Join Vee Khuu (Real Estate Lab Podcast), Michael Brady, and Alex Shandrovsky’s (Madison 1031) discussion about Qualified Intermediaries and 1031 Exchanges. Madison 1031 is a widely-respected company in the real estate industry with many years of experience. They talk about different kinds of exchanges and the differences between a 1031 Exchange and opportunity zones. Can it be used for syndication? What if someone leaves the partnership? When should I NOT go for a 1031 Exchange? These are some of the questions that Michael and Alex answer on the show. Stay tuned, and enjoy!
What is a 1031 Exchange, and What Kinds of Exchanges are There?
For people new to real estate, a 1031 Exchange is an essential thing to know. A 1031 Exchange is one of the ways a real estate investor can defer taxes on capital gains on sold properties by investing in certain types of properties. In other words, one exchanges one property for another so that any gains may defer taxes. There are different types of these, the most typical one of which is a (1) forward exchange, where you sell first, and then purchase your replacement property after. There is a rare one called a (2) swap transaction, where you’re merely trading deeds with another. You can also buy first and sell later, a (3) reverse transaction, a somewhat complex structure commonly dealt with by Madison 1031. The last thing discussed in the show is a (4) construction or improvement exchange, which is like a forward exchange, but the property bought has to be improved with the proceeds from your sale.
The Differences with Opportunity Zones
For Michael and Alex, just for the record, 1031 exchanges are better than opportunity zones. With opportunity zones, you have to take capital gain from any asset and invest it in an opportunity zone fund, which will then invest in a qualified opportunity zone, a lower-income community. The downside that most don’t realize is that while you get to invest your capital gain, you do have to pay taxes on that in 2026. One reason why opportunity zones are not for everybody is (1) you’ll be investing in zones that are not established. They don’t necessarily have an excellent investment track record to begin with, and you’ll just be hoping that the properties will be valuable over time. Another is that (2) the time it takes for you to get the full benefit is ten years, where any appreciation over your initial investment will be tax-free. One other big thing, especially if you’re a passive investor, is (3) you can only buy actively managed properties, and (4) it has to be substantially improved for more than the purchase price within 30 months after getting it. There are many more specifics discussed in the episode, so head on over to the Real Estate Lab Podcast!
About Michael S. Brady:
Michael S. Brady, Esq. is Executive Vice President for Madison 1031 Exchange, a national Qualified Intermediary for tax-deferred Exchanges pursuant to Internal Revenue Code §1031. As a Certified Exchange Specialist® and an attorney, his responsibilities include consulting with clients and their advisors on the regulations affecting §1031 Exchanges, as well as giving seminars for attorneys, accountants, and real estate professionals, and publishing articles on tax and legal issues.
Prior to joining Madison 1031, Mr. Brady was Vice President of Eastern Operations for Asset Preservation, Inc., the §1031 Exchange qualified intermediary subsidiary of Stewart Title Insurance Company, where he managed sales and operations staff handling several thousand transactions annually. During his career, he has headed up two other §1031 Exchange companies and has acted as general counsel for a title insurance company. As an attorney, Mr. Brady has over 20 years’ experience representing clients in commercial and residential real estate transactions, as well as a wide variety of business transactions and commercial litigation matters.
Mr. Brady received a Bachelor of Arts degree from Binghamton University, and earned his Juris Doctorate from New York Law School, where he was a member of the Law Review and graduated Cum Laude.
About Alex Shandrovsky:
I’ve been interviewed on numerous leading real estate podcasts. Over the last 20 years, Madison 1031 has facilitated over 28,000 successful Exchanges, involving Billions of dollars
As Business Director for Madison 1031, I provide you with expert, lawyer and CPA-approved 1031 Exchanges. 1031 Exchange is an IRS-approved process for reinvesting the sale of appreciated investment property and deferring capital gains taxes.
Our in-house team of lawyers and accountants combine tax and law strategies to analyze and scenario and make sure you can gain the benefits of a 1031 Exchange.
We always perform a no-cost feasibility analysis on your property to demonstrate the financial benefit, on a year-by-year basis, of having such a study performed vs. not performing the study.
Which types of properties can benefit? Multifamily, Office, Retail, Mixed-use, Hotels, Golf Courses, Mobile-home parks, Shopping centers, Restaurants, Skilled Nursing Facilities, Industrial, Flex, Banks, Self-storage. Did I leave anything out? If I did, it can probably benefit too! In short…ALL types of properties
Outline of the Episode:
- [04:10] Michael Brady: the 1031 King, or the Earl of 1031?
- [05:48] Qualified Intermediaries and the different kinds of exchanges.
- [10:00] What happens if your loan is still in place after selling your property? Do you pay off the loan? Does the QI jump in?
- [11:45] Can you buy a piece of land and do a new bill construction with a 1031 Exchange?
- [15:30] The difference of opportunity zones with 1031 exchanges. Why is the latter better?
- [22:05] Can you exchange cryptocurrency into opportunity funds?
- [23:10] Using 1031 for syndication and how complex it could get. What does it take to leave the syndicate? What if my business partner wants to retire?
- [29:10] Case scenario of an inherited property gone wrong. Make sure you do your research!
- [38:23] Creative strategies around 1031. What safety net could you set up if your 1031 exchange fails? The relationship between 121 exclusions and 1031 exchanges.
- [42:40] If you swap just right before you drop, can you move into that property?
- [43:44] What does Madison 1031 do with the money deposited? Spend time in Vegas?
- [47:00] Bad recommendations from the industry. Is it always good to do a 1031 Exchange?
- Madison 1031 https://www.madison1031.com/
- Michael Brady LinkedIn https://www.linkedin.com/in/mikesbrady/
- Michael Brady Phone 631-241-3812
- Email: email@example.com
- Alex Shandrovsky LinkedIn https://www.linkedin.com/in/alex-shandrovsky/
- Rev. Proc. 2005-14 http://www.irs.gov/pub/irs-drop/rp-05-14.pdf
- Bernard Reisz https://www.401kcheckbook.com/
- Yonah Weiss https://www.linkedin.com/in/cost-segregation-yonah-weiss
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