Real Estate Revealed

#6 - Michelle Fitzpatrick, 1031 Exchanges

Eric Wilson
December 15, 2020


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MichelleFitzpatrick, Dave Seymour, Intro Voice Over


Dave Seymour 00:36

toanother episode of Real Estate revealed. It's me Your host Dave SEMA. I don'tknow if they call me a star the star of flipping Boston, a and E's network. I'mexcited to be on this call this week. Last week, we got a lot of great feedbackfrom my guest, Mr. Greg Curley, founder of horizon trust talked about selfdirected retirement accounts. What does it look like to grow capital every weekwe talk about things affiliated associated and absolutely nothing to do withreal estate more on the affiliation and the association side than not. But whilewe talk about other things that you don't see on the HGTV shows, this isn'tjust paint and carpet and hey, Bob hang a light in the kitchen. For us. This isa little more in depth. We talked about the business side of real estateinvesting a little bit on the single family side. But also we talk heavily onour own business model here at freedom venture investments. We talk aboutcommercial real estate, what would it be like if you could own a piece of alarge apartment complex that cash flowed that you could visit and maybe writeoff the expenses of going to see your asset at the end of the year because itwas a business expense. There's so much to learn. There's so much cool stuffout there. So I've got a really fantastic guest with me this week. MichelleFitzpatrick, Michelle has been in banking and finance for for quite a whilenow. well over a decade, according to her LinkedIn profile. Michelle and Iconnected after we did a podcast with the New England real estate journal acouple of weeks ago. Michelle is the Vice President at Northern Bank and Trustand she deals specifically in what are called 1031 exchanges. Now you probablydon't know what a 1031 exchanges. Michelle is going to bring us all up tospeed. Fantastic lady, great conversation list. And Michelle, I'm, I'm excitedto have you on real estate revealed. If you are there, please tell me there.Michelle,


Michelle Fitzpatrick  02:40

I amhere. Thank you for the kind words in the lovely introduction.


Dave Seymour 02:45

How didI do not bad for my first rodeo.


Michelle Fitzpatrick  02:48

That wasimpressive. I really enjoyed the build up. Now. Let's hope I live up to it.Look, you got it, you got to bring a little crescendo in life, you know,


Dave Seymour 03:09

And theconversations we've had prior to, to having you on the show, you're workingover at Northern Bank and Trust. So why don't you tell me a little bit aboutyou know, your background, what you've been doing in finance, banking, shoreteeth, where to start, it's been forever, but I am I actually started in realestate more than 20 years ago, more than 20 years ago, probably 25 years ago.You know, my parents gave me the idea right out of college to buy investmentproperties. And it was never really on my radar. But I took their advice. Iscraped up $10,000 and bought my you know, put a down payment, which was moremoney than I could ever dream of at the time. And I put my first deposit downon a two family house. Was it in Massachusetts? It was in Stoneham. Yeah. Soum, and you know, that was back in the early. It was in 1998. I bought thehouse. I was two years out of college. I literally worked in just saved allthat money. And


Michelle Fitzpatrick  04:13

and thenI was in this game, it felt like I felt like I was part of this club all of asudden, that now I learned that I could never have to put another dime of myown money into this. It was the strange thing that I learned so early on. AndI'm so grateful that I learned it that I could refinance that house and buyanother house and pull cash out and keep doing that over and over again. So Idid it a few times. I got my real estate license and just started makingcommissions off the might my sales and I was introduced to 1031. Around thattime when I started to sell off some of the houses. It wasn't until later on,hold


Dave Seymour 04:52

on, holdon, hold on, hold on. Hold. Steady hold. I wasn't holding Before we, before weunpacked 1031, exchanges, you know, it's funny, this is so common that I'll endup having a conversation with appear, you know, which I consider you to beobviously. And you and I can banter about real estate with very little effort,right? Because we bring, you know, right out of college, you bring thatexperience. And then the amount of years afterwards, I obviously bring someexperience to the table as well in commercial real estate as well asresidential. But it's interesting what you say, Listen, I buy this thing. Andthen I'm in this game, right? Correct me when I'm when I'm Miss misquoting you,I'm in this game, where I don't have to put any of my own money in it everagain. And I can just refinance and buy another one and another one and anotherone. So I have taught that process that you were doing back in 1998, all overthe country. And basically, if I can it's buy a two or maybe a three unitproperty is a nice starter, right? run it for a little while. So you boughtthat probably 3% down and FHA loan, maybe, right? You buy that with a lowdownpayment, then you get to refinance the value out of it. Now the money isthen cash flowing from the two unit refinance out, you've got a chunk of changebased off of the equity of the first purchase, and then you buy the next one.And then you can continue that process over and over and over again, my questionto you is this. Do you know what you paid for that to family in stone? And backin 1998? You remember how much it was? $185,000 $195,000 What is that to familyworth today in Stoneham rough, roughly? Well, I sold it so and I exchanged Iactually exchanged it. And, you know, 505 50, somewhere in that range? Yeah.600 K. I know because I was recently looking at some in, in the MLS for for aclient who was considering selling and rolling into into another investmentgoing forward. Let me ask you a question. And this is interesting. I didn'tcome from a place where my parents gave me that advice. Michelle, right. My dadsaid work hard, right. Do your solid eight hours. Trade time for money. Keepyour head down. Do the right thing. Son. Right. They get the good Englishworking class. Yeah. You know, line.



How Why


Dave Seymour 07:36

did youget a different message? What do you think was was the well? That's a greatquestion. And I'd love to answering this. My parents are first generation. Soyou know, my grandparents were from Italy. You wouldn't know by my last nameFitzpatrick. I'm not taking that that is my husband's name. So both of myparents lap piano is that is that right? Yeah. Okay, pronunciation. Yes. Thankyou, Sally and me. You can tell by your accent. Right. Right. So the, you know,they were born and raised in the north end. Again, immigrant grandparents, butit was really the American dream to own property. And all of their cousins andfamily members. We're buying properties. Two family houses you can pick up saymy parents told the story when they first got married in 1969. They could havegot to triple Deckers on the fellsway in Medford, by toughs for $60,000. And itwas way too much money for them to triple Deckers. And now each of them are worth$2 million each. And it was one of those things that they kind of in hindsight,they regretted they were you know, they have a beautiful house and they have abeautiful life. And they've done everything that they were supposed to do. Butthey saw other people succeeding in real estate never took advantage that whenthey were younger. So that was one of those things that they said, You knowwhat, we didn't do this. So it would be something that would be great for you.And my brother and my brother did the same thing. Yeah, I love that story. AndI'll tell you why I love it for a couple of different reasons, one real estatenever fails, it can give you a couple of lumps and bumps in the short run.Right. But for a long term investment, it will not fail. And as you know, I'mpartnered with Kevin Harrington in our fund and Kevin and I were on this show afew weeks back and he talked about the fact of, you know, in business andservices, it's very common to have a bell curve, you know, it does really well goesChug, chug, chug, chug, chug, chug, chug, right? And then people stop buyingthat goods or services, whatever it is, he's bringing to the market for aproduct and then it goes down. And he said he loves and as you just describedlove the fact of the trajectory and longevity that real estate has offered tothe immigrants of this country. Now let's let's be honest about it. You know,you're from that generation. of Italians. While in every community, there wasthe Italian community, the Irish community, you know, the Hispanic community,the black communities. And, you know, the immigrants to this country understoodthe path to wealth was through real estate. And my opinion and I thinklistening to you now, you agree, that hasn't changed. I was on I was on a calltoday, I did a podcast with a with a company in the UK. And I'm talking to thiskid, Johnny patches his name, and Kevin Harrington was on there with us. ButJohnny was asking me as a Londoner to x Londoner, he said, you know, what isthe American dream. And I think you kind of just summed it up. Similar to theway I did. The American dream was ownership of real estate, but not to thepoint of it being an anchor, but it being for velocity, right and asset row,right, of course, 100%. And you know, and it looks in it, and it helps towardsyour retirement because nothing's ever guaranteed, you know, your 401k isn'tguaranteed, and social security isn't guaranteed. I remember, like coming outof college, and I'm talking about Social Security is going to die up before2020. And, you know, you have no idea that there things that aren't guaranteedin real estate was just one of those things. And I loved Kevin's visualizationin on that on that bell curve. And for you know, for goods and services, and onthe trajectory of the upward trend of real estate because it really hit thenail on the head. And that's something that we talk to our clients about on aregular basis just talking to them about, you know, when people are thinkingabout selling their investment property. And, you know, our first question is,what else are you investing in? You're going to take that money, but where areyou going with it? What are you doing with it? You know, maybe there aredifferent types of real estate, that might be a better option for you. Are youreally taking it and putting it under your mattress? And what exactly are youdoing with that money, Real Estate's the way to go? So many tax benefits? Yes,yes, yes, yes. And yes. I mean, I'm solved. You had me at hello, right. That'sright. That's why we hit it off. We were separated for somewhere else,somewhere along. Here's the thing that I find interesting, where we're trainedin America, and I use the word purposeful, purposefully, when I say train,we're trained in America to trade the time for the money, get into the 401. k.pert, you know, carry no debt, pay down all your debt, pay off your house, andyou know, retire with, you know, XYZ and money, we're going to go to a break ina couple of seconds. And when we come back for the break, I would love yourinsights from personally if you're if you're prepared to share that, but alsoprofessionally, on property that has little to no debt on it. You know, debtfree property. Is that an asset? Is it a liability? Is it a combination of theboth? And if you're up for answering those questions, we're gonna be back in afew seconds. If you're up for it, I am. Alright, we're gonna take a quickbreak. We're gonna get a couple of words from our sponsors. You're listening toreal estate reveal with Dave Sema, and Michelle's


Intro Voice Over  13:12

realestate revealed We'll be right back.



Today,the real estate market is booming mortgage rates just at historic 30 year lowsand the New York Times recently reported that investors are snapping up realestate at rock bottom prices. And now savvy investors are buying real estateusing their IRA that allows them to access their retirement funds to buyproperties without paying any penalties or early withdrawal fees. If you havefunds in your retirement account, and you are interested to learn more callhorizon trust today at 866-712-2007. That's 866-712-2007 unlock the power ofyour retirement account and take advantage of one of the most profoundopportunities in real estate since the housing crisis 15 years ago, callhorizon trust retirement specialist at 866-712-2007. And for a limited time,get our free Ultimate Guide to buying real estate with your IRA that's86671220074 visit horizon trust calm slash date. Horizon Trust Company is anindependent passive custodian and is not associated or affiliated with and doesnot recommend to promote or advise any specific investment investmentopportunity investment sponsor, investment company or investment promoter orany agents employees, representatives or other such firms or entities horizontrust is not providing investment advice, advocating or endorsing real estate.These options may or may not be a fit for individual investor investments arenot FDIC insured offer no bank guarantee and may lose value or rising trustdoesn't receive any commissions or fees if I invest with any other sponsor.


Dave Seymour 14:41

You everwondered how to create cash flow outside of your job income or retirement plan?Have you considered large commercial real estate assets? Do you know what analternative investment strategy is? With tune in for all the answers on my showreal estate revealed this is they see my might recognize me from the hit TVshow flipping Boston. I'm also the CEO and co founder of freedom Ventureinvestments. To smarten up your real estate know how by tuning in everySaturday for all investment details, visit us at info at freedom venture.comslash 104 point nine call my team at 781-922-4418.


Intro Voice Over  15:13

Thinkingof purchasing a new home second home or investment property or mayberefinancing to get a lower rate, consolidate debts drop PMI or need cash out todo home improvements. George cuartos mortgage Officer of cross country mortgagein Denver is just the loan officer you will need as Essex County's top loanofficer with more than 8000 past happy clients in over 30 years experience.George and his team will be happy to assist you with rates the lowest inhistory don't have that paid act now you may be able to save 1000s of dollars.Call George at 978-777-4663. You're listening to real estate revealed with Davesee more from Amy's living Boston.


Dave Seymour 15:53

Welcomeback. Saturday afternoon. What are you doing? Are you inside? Are you outside?You know Christmas is coming. The goose is getting fat. Please put a penny inthe old man's hat save for retirement. I don't know what you're doing. Butanyway, Michelle Fitzpatrick's with us. Michelle, I left your pride going intointo our little break there. I left you with a couple of questions, equity andproperty, either residential primary residence equity in commercial realestate, equity and property asset liability. Good, bad, smart, not so smart.What do you think? I don't know, you know, everybody has their own opinion onthis, we have so many clients that are bank that are leveraged, you know,leverage all the way and they just continue to accumulate assets, accumulatebetter assets, and continue to leverage those properties and aren't afraid ofthat. But there are some people that are a little bit more risk adverse andaren't comfortable with that. So I think it's really your comfort level on, on,on how you want to finance your properties and how much debt you want to carryon each of them. And really what your ultimate goal is, is your ultimate goalto have a huge portfolio of properties and be able to dispose of them as youneed is your ultimate goal to have just a small portfolio to be able to haveenough for retirement and leave some for your heirs and your in your children.It's really a think a personal choice. I mean, what what are your thoughts onit? Not not look, I came from a place as I said early, I came from a placeespecially as a an immigrant to the country and then into America. So as you asI've shared with with you and I think with the listeners, you know, I was I wasa civil servant. I worked for the city, Atlanta, I was a firefighter. You know,it was a fantastic job. I love what I did. But I was a financial donkey, I wasan illiterate. I didn't understand money and equity. Well, for real Michellemoney and equity is a tool to play what you described at the start of thisconversation. It's a tool to play the game. And if one can look at it, right,if you can look at it as a game, what tools do you have in your toolbox? Now alot of people don't even realize the tools are even in the toolbox. And theydon't know why they can't play the game. Right? I can afford cash flow andassets. I don't earn enough. I don't have enough. And yet they have a house, atwo family in stone and worth $600,000. And they've got a first time positionon $100,000. Well,


Michelle Fitzpatrick  18:28

tied up.


Dave Seymour 18:29

Thankyou. Thank you. We call that an outline of work. Lazy money, right? lazy mom.Yeah. You know what I'm saying? Right? capital I want to


Michelle Fitzpatrick  18:40



Dave Seymour 18:42

It'stime it wants let it free. Let free get me out. Let me go.


Michelle Fitzpatrick  18:49

I mean,I'm 100%


Dave Seymour 18:51

myfavorite sayings, see if you like this one was from from from a mentor of mineearly in real estate. And he said to me, David, let one free. So it can comeback with two or three. And I'm like, talking about Dude, I gotta save mymoney. I gotta hold on to it. I mean, every every dollar I ever had in my lifehad like white knuckles wrapped around it. I was squeezing it so hard. Right?If you squeeze it too hard, you choke it and kill it. And this guy said to me,can you learn that money is a tool and to let it go free? So I look at I lookat the circumstances that are out there. And you you mentioned a nasty, nastyword. It's almost, it's almost profanities these days, and it's retirement,right. retirement. Can you can you make sure that you have faith right? That yourmoney doesn't die before you do and let me show here's where I get a littleanimated with it. We live in a society today and i'd love your take on this. Welive in a society today. Where our medical profession is is phenomenal. We canlook we got a vaccine coming out, hopefully in the next few months, like we'regoing to get on the other side of COVID. We fight cancer, we know what heartdiseases stop eating, you know, hamburgers, smoking cigarettes and drinking be,you know, we know how to live longer. And yet we don't know how to work ourcapital smart enough to match the longevity of our protected lives today.Right? That's so much deeper than that, too. I mean, just on the absolute basiclevel, kids today, and kids, I mean, anybody under 30 years old, have zerofinancial literacy, zero financial literacy, it is absolutely frightening. Atone point in my career, when I was working in the bank and doing some lending,and in doing different things in the bank, a lot of cash management in London,I was going in, I was working for a small community bank, and I was we did alot of community service, we still do community service, but I was workingspecifically with one of the couple of the local high schools and going in andteaching a financial literacy class. And when I tell you, it's frightening,what kids don't know, and it's not being taught. So on a very basic level,they're not even learning about financial literacy, let alone letting themlearn about how money works for them. Right. I mean, it's, it needs to bediscussed, and it needs to be understood, if everybody had that tool. It wouldbe such a different landscape for people in such a different landscape. Youknow, people think like up, let's just pay down my mortgage, so I don't haveany debt, and try to get that ultimate goal after 30 years. And it's not reallythe way to do it. I mean, yeah, yeah, keep buying property. What are you doingwith $600,000 in equity built up in a house, sitting there doing nothing? It'sit's dead equity. It's dead equity, right? I always say an asset puts money inmy pocket. And a liability takes money out of my pocket, right? If you drill itdown to its to its true core, and investment requires that capital goes out, sothat a return can come in. And I think there's a there's a misnomer ormiscommunication out there. That investment doesn't require capital going out.Right? And I think about I said, Well, well, how can that possibly be? And thenpeople say, Well, my home is my biggest asset. And I say Really? Well, if anasset puts money in your pocket, how is it your asset? Well, it's got my nameon the deed, yeah, but the money doesn't come toward you. It goes away from youin the form of taxes in the form of mortgage payments to the bank. The bankwill tell you how to be wealthy. Trust me, they've already got it figured outquite nicely to the point that you could go and I'm not crapping on bags. Ilove you.


Michelle Fitzpatrick  22:52

We aregonna do


Dave Seymour 22:54

you allgo do what you got it you can walk into any bank in the Northshore region, andyou will probably find a sign that says, you know, fantastic CD rates. 0.6%.Right. You wish it was that high? I was just testing you. Right. So the bestthat goes in and says I'm gonna get a 13 month CD at zero point kiss my rearend, whatever the number is, right? Yeah, right. On the next banner, it willsay 30 year fixed mortgage, you know, 3.75 or 4.25%. So they bring in, right?Isn't that a beautiful spread? I love this spread. And I look at it


Michelle Fitzpatrick  23:35

to thatbanker. That's a good spread rate. That's a


Dave Seymour 23:37

greatspread for the bankers. But Michelle watch, but says, My son, he's now 26 yearsold. And his grandmother passed away. And she left him a two family property onPuritan road in swampscott. Right, fantastic piece of real estate, you know,worth 650 700,000 for the first couple of years that we owned it. It was abeautiful thing. And you talk about financial literacy, right? I was veryblessed that I was forced to learn it. I was either going to go down or I wasgoing to learn and get up right. And my son was probably 10 years old at thetime. 1011 years old as I began my change my career, my understanding of money.Anyway, he comes up to me, he's he inherits the house. He's 18 years old. Andhe says to me, after about three, four months, he says dad, grandma's house. Isaid, Yeah, Robert, because that that's dead equity. I'm like, what he goesbest debt equity debt. I'm like, Who have you been listening to like, you don'trealize? I know you'll appreciate this. He goes this debt equity. I go, Well,what do you mean? He goes, Well, there's 700,000 soldiers that sitting theredoing nothing, you know, scratching their nose. I said, as a matter of fact,you're right. He said that. Any chance we could get a he luck. Sam what hegoes, uh, he locked at a home equity line of credit. Look like Robert, youknow, you're 18 years old, you're on your way to college, right? He went towent within Boston, whatever. I said, you know, there wasn't a bank thatprobably find you as a lendable. Individual. I said plus you don't live in theproperty. So it's not on occupied. You need somebody to sponsor you throughthat, through that, that application. Somebody with some experience, he said, Doyou know anybody? I said, as a matter of fact, I do. Yeah. I got I got a localbank, wrote, wrote the kid, he locked 250, maybe 300,000, whatever it was. Andyou know what we did with that money, we borrowed it at four and a half 5%. Andwe lent it to other real estate investors at 1012 13%, depending on theexperience of the real estate investor, that Michelle was my son, right, myson, my son never ever forgot that ever. And brilliant. Yeah, but I wasblessed. Right? As you were you were blessed. When your parents told you to dothat I was blessed to be in a position that I sought new advice, and was ableto pass that down to you know, my oldest boy, and I'm remarried. You know, Ihave an eight year old and a 10 year old at home. And it's just such a joy towatch them. Because I'm passing on the same financial literacy that I have.I've consequently learned, and it's not. Let me ask you. Listen to me, I bringyou on the show. I do all the talking. But let me let me ask you this. How doyou see how do you see that financial literacy changing over time? Becausewe're getting to a point now where trading time for money may very well be, youknow, not the primary source of income, you know, maybe 20 3040 years down theline? Do you think that the next generation can step up? What do you see outthere with regard to the youth? I hope so. I mean, I hope so. It's, it'sinteresting. The trends I actually just invested in a multifamily. Yeah, youknow, a 260 unit tenant in common kind of multifamily. And it's located inMassachusetts, it's, you know, outside of Boston, but you know, only 15 milesoutside of Boston, and their bread and butter is, you know, probably 80% ofthem are millennial people that don't want to own and these are high end thebrand new apartment, this brand new building. Well, I don't want to say luxurycondos, but certainly in an A class asset. And, you know, all the amenities.And it's because they don't want Millennials are traditionally now notinvesting in real estate or purchasing real estate. That's not where they'relooking to go. So I'll be interested to see how that gonna how that trend isgoing to happen. And what millennials will be doing with their money build aeventually invest in real estate. Probably I mean, where else again, where elseyou're gonna put your money. Right, great. Kelly, put so much in the market,you want to certainly have some sort of diversification. So it's not thatthey're going to not be making money. But it will be interesting to see whatthat trend is going to be in in. You know, if if those millennials will bepurchasing real estate to that point, my millennial still rents the rents andhe works his cash flow, dad's real estate, real estate business, and he's veryhappy not having a mortgage. We're going to take a quick break. Michelle, Ireally appreciate your insights and what we've been covering. And when we getback, we are going to get into the 1031 exchange.


Intro Voice Over  28:53

RealEstate revealed We'll be right back.


Dave Seymour 28:58

SteveAlesis of Solaris reality, has intimate knowledge of the North Shore marketwith over a decade of experience and record of 300 real estate transactions.When it's time to buy or sell property. Give Steve a call directly at617-763-1001 that's 617-763-1001 you ever wondered how to create cash flowoutside of your job income or retirement plan? Have you considered largecommercial real estate assets? Do you know what an alternative investmentstrategy is? With tune in for all the answers on my show real estate revealedthis is they see my might recognize me from the hit TV show flipping Boston's.I'm also the CEO and co founder of freedom venture investments to smarten upyour real estate now by tuning in every Saturday for all investment detailsvisit us at info at freedom slash 104 point nine call my team at781-922-4418. Today the real estate market is booming.



mortgagerates just hit historic 30 year lows and the New York Times recently reportedthat investors are snapping up real estate at rock bottom prices. And now savvyinvestors are buying real estate using their IRAs that allows them to accesstheir retirement funds to buy properties without paying any penalties or earlywithdrawal fees. If you have funds in your retirement account, and you areinterested to learn more call horizon press today at 866-712-2007. That's866-712-2007 unlock the power of your retirement account and take advantage ofone of the most profound opportunities in real estate since the housing crisis15 years ago, call horizon trust retirement specialist at 866-712-2007. And fora limited time, get our free Ultimate Guide to buying real estate with your IRAthat's 866-712-2007 or visit horizon trust calm slash date. Horizon TrustCompany is an independent passive custodian and is not associated or affiliatedwith and does not recommend promote or advise any specific investmentinvestment opportunity investment sponsor investment company or investmentremote or any agents employees, representatives or other such firms or entitieshorizon trust is not providing investment advice, advocating or endorsing realestate. These options may or may not be a fit for individual investorinvestments are not FDIC insured, offer no bank guarantee and may lose value.Horizon trust doesn't receive any commissions or fees if I invest with anyother sponsor.


Intro Voice Over  31:21

You'relistening to real estate revealed with Dave Seymour from Amy's living Boston.All right,


Dave Seymour 31:27

so thereyou are. those are those are the sponsors of this show. reached out to myfriend George Cavazos. Reach out to George take a look at what he can do foryou in the in the lending business with cross country mortgage, his phonenumber 978-777-4663. And if you're looking to sell a home, you're looking tobuy a property here on the North Shore. Very, very best in the business. Myfriend, Steve Alessi, Stevie is waiting for your call at 617-763-1001. And inthe meantime, I've got the wonderful Michelle Fitzpatrick, we've been talkingabout generational wealth, I think Michelle, right. Yeah. And also what itlooks like to this is always interesting, right? If you if you looked at a theaverage kind of, you know, the average perspective on wealthy people and taxes,right, the average American out there would say they don't pay taxes becausethey found a loophole, right. But the Intelligent Investor, the wealthy realestate investor, or even the person who's just starting the journey, very, veryquickly changes out the word loophole with law, right? The law is alreadywritten, the rules are already in place. The politicians that we all voted intooffice are the guys and girls who created the laws in the first place. So who'sreally at fault the people who do follow the rules and maximize them, or thepeople that don't follow the rules and don't even get in the game? So that's mylittle soapbox moment, Michelle, but please tell me, what is a 1031 exchange?Where did it originate? And what challenges is it potentially facing when thenext administration bump up? How much


Michelle Fitzpatrick  33:18

time dowe have?


Dave Seymour 33:21

It is aloaded question. So we'll start really easily 1031 1031 is an IRS code. And itessentially is telling you that if you are selling investment property that'sheld for business purposes, or investment purposes, and you purchase aninvestment property, you can defer those capital gains taxes. And it allows youto defer both your capital gains tax, your state tax, your Medicare surcharge,tax, your depreciation recapture. So when you do a 1031 exchange, when you sellan investment property, you had a game and you purchase an investment propertywith the proceeds. You can defer all of those taxes. When all taxes no tax taxfree. Well, tax deferred, so Okay, you know, eventually, if you sell that assetthat you're purchasing, you're gonna, you know, a lot of people just choose todie with that that's their estate plan, and then it becomes tax free, becausethen your heirs will get the step up and basis. So let me get a littleclarification. I just so that I understand it. I think I do. I do, I'm justpretending I don't. So I've got I've got a $200,000 game. I take it out of atwo family property and I roll it into a four unit property, right. So I've nowgot buying power, you know, maybe $800,000 with the buying power because I got$200,000 in gain on the prior sale. I put that money down and now I assume ifI'm Good investor, I've got more cash flow from the for your property than Idid on the two unit property. Is that correct? Yeah, yeah, you have a betterasset, you have a, you have a higher quality asset, you have maybe a betterlocation better cash flow improved, you know, people are exchanging becausethey're improving whatever it is they want to improve whatever it is, whetherit's whether they want to improve their cash flow, or lessen their managementexpenses, or do part of their estate plan, they may be purchasing a, you know,a beautiful seaside beach side, you know, house down the case that they're goingto eventually retire into, but for the meantime, they can rent it out and useit as an investment. So there are a lot of different reasons why peopleexchange but certainly cash flow is is one of them. Now, when, when we, when wewere talking, you said and if this is appropriate, we'll keep going down thisroad. And if it's not for client confidentiality, we'll we'll turn left orright on the conversation. But I'll open it up by saying that you you've you'veexperienced certain coffee shop owners who have, you know, use the 1031exchange in the past, is that correct? Like you keep doing this as well? Yeah,so you know, and that kind of goes to the history and the first question thatto ask all transition of transition that the code started, the 1031 exchangecode was implemented into the tax code in 1923. So the tax code, you know, hasbeen around for actually the text. The text code started in 1918. In 1031,exchange was implemented in 1921. So it's been literally 100 years of being inthe code. There have been some tweaks along the way, and certainly some changesalong the way. And most recently, in 2017. With the most recent tax, change,the overhaul 1031 exchange, and it was on the chopping block, the entire thingwas on the chopping block, and the real estate survived. So the IRS after thetax code said real estate survived, you can still exchange real estate,however, all personal property is not is now not exchangeable. So the businessis the franchise's the automobile companies, you know, the hurts and theDavis's of the worlds that were exchanging their fleet. People that were doingartwork, those are all not part not eligible to do exchanges anymore. So realestate survived. So in in 2018 19, and 20, we've been strictly able to just doreal estate exchanges. That's interesting. So that the present administration,if I'm doing my math, right, it was during that administration that theyremoved businesses out of the 1031 exchange bucket for one of a better Well,yeah, so business exchanges. So in the reality is this think about who thePresident is he he is in real estate. So he understands real estate and heunderstands he understands the importance of 1031 exchange on the economy, andhow much that plays into our economy. And in the hole now, which blind show youcan leave that hanging? Sorry to interrupt you that explain that. You can'tleave that? Yes,





Dave Seymour 38:34

Goahead, go on when you the first thing you do when you buy a property. So first,you're you're hiring an attorney, you're hiring a realtor, you're hiring anappraiser and a in a inspector and you pay all the transfer taxes, all thatmoney goes into the economy. But the very first thing you do when you get theset of keys and you walk into the house, what do you do, probably running toHome Depot, you're probably fixing that property up. Every single person doesthe exact same thing. They buy a house and they they make it their own, theyputting money into the economy, because they're making it their own, and they'reimproving that big asset that they just bought. Now, there are a lot of realthere are a lot of landlords that have been sitting on properties for 30 yearssitting on two families, triple Deckers and summer roll, and they have a slewof tenants and they're literally just maintaining the property. They're justdoing the bare minimum to keep the property rented and not a whole lot of moneygoing into the economy. So if they weren't using if they if they didn't have1031 exchange, they probably continue on that path. But because they have 1031exchange and they have the option to sell that property and purchase anotherone and defer their capital gains taxes. It leaves that new buyer to come inand improve the property and the you know, the person that's exchanging theproperty is buying another property another piece of real estate that's goingto work better for them. So love it. Um, yeah. So much money and I caught itand the contractors as well don't don't forget the contract is you talk aboutthat the con, the competence of the electrician, the plumber, the landscaper,the roofer, you know, it's it definitely puts velocity behind, you know, theeconomy, because because of that employment, you know, structure that you justexplained. And I think so why why is so many people like, are those those meanterrible, horrible, wealthy people with 1031 exchanges? Not paying taxes? Why?Why is that out there? Where does where does that come from? I, this is like,Yeah, I was on the phone with some q eyes across the country, we do a zoommeeting every not a meeting a get together. But we have we throw drinks inthere to make it fun. So we were talking about it last night, we had one fromColorado, one from South Dakota, one from California, we were all just kind of talkingabout it. And you know, the average, ours is a little bit higher, but theaverage exchange in those areas is less than $500,000. Yeah, ours is maybe alittle bit higher, ours may be more in the, you know, 750 range, just becausetriple Decker is in, you know, they're much more expensive. But we do our goodshare of $250,000 exchanges as well. So these aren't wealthy people, we're notdoing these, you know, billion dollar exchanges. We're doing exchanges for theaverage person that happens to have an asset that happens to have a propertythat they owned for 30 years, and they're 60 years old now. And they don't wantto continue to maintain a dilapidated property, they'd rather just buy adifferent property. Also, increasingly, for the average investor neighborhoods,yeah, increases the quality of the neighborhoods in which we live. Yeah, yeah,of course, not for the wealthy. So it's, it's really frustrating every time itgets on the chopping block that, you know, our trade association, which is theNational trade association for qualified intermediaries, which, which is whatwe do qualified intermediaries facilitate 1031 exchanges. They lobby really,really hard. And they've created a pact and they've created a coalition to makesure that they're constantly in front of the senators in the house wrap to makesure that they understand the importance of 1031 exchange on the economy.Because even though if they start taxing everybody, yeah, they may make $40billion, but they're losing 400 billion in the economy. And they're not seeingthat. So it's it's really our trade association, lobbying and educating to keepit in the in the code that the the administration elect has, you know, part ofthat that campaign promise, or part of that discussion has been to, to look at1031 exchanges again. Are you are you up on that? I mean, what, what what isthe? Yeah, I mean, it, it is on the chopping block again, and it is we arefighting for our lives right now. And we're fighting to make sure that thisstays is part of our tax code. And it's an uphill battle. But every singleperson that we meet with every time we meet with a senator, every time we meetwith the house rep, we get their undivided attention through these zoommeetings now, and we make real progress. But there's hundreds and hundreds andhundreds of them in a coffee every time you want to get in front of them. Soit's Yes, we're making progress. But there's a lot of dogs because there's alot of them that are going to be voting on this. Yeah, yeah. Well, look, yousaid it's been around for 100 years, I have faith in you personally. Michelle,I believe that you will be the fifth you will be the figurehead, you will bethe you know, the front of the front of the ship going forward. Look foranybody who is considering selling a commercial asset, how can they get aholdof you? Michelle, how can they explore more of the 1031 exchange process andhow how you personally can help them out through through your connection thereat the bank of Ghana. Thank you. So my phone number is 78169852. Or you canreach me at 1031 1031 at n e. t Or just go to a website and wehave a whole page on 1031 exchange. Awesome. Hey, I appreciate your insights. Iappreciate how easy the conversation has been. Have you have faith, have faith,you know, ideas. We are an entrepreneurial country at the end of the day andyou know, we We we don't let you know challenges get in our way we learn toovercome them. So I'm excited to have you be a part of my network on forMichelle, thank you for your for your time and your insight today. Thank you somuch, Dave. It was great thing on and I really appreciate your time and and theuse of the conversation. That's great. Thank you Take care. All right, that wasthat was Michelle Fitzpatrick, my guest on 1031 exchanges. Going to take aquick break here. Don't go away. We're going to wrap up this week's episode. Igot some some secrets. Some things we've been doing that I want to share withyou over here at freedom venture investments, we're going to be right back.


Intro Voice Over  45:40

RealEstate revealed We'll be right back. Thinking of purchasing a new home secondhome or investment property or maybe refinancing to get a lower rate,consolidate debts drop PMI or need cash out to do home improvements. Georgecuartos mortgage Officer of cross country mortgage in Denver is just the loanofficer you will need as Essex County's top loan officer with more than 8000past happy clients in over 30 years experience George and his team will behappy to assist you with rates the lowest in history Don't hesitate act now youmay be able to save 1000s of dollars call George at 978-777-4663


Dave Seymour 46:19

you everwondered how to create cash flow outside of your job income or retirement plan?Have you considered large commercial real estate assets? Do you know what analternative investment strategy is? What tune in for all the answers on my showreal estate revealed this is they see my mic recognize me from the hit TV showflippin Boston. I'm also the CEO and co founder of freedom venture investmentsto smarten up your real estate now how by tuning in every Saturday for allinvestment details, visit us at info at freedom slash 104 pointnine call my team of 78192 to 4418 Steve Alesis of Solaris reality as intimateknowledge of the North Shore market with over a decade of experience and recordof 300 real estate transactions when it's time to buy or sell property. GiveSteve a call directly at 617-763-1001. That's 617-763-1001


Intro Voice Over  47:20

you'relistening to real estate revealed with Dave see more from Amy's living Boston.


Dave Seymour 47:25

Allright, welcome back. Welcome back. Man, we've covered a lot of ground and we soimmigrants to this country knew in their heart of hearts, that real estate wasa path to wealth. Bring me you're tired, bring me a hungry, you know, the EllisIsland pitch for one of a better term. I believe it's still real. I really do.I honestly believe that. You know, when I was sharing earlier, when Michellewas talking about her journey through you know, second generation Italian comeinto, of all places, the north end who could have figured that right. But youknow, my own similar journey coming here and this conversation I had today withthis this gentleman back in the UK, I thought about it. And I thought about thefact that at country allows us speed of execution. Let me say that again, acountry allows us speed of execution, if we choose to explore new ways,different ways. Some may be scary. Some may be against our parents advice thatgrandparents advice and neighbors advice. But if we explore alternativeinformation, use our own intelligence and our own due diligence. Who knows whatcould happen? Right? Who knows what could happen? You know, to Michelle's pointwhen she was talking with us, you know, the retirement strategy, which has beenlaid out for, you know, millions of millions of millions of citizens is broken.I don't think that's a an unfair statement to make. I know that my millennialisn't planning on his company's 401k to get him to the finish line. So what isright, what is going to get us to the finish line? Is it going to be the sameold, same old? Or will it take some some effort and I think real estaterevealed has, you know, really began to open up some of those discussionsbecause I hear from you guys, you can reach out to us at info dot slash 1049. I've been getting a lot of great questions there aboutwhat we do at freedom venture investments, our fund, how it works, what is theadvantages of it? So if you are a first time listener, I'm going to share withyou what that is because the questions come in and then I have a I have aresponsibility to ask answer them. So you know if you've stayed with us overthe past few weeks, you've got to meet some of the influences in my life. Life,my business, but what is my business, we are a private equity real estatecompany. And what that means is, is that if you invest in the stock market, youmight be familiar with what's called a route, which is a real estate investmenttrust. Now a route that is traded on the stock market trades on thefluctuations and the, you know, the the inputs that the market has whether itgoes up or down, investing in a stock market really doesn't mean that you'reinvesting in the true value of the real estate that supports it. And I alwaysfound that pretty interesting. However, what we do is the same but different,the same in the sense that we are a private equity company or a private equityrate to real estate investment trust, but we are not traded on the stockmarket. So when an investor looks at what we do, they look at us as theoperators and say whether the operators have the skill sets, the businessowners have the skill sets to maximize an investor's capital, at the highestway possible to pay returns to the investors. So what we do is we focus onapartment complexes. You know, Michelle said she invested into a 250 unitapartment complex here in Massachusetts, we invest in Florida, we invest in theGulf Coast region of Florida. And there's a couple of reasons why we investthere and not in Massachusetts, the first reason we invest there is because theprice is absolutely perfect for us to offer targeted double digit returns toour investors who invest alongside us. When I say double digit returns, I'mtalking targeted returns of 10 to 14%. Legally, honestly, ethically,consistently are the goals that we shoot for. So we invest in Florida, becausethe cash flow is superior to the majority of cash flowing assets similar to theones here in Massachusetts, it's based on price. The other reason we likeFlorida, in comparison to Massachusetts, is Florida is an incredibly businessfriendly state, we can move with a lot more ease, we can move with a lot morelack of restriction, you know, for one of a better term, it is a landlordfriendly state, doesn't mean that we're not cognizant of our tenants needs, ourtenants are our number one asset, right? They go to work, get get paid for thetime that they spend at work, and then they pay down our mortgages and theycreate, you know, wealth for us as investors into these assets. So if there'snone of that slum landlord type mentality, not interested in that don't sign upfor that game at all. It's a quality business model. So we love We love thefact that Florida is is friendly to business. So what we do is is we raisecapital from investors accredited investors will put capital into our privateequity fund. There are three fund managers, myself, Walter Novick, he was aguest on the show, Walter is retired from from the military. So about 3030 to34 years of real estate experience 25 years of buying cash flowing assets andcreating real estate opportunities in the Florida market. He's the the wizardbehind the curtain, I'm just a pretty voice on the front end. And then thethird fund manager is a young gentleman by the name of Eric Wilson and EricWilson was working at fidelity when I met him, and he was coding algorithms forfidelity to predict the markets. So I've got the smart guy, the good guy, andthen I'm just the guy I don't know, I don't know why what I'm doing. But on aserious note, there is about a quarter of a billion, actually more than that260 million $270 million worth of real estate transactions behind this team,and north of 3540 years of experience. So investors invest alongside us andwith us. And in return, they are paid quarterly distributions on the cash flowthat we create in these in these assets. And then they also get to participatein what's called the equity. The equity is not that equity, that sitting deadin a property is, as Michelle and I were discussing earlier, but they get toparticipate in the manifestation of the equity at the time of disillusion ofthe assets in the fund. And what that means is, is that we only work thatcapital for five to maybe seven years, and at that time, we sell all of theassets that are in the fund. So when we sell for a profit, our investors thenparticipate in the equity on the profit side as well. And what that does forinvestors is it gives them a very, very nice, targeted return of 20% Plus,because they've participated in cash flow, plus they participate in equity atthe at the sale of the Assets inside the fun. It's a whole new world. You know,I didn't have these discussions when I was sitting with my brothers in thefirehouse, I didn't have these discussions at my kitchen table, back in back inEngland growing up on a council estate, which is probably the Englishequivalent of what we know as the projects here in the States. But, you know,America has afforded the opportunity to choose to do what what I want to do,where I want to do it when I want to do it. And more importantly, with who Iwant to do it with, you know, not every investor qualifies for the fund. Andit's not just about money, it's also about personality. And if you've listenedto our shows here, you know, like, attracts like, and there's no, there's noroom for there's no room for ego and, and big personalities, you know, dominatingthe landscape. It's absolutely a team effort. And I think about investing todayas as almost like a, it's a team sport in the sense that we lock arms with ourfinancial investors, we put our head down, we deploy, and we execute on thebusiness plan. And we've been very, very successful, like I said, in doingthat, for many, many, many years. So that's kind of like a big picture of whatwe're doing here at freedom, mentor investments, very excited to announce thatthis week, we went in contract on eight properties, we're in contract on eightproperties. Very excited about that. Ad deal flow is is exceptional right now.We just, we have a property that's on the on the funnel right now, which, whichis a beautiful, beautiful property, it's actually 106 106 units, it's in theSarasota marketplace. But as as Michelle was saying, you know, there arechallenges if it's not done professionally, and this particular property has avery, very high management expense to it. So that's a great opportunity for usto buy at a number where we know we can reduce the management expenses, we canincrease the rents on this 160 unit apartment complex. Like I said, in in theSarasota Bradenton area, fantastic opportunity for us, we're going to buy thisfor 8.4 million, we'll put another 400,000 into it will raise the cash flow,right, get the cash flow. That's what we do, we buy cash flow for ourinvestors. And doing so we increase the net operating income increasing thevalue on this property. The numbers on this one, if you tune into, into freedomventure, we do a weekly, we do a weekly webinar, where we talkabout the Deal of the Week. And this is the deal that we'll be doing tomorrow,at two o'clock, that this has an 11.7 11 point 7.5% cash on cash return year onetargeted all the way up to almost 17 and a half. And then a 23% rate of returnfor the life of capital working in this asset. And this is just one of theassets that we have in our pipeline right now. So it's an exciting time. Mygoal is never to overwhelm with too much information. But I always suggestexploration learn, the more. The more educated we are, the more proficient Weare the more educated you are as an investor, the better we are to help youachieve financial goals. And before we wrap up, very quickly, single familyhomes, freedom venture we are buying we are buying right now on theNorth Shore. If you have a property that you need to sell fast if you're facingsome challenges, either due to COVID or what other circumstances are out therein your life. Reach out to us at freedom venture one of my teammembers of give me an all cash offer on that property within 24 to 48 hours. Sothat's it for this week. We've covered a lot of ground in a short period oftime, as we tend to do Happy Holidays. Right? Take care of each other thisseason and every season. Do unto others as you would have do unto yourself iswhat my grandfather used to tell me as a kid. And I never forgot it. Be righttake care of each other. And I look forward to seeing you next week. RealEstate revealed they've seen more we're here for you answer any of yourquestions. Happy Holidays. Oh whoa, whoa.


Intro Voice Over  59:22

Anysecurities being offered are under an exemption provided by sec regulation Drule 506 c only accredited investors who meet the SEC regulation d 501.accredited investor accreditation standard often provides suitable verificationof accredited status may invest into these offers. Any historical performancedata represents past performance past performance does not guarantee futureresults. Soon again next Saturday at noon for real estate revealed hosted byDave Seymour, the star of ad libbing Boston and CEO of freedom ventureinvestments in Denver.



Priorshow was a paid program that does not express the views, opinions or beliefs ofNorth Shore 1049 the station management its employees or staff