The 1031 Exchange Tax Trap Every Real Estate Investor Should Avoid

Aaron Kancevicius (00:00)
We work with all real estate investors from the mom and pop ones who just happen to have a rental, single family rental, all the way up to large commercial investors, the owners of you know apartment projects, warehouses and land, you name it. So any anybody that’s had investment property that has appreciated or that’s They’ve taken a lot of depreciation on because they forget a lot, forget that they’re gonna have to pay 25% of that depreciation back if they just sell and not exchange.

Meghan Escobar (02:07)
Hello, everyone. Welcome back to Real Estate Pros Podcast, hosted by Investor Fuel. I am your host, Meghan Escobar, and today I have the pleasure of sitting down. With a fine young gentleman who is focused, hyper focused on one specific niche: 1031 Exchanges. And so today we’re gonna talk all about what he’s doing, how he’s helping folks in the real estate industry, investors specifically, on capital gains. And so I’m gonna bring to the show here Aaron Kancevicius with 1031 Specialists. Welcome to the show, Aaron.

Aaron Kancevicius (02:45)
Thank you, Meghan. I appreciate that. And you nailed the name. I’m very impressed how quickly you learned that.

Meghan Escobar (02:51)
It’s all the way you teach yourself how to say things, right? It’s yeah. I chopped it up when you first came on. I’m like, man, I’m gonna I’m gonna screw this all up, but we got it down packed. So I’m

Aaron Kancevicius (03:03)
Got it.

Meghan Escobar (03:04)
Really looking forward to this conversation. I do believe that our audience is going to be able to walk away with some incredible insights and the way that you guys are helping individuals in this industry specifically. So Excited to learn more about what it is exactly, but let’s dive in.

Aaron Kancevicius (03:23)
Absolutely, thank you.

Meghan Escobar (03:24)
Yeah. And for those folks that are listening in and they’re like, what even is a 1031 exchange or who is 1031 Specialists? Can you give us a thirty thousand foot view of what you guys are focused on these days and the markets you’re operating in?

Aaron Kancevicius (03:40)
Yeah, absolutely. So first of all, the 1031 exchange, it’s really it’s just referring to the portion of the tax code, Section 1031, and it has to deal with someone selling investment property and they’re going to replace it with other investment property. And normally when somebody sells property that’s gonna trigger a tax bill. And especially with investment property, it’s gonna be a large capital gains hit. But using a 1031 exchange, it allows them to make that exchange and to do property without paying that capital gains. It defers it all. So that’s what we do, 1031 Specialists. That what the IRS requires to do that is called a a qualified intermediary or QI for short. Some call it a 1031 accommodator. It’s all interchangeable the wording. But that’s what we that’s what we are, neutral third party or the intermediary that facilitates the exchange and handles it all to make sure that they that they defer all the tax.

Meghan Escobar (05:25)
Nice. All right. Well, perfect. Thank you for breaking that down. That was very simply said and easy for people to understand, I believe. And, you know, one thing that really caught my attention when we were chatting before we got on here was, you know, and I think this is something that a lot of people in the industry struggle with is, you know, lack of knowledge, getting in front of people and just kind of educating them. Can you talk to us a little bit about You know how you guys have been able to navigate through that and stay in the game for so long.

Aaron Kancevicius (05:57)
Yeah, absolutely. It’s a huge need, the education, because it you know what I find is most real estate investors at least know about the 1031 exchange. Some have done it, you know, at least once or multiple times, but each time they do it, it’s a it’s a different transaction, it’s a different situation, and they’re not doing them every day like we are. So there’s a lot of you know, a lot of things that can get missed, a lot of misconceptions. Regarding how much they’re reinvesting the next property or how they’re holding title. You know, there’s just all these different things that that come up. So that’s where we’re a huge advocate of education. Matter of fact, what I do all the time, I teach here at the local association of Realtors. You know, I travel around. I spoke at the NAR conference, National Association of Realtors, in Houston. I was on stage two different times for 20 minutes. You know, I do, you know, lunch and learns at brokerage offices. So I’m doing webinars all the time. I’m doing podcasts. So it’s really a matter of getting the word out all the time, just so that somebody doesn’t make a mistake or or forget to set it up at the right time. But we get that a lot and we can get into some of those details. Yeah, it’s gonna, and sometimes it’s you know several hundred thousand dollar mistake you know, that that we’ve seen. And we do that in all 50 states, by the way. I think I forgot to mention that. We already have a company. Yeah, okay, yeah. So yeah, and so we’re seeing, you know, maybe an investor selling in one state, buying in another, even buying multiple in other states, you know, vice versa. So yeah, we can do those in in all fifty states.

Meghan Escobar (07:28)
That is awesome. Really incredible stuff, you know, especially for those folks who might not be familiar with like, you know, how they might be able to benefit off of something like this. So talk to us a little bit about who your perfect avatar is and like who the client that would benefit the most from these services that you’re providing.

Aaron Kancevicius (07:45)
Yeah, absolutely. We work with all real estate investors from you know the mom and pop ones who just happen to have a rental, single family rental, all the way up to large commercial investors, you know, the owners of you know apartment projects, you know, warehouses and you know, land, you name it. So any anybody that’s had investment property that has appreciated or that’s They’ve taken a lot of depreciation on because they forget a lot, forget that they’re gonna have to pay 25% of that depreciation back if they just sell and not exchange. So really anybody that’s selling investment property, you know, I at least like to talk with for a couple minutes just to see what the situation is, see if it applies, see what their tax hit is, see what kind of options they’d have. And if they don’t need to or they’re in a situation where they don’t need to exchange, you know, that’s totally fine. But we just like to make sure that nothing’s being missed and everybody has the opportunity.

Meghan Escobar (08:46)
Nice. Very nice. Love that. And one thing that I always like to talk about is as an entrepreneur, you know, it’s I think it’s super important to talk about challenges because, you know, we live in a highlight world where people are paying attention to the highlights of social media instead of what it actually takes to get to success. So Aaron, if you wouldn’t mind, like, you know, as an operator, as an entrepreneur, would you mind sharing with us a moment where things got real for you or a time that you had to pivot really fast for the company? Or even yourself on your own journey.

Aaron Kancevicius (09:26)
Even for myself for my own journey. Yeah. So I it so a little bit on the background on me, I go back a ways. I have over a 25 year history consulting and real estate. A lot of that was in finance, right? Which means that takes me back through the main crash back in you know eight, nine. But before that, even you know, when I first started, almost 30 years ago, I was doing subprime loans before subprime was a dirty word, is the way I like to call it. There was this need for these type of loans, but they were they weren’t as crazy as they got. So, you know, done some pivoting from subprime into conventional. I moved to Hawaii, became part of a mortgage company there. You know, things went great. And then right up until you know that crash happened, which I kind of knew a stop was coming, but you know, nobody expected it to be that bad. So getting through that was a challenge, kind of restarting. And then I got into 1031 exchanges kind of by a fluke. I set up a mortgage company inside of a 1031 QI company here locally by me in San Diego, for an attorney that had you know, been doing 1031s here over 20 years. And so I set up a mortgage company, you know, to providing loans for his exchangers, but because of my background, know just started advising more and more on the 1031 side. And then lo and behold, you know, rates were, you know, got super low, about two percent, that when things jumped, you know, rates jumped about the six, which isn’t bad historically, it kind of jammed up the market again. And so we’re like, well, now you know, we’re what are we doing? What’s gonna happen here? So it everybody right in the middle of exchanges started backing out, you know, had loans going on. They didn’t want to go through with them. And so here we were again, kind of with this market of just readjusting. And that’s when I really took even more to the education part because there’s still deals going on. There’s still, you know, investors are back in the market, maybe not as much as they would like to be or plan to be. But there’s still transactions happening and they need the education. So that’s when I really you know, you could say doubled down on the on the education, the speaking. And we’re seeing that have an effect.

Meghan Escobar (12:19)
Makes sense. I mean, numbers are one of the only things that don’t lie, right? So Yeah.

Aaron Kancevicius (12:25)
Yeah.

Meghan Escobar (12:28)
That part. That part. Yeah. And it and thank you for sharing that with me. I I really think it’s important, like I said, to highlight some of the struggles behind what it takes to get to certain levels of success. But, you know, again, it also separates folks from who are in business to just dabble and create some transactions versus the ones who are in the game long term. And how long has 1031 Specialists been in business?

Aaron Kancevicius (12:56)
So they started up with backing from a regional bank and bought a company was called Safe Harbor Exchange in Southern California. So they have over a twenty-five year history. The owners, there’s two owners, they’re ex-Goldman Sachs, ex-Ernst & Young professionals. And yeah, and been now I’ve been with them almost two years. I was with the other company that I mentioned, With the attorney he ended up retiring and selling that company. I started to kind of start set thinking of setting up my own QI. And that’s when 1031 Specialists found me. And I like to think of it as a merger. They found me and we decided to bring our powers together.

Meghan Escobar (13:41)
Yeah. Awesome. So you’re obviously with the company and you’re feeling confident with, you know, where you guys are as I know you mentioned you’re backed by some pretty incredible Institutions, there it is.

Aaron Kancevicius (13:53)
Yeah, institutional, yeah, institutional backing with the large regional bank. And then also last year with the National Association of Realtors, they have what’s called a REACH program where they back pretty much like tech companies and real estate. And we became part of that program last year. They’ve never done that with the 1031 company, but it’s really it’s because of how we’ve adapted the way exchanges are done using more technology, making things streamlined. And being more transparent so that investors know exactly what to expect. They get hand holding all the way through it if they need it. We’re, you know, we always actually answer the phone and in return respond to emails. And that’s some of the reasons why NAR backed us through that REACH program. Because we’re really helping the industry by the way we’re doing the technology that we use actually frees us up to be available. To investors and brokers that have questions and need the help.

Meghan Escobar (15:32)
Yeah. So safe to say that you guys have the experience. Yeah, you have the reputation of somebody who knows exactly the ins and outs, the ups and downs of how to properly do a 1031 exchange.

Aaron Kancevicius (15:49)
That’s exactly right. Of course there’s all sorts of situations that come up, but we’ve been through a lot. Yeah, absolutely. We’ve seen many of them. And every now and then if something comes up, we have the resources absolutely to go in and get the needed the needed guidance or advice. We also we built our own as part of the technology, we built our own 1031 AI. This was done a few years ago, by the way, just as AI was coming around. And so all it’s really a neat thing. So all of the you know, all the IRS regulations and private letter rulings and so forth have been fed into the model. And so it can read through those. So if you go onto our website, it looks like a chatbot down there. Well, if you punch in a scenario, you’re not actually chatting with like with me. It’s actually it’s pulling right into all the IRS you know, resources and pulling up an answer. It’s really quite amazing. Yeah, the number of questions it can and then from there we built an AI hotline. Now that one does sound a lot like me. So we recorded my voice and somebody can actually talk 24/7 and they’d rather talk than type their answer, right? And get a reply based on all the database of knowledge that’s in there.

Meghan Escobar (17:02)
Yeah.

Aaron Kancevicius (17:03)
Yeah, so it it’s really yeah, it’s really amazing the advances and the amount of the help that we have available to answer questions.

Meghan Escobar (17:11)
Amazing stuff. I know the AI world is it’s up and coming and we haven’t even seen half of it yet. So it’s amazing. It’s amazing stuff.

Aaron Kancevicius (17:20)
That’s exactly right. Yeah. Keeps learning, yeah, so fast, right? Keeps doubling, supposed to be doubling its knowledge every however many months. Yeah. But it’s a huge help. I mean, we’re all still needed in here.

Meghan Escobar (17:31)
That

Aaron Kancevicius (17:31)
Investors still need somebody to talk to. So having the AI is a huge help, help streamline things. But

Meghan Escobar (17:38)
I mean it’s a help to the to the work that people never wanted to do anyway. The tedious you know Yeah. So it’s just not being afraid of it and learning how to use it. That’s my biggest advice that I like to give on AI.

Aaron Kancevicius (17:52)
Yeah, exactly. Yeah. I mean if it wasn’t for technology, I mean we’d still be running to the store every day.

Meghan Escobar (17:57)
We wouldn’t be able to be doing this either.

Aaron Kancevicius (17:59)
Couldn’t be doing this.

Meghan Escobar (18:00)
Let me ask you this. Anything that you guys are focused on scaling next, like as a company, what’s the next it and actually it doesn’t even have to necessarily be company since it’s you here, Aaron, representing 1031 Specialists. Is there any real big goals that you’re focused on scaling next?

Aaron Kancevicius (18:21)
Yeah, so I kind of take a two-prong approach with the way I reach out to the market. So first of all, because as we mentioned, 1031s is in each segment of the of all the transactions being done. So if I go out and just talk to, let’s say, one broker, well who knows if they’re it first of all, who knows if he or she is ever gonna be doing a transaction or if that transaction is going to be an investment property or be an investor that needs a 1031. So I try to cast as wide a net as possible with my speaking engagements, again with my lunch and learns, my webinars, getting in front of large groups, but then always making myself available so that anybody, you know, six months later, they can they’ll have all my information. They can just shoot me a text or phone call or email. So there’s that. And then on the other side is It is trying to segment those that are doing things in the market. Maybe it’s commercial brokers that are doing, you know, a lot of multifamily or perhaps you know CPAs that seem to really work with investors, maybe it’s some closing attorneys in certain areas. So those at the same time I’ll try to more you know zero in on personally. And try to reach out personally. But I’m trying to do those at the same time in conjunction, you know, without focusing completely on one or the other. The investor groups, there’s a couple like for instance here in San Diego, you know, that I’ll attend in the evenings and always just make myself available for you know for questions. I was a guest speaker at a couple of them now, just because It’s such an interesting topic, right? So they’ll just be throwing out all sorts of 1031 questions in general. How does it work? What about this scenario, this scenario? So that’s really the thing. I look at one side as casting as wide a net as possible. And then the other is trying to focus in on, okay, who is who are doing, you know, business in in the market and how can I help them out? You know how can I help their business? How can I make things easier on them? How can I provide education for them?

Meghan Escobar (20:29)
Nice. Love that. So just really building on getting into bigger rooms, more platforms, getting the education out there and

Aaron Kancevicius (20:39)
Yeah, that’s exactly right. Yeah. And anything we can help with others you know, building their business. Again, sometimes there might be brokers or CPAs trying to expand their own business. And what’s a great way of doing it is education. They’re usually trying to do events, perhaps. We’ve done some like sip and learns in the evening where they’ll invite in all their database of clients plus absentee owners from the area and we’ll just put on a you know a short, you know, 30, 45 minute. You know, for short presentation about the market, the basics. Here’s some things to think about as you think about selling. You know, just provide some refreshments for So yeah, it really is. It’s there’s like a grassroots level and then there’s a national level that we’re doing that on.

Meghan Escobar (21:22)
That’s awesome. Perfect. That’s huge. And it sounds like, you know, continuing to, you know, build on that those platforms is gonna help you guys compound things to the next level, maybe create some chaos in between, but

Aaron Kancevicius (21:36)
There’s always chaos. Yeah, absolutely. But it is true. It’s amazing how yeah, how things do that you know all these dots start connecting, you know, together over time. For instance, I do I happen to do a lot of work in Hawaii as a 1031 partner over there with some companies. And so I do a lot of I travel over there and do a lot of you know education and training sessions. Lately it’s been with like a DST company as well. But then here in San Diego, a client happens to, you know, get me in touch with her is that selling in Hawaii, you know, like an $18 million property. And, you know, but I know the escrow companies that’s that they’re working with and you know, the realtors. So it there’s always there’s this interconnected web and and it it that we’re able to be part of and just be able to help everybody out. So yeah, it works out really nice. Yeah, we’re just gonna keep on growing that.

Meghan Escobar (22:24)
Love it. Love it. All right. And I know a lot of our listeners, they’re either very green on their journey in entrepreneurship, you know, looking to get into real estate in one way or another, or they’ve been in the game for a while and they’re looking for the next best thing to level up on. And I always think that they can benefit from hearing this. Like any business, every business, it’s a relationship business, and more so specifically with real estate. Right. Like there is no business in real estate without creating relationships. Right. Perfect example here. Right. It’s like if you don’t have a relationship with an investor, there’s no there’s no exchange, right? So

Aaron Kancevicius (23:02)
Yeah.

Meghan Escobar (23:03)
When it comes to growing your network, Aaron, what has made the biggest difference for you?

Aaron Kancevicius (23:08)
Well, yeah, yeah, that’s a really good question because it’s funny, you know, everybody comes from different backgrounds and how they’ve grown businesses. And we’ve seen that here, especially let’s say in the commercial real estate world, a lot are used to making cold calls and just you know hundreds and hundreds of calls a day, that kind of thing. And it’s interesting. Now that’s a good way, like what for what we’re doing, we’re such a niche business. It is networking. That you know that’s a good way perhaps to make an initial contact, but without them knowing you, perhaps even seeing you, you know, knowing about you, knowing that you’re gonna be consistent, that you’re gonna be there, that takes a lot of follow-up and takes a lot of, you know, just a lot of consistency. So okay, reaching out and talking to somebody one time is great. That’s a good start, but you can’t sit back and think that, now why isn’t business rolling in? And so as an example, even I had I had a client recently come to me from another podcast they did. He was selling a ten million dollar apartment building up in Sacramento. And he through that I, you know, was able to, you know, have a connection, chat with them, but found out his brokers up there. Well, I flew up to Sacramento and met with him, you know, took him out to lunch and you know, we created a nice connection. And it you know, so it’s that’s just a way that I see of continuing to grow it is really getting with people that it’s that’s the old school, even though we have the AI, we have the technology, it doesn’t replace that face-to-face, that personal connection, you know, that relationship because people still want to work with people they know and trust.

Meghan Escobar (24:50)
That’s right. That’s right. At the end of the day, one thing you can’t fake is relationships. And a business can’t grow without relationships. And so I think it’s very important to jot that down, folks, you know, especially if you are green to entrepreneurship or have been in it for a while and you’re starting to incorporate AI, you cannot continue to grow a business without getting into rooms and shaking hands. So

Aaron Kancevicius (25:14)
That’s yeah, that’s exactly and I see that over and over again, from really deciding to make this push to be out instead of just behind the computer and phone all day being out, I’ll sponsor these broker meetings. And then, you know, you just get out of the blue. It could be months later, but out of the blue, you get these referral phone calls. You know, these investor meetings in the evening, you know, somebody calls me months later. I have you know, I met you at this investor meeting. I can’t remember who he is, you know, but he has an investor with some 1031 questions. So nothing beats and doing that over and over again, just the consistency part of it, not doing it once, going to one thing and thinking, okay, now it’s gonna start, you know, coming into me. It’s doing it over and over again. People get used to seeing you, or you meet somebody at one spot, somebody else at another spot where they know each other, you know, just all these connections keep growing.

Meghan Escobar (26:05)
Yeah, exactly. Absolutely. I can’t agree more. And before we wrap things up here, Aaron, if somebody wanted to reach out to you and learn more about what it is that you’re doing, collaborate with you, what is the best way for someone to connect? Is there a social media? Is there website, phone number?

Aaron Kancevicius (26:24)
Absolutely. Let me give you a couple things. Our website is 1031Specialists.com and that is plural. So 1031 Specialists. My email is [email protected]. We have a 1031 number for the company, 866 – 692 – 1031. Now I’m gonna give you direct line even. I can take texts and phone calls. I don’t mind. You know, people reaching out with questions. It’s 760-509-1519. So 760-509-1519. That’s my direct line. I can take texts and calls and I’m you know, I’m just really answering questions all day and I and I love it. I’m on LinkedIn mostly. So trying to, you know, do little one minute videos and little tips, you know, all the time. So yeah, please feel free to connect with me right on there as well.

Meghan Escobar (27:13)
Perfect. And folks, we’ll make sure to drop those links down below so that way you can just access them right away. You don’t have to go looking for it or rewinding and pausing. Definitely take the phone number down. But as far as the links, we’ll get those directly put in so that way you can just tap on them and get right to Aaron. All right. Perfect. Well, listen, Aaron, I appreciate your time. I appreciate your story and more importantly, your perspective and the and the wisdom that you have shared with us here today and we need more people who are in this space doing things the right way. So I want to thank you again for being here.

Aaron Kancevicius (27:49)
I appreciate that, Meghan. Again, thanks so much for inviting me in. I really appreciate the time.

Meghan Escobar (27:52)
Sure thing. And for those of you that are tuning in, if you got any value from this, please be sure to hit like and subscribe. We’ve got more conversations coming in with operators just like Aaron here, who are out here building real businesses in real time with real people. We’ll see you on the next episode.