network referring to us business, and they say over and over again, “The people I’m commute— competing with for listings, they don’t offer these solutions.” Right. And so very often what— what a commercial broker will see is that that investor is not going to sell, and so that’s a lost listing. And so we encourage them to think about it that way is like you’re the number one point of contact going to your client with a solution that meets their needs. Do you want to do that? Well, of course you do, right? Like, well, that’s right. So if we got a way to— to partner with us and work this into your business, you will get more listings doing that.

Michelle Tack (14:09)
The network’s super important. You have the ability to, you know, do referrals with some because of legalese, right? Legitimate, and others you can’t, but even those that may not be able to get a percentage of the— of that commission or whatever that amount is, it’s super important to them if you’ve got a client that is in this situation. and so I— I appreciate that. Before we close, can you talk about opportunities that you’re really psyched about over the next year that you’re going, “Hey, you know, you call me back—” yeah, Michelle. You call Michelle, me, back in a year and say, “Hey, this is what I executed. I’m super psyched. These are the things that we talked about a year ago that you’re jazzed about in terms of opportunities that lie ahead for you.”

Brandon Bruckman (15:36)
Yeah, I think it— it’s a bunch. So I think from a business standpoint, I think we’re very excited to continue to expand. We’ll keep hiring more advisors. We’ll keep being larger in the space. We’ll obviously keep being a thought leader in the space as well. but I think the opportunity is— is sizable. I think you’re gonna continue to have folks that look at the equation of holding real estate directly right now and go, “You know what? I’m just not making enough cash ver— versus the work that I’m putting in to maintain these properties.” I think we’re going to start to realize that economically over and over again that holding real estate direct in a market where interest rates aren’t going down and you’re not seeing the kind of appreciation that you expect out of that property, that’s hard. It’s really hard. It’s hard to start with. It’s getting harder now, right? And so I’m— so I’m excited to solve some of those problems for folks where they probably thought there was no solution. Right. So that— that makes me very excited. And I think, as we had talked about before, I think that we’re doing some things in this industry to bring even better products to the marketplace. And that I’d be very proud of to watch some people that we’ve— that weren’t interested in participating here come in with just great real estate for folks to invest in. That’ll make me extremely happy.

Michelle Tack (16:44)
That’s great. You’ve been an incredible provider. I really appreciate you joining us, Brandon. Before you leave, you know, those folks can see on the screen up to the left that you— your contact information. There you go. Anything else you want to share about your— you know, people contacting you that—

Brandon Bruckman (17:02)
Yeah. Yeah, yeah, give me a call. I mean, we’ll answer any questions that you may have about the space, and usually there are a lot. Shoot me an email too at [email protected]. Find our website, investwithinsight.com. I’m active on LinkedIn. You can also find us— we have a podcast too, *The Retiring Real Estate Investor*. So you can hear me sort of ramble about these thoughts and ideas in— in more detail and interview some people from the space.

Michelle Tack (17:37)
Brandon, you’ve been great. You haven’t rambled. You’ve been very concise. I believe our folks that are listening to the podcast will have gotten some really great information. So thank you very much for your attendance today. For those that are subscribers of *Real Estate Pros*, we hope you continue to value the content. For those that may have dipped in and may want to become a subscriber, we hope that you enjoyed the content as well. Best of luck, luck, Brandon. Look forward to staying in touch and see where— where you go within the year.

Brandon Bruckman (18:07)
Thank you so much, Michelle.