June 3, 2025 • 47 mins
What if one of real estate’s most powerful tax strategies—1031 exchanges—could be accessed with zero fees and maximum efficiency? Join Heidi Henderson and Judd Schoenholtz as they reveal how Deferred is using technology and transparency to revolutionize the investment landscape.
Visit the website:
Deferred.com
Summary
In this conversation, Heidi Henderson and Judd Schoenholtz discuss the transformative potential of 1031 exchanges in real estate investment, focusing on the innovative no-fee exchange model offered by Deferred. They explore the historical context of 1031 exchanges, the importance of compliance and transparency, and the role of technology and AI in streamlining the process. Judd shares insights on the challenges faced by investors and the need for better tools and resources, while also providing advice for entrepreneurs looking to innovate in the financial space.
Guest Information
Name: Judd Schoenholtz
Email: judd@deferred.com
Phone Number: (866) 442-1031
Website: www.deferred.com
LinkedIn: https://www.linkedin.com/in/juddschoenholtz/
Takeaways
- Deferred is revolutionizing the 1031 exchange process.
- The no-fee exchange model eliminates unnecessary costs for clients.
- 1031 exchanges have been part of the tax code since 1921.
- Less than 10% of eligible properties utilize 1031 exchanges.
- Transparency and compliance are crucial in the exchange process.
- Technology can significantly improve the efficiency of exchanges.
- AI tools are being developed to assist in the exchange process.
- Entrepreneurs should focus on starting and iterating based on customer feedback.
- The partnership between cost segregation and 1031 exchanges maximizes tax benefits.
- Innovative tools can help real estate brokers explain tax implications effectively.
Chapters
00:00 Introduction to 1031 Exchanges and Deferred
05:30 The Evolution of 1031 Exchanges
08:21 The Impact of Tax Reform on 1031 Exchanges
11:31 Innovations in Technology for 1031 Exchanges
14:23 Understanding the No Fee Exchange Model
17:23 IRS Compliance and Audit Trails
20:24 Advantages for First-Time Investors
24:24 Self-Service Revolution in 1031 Exchanges
27:56 Enhancing CPA Collaboration and Efficiency
32:09 The Role of Technology in Real Estate Transactions
35:32 Innovations on the Horizon for 1031 Exchanges
42:26 Advice for Aspiring Entrepreneurs
49:03 Introduction to Deferred and Its Impact
50:06 Final Outro
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Heidi (00:06):
Welcome to SlashTax Podcast. I'm your host, Heidi
Henderson, and today's episodeis all about ten thirty one
exchanges done smarter. I'mjoined by Jed Schoenholz. He is
the cofounder and CEO ofDeferred. This is a technology
powered ten thirty one qualifiedintermediary that is shaking up
(00:29):
the industry with the innovativeno fee exchange.
And, yes, I said no fee. And youmight ask, how can we do that?
Well, that's exactly what Iwanna dive into with Judd today.
At SlashTax, we believe inequipping investors, business
owners, and CPAs with strategiesto slash tax liability, build
(00:51):
wealth, and maximizereinvestment. Today, we're
exploring how Deferred'splatform is cutting costs,
increasing transparency, andhelping clients preserve more
equity so they can reinvestsmarter and then grow their
portfolios faster.
Before launching Deferred, Judd,the cofounder, he cofounded Open
(01:13):
Listings, which a which wayBefore launching Deferred, Judd
cofounded Open Listings, a homebuying platform backed by Y
Combinator, which was lateracquired by Opendoor. He led
their buyer business through theIPO, and he's also the former
(01:37):
cofounder of Balance Homes andan engineer and product designer
by trading. Before launchingDeferred, Judd co founded Open
Listings, a home buying platformbacked by Y Combinator, was
(01:57):
later acquired by Opendoor. Heled their buyer business through
the IPO, and then he was alsothe former co founder of Balance
Homes and an engineer andproduct designer by training
with a career that spanned tech,real estate, and digital
innovation. So he has a reallyinteresting background that
(02:17):
links directly into his pathtoday.
I'm really excited to share thatEngineered Tax Services has
officially partnered withDeferred to offer ten thirty one
exchange services to our clientsbecause we believe their
platform brings a whole newlevel of transparency,
simplicity, and cost savings toreal estate investors, And ETS
(02:40):
is performing over 600 costsegregation studies every single
month. This partnership is anatural evolution in helping our
clients defer taxes and reinvestmore of their hard earned
capital. And with that, let'swelcome Judd to the show. Judd,
hi, and welcome to the show.
Judd (02:58):
Hi. Thanks for having me.
Heidi (03:00):
Looking forward to the conversation. This is a fun one.
So you have a pretty fascinatingjourney from open listings to
Opendoor and now launchingdeferred. So what inspired you
to dive into the world of tenthirty one exchanges, and what
problem were you aiming tosolve?
Judd (03:19):
Well, I was looking to do a ten thirty one exchange,
actually. So I I guess I hadheard of ten thirty ones. It's
something that, you know,bounces around if you're in real
estate or, understand anythingabout taxes and tax real estate.
But it was when I was looking toactually exchange a property
when I understood exactly thedynamics of how it worked and
uncovered this qualifiedintermediary industry. And so
(03:43):
once we pulled that thread, meand my business partners, it was
really fascinating.
Think one is it's just the mostflying and archaic type process
you can imagine. If you'relooking to do a ten thirty one,
the qualified intermediary isthe service that holds the funds
and helps you structure theexchange and then, you know,
distributes the funds on yourbehalf so that you don't take
(04:04):
receipt of the funds and itdoesn't become taxable. And we
can talk about ten thirty one's,the specifics of it in the
future. But, it was like a filecabinet business. People were
running it on spreadsheets ifyou're lucky, maybe, you know,
written down pieces of paper.
And for us, it, it really islike a financial technology
business once you look at itunder the hood. It should be
managed entirely with software.You should see a full audit of
(04:26):
everything that's happening.There's a lot of money movement
involved. So you wanna do thatprobably with, you know, FinTech
rails as opposed to manualprocesses.
So that was one. It was, we justsaw a huge opportunity to make
it a much better process forclients. And then also for the
people, the people managing theexchange, they're spending, you
know, 60 to 80% of their timeproducing paperwork and tracking
(04:50):
things down and things thatcould just be automated so that
they could focus better oncustomers. So this whole, like,
interesting technology problemthat we saw. And then I think
the second piece is thequalified intermediary, because
they hold the funds, theyactually earn interest on the
funds, not by doing anythingweird, just by holding it in a
depository account.
And so the unlock for us, thesecret was the qualified
(05:11):
intermediary is charging theclient a thousand dollars, but
if they're doing a $5,000,000exchange and they're holding the
funds for ninety days, they'remaking $50,000. And they they
still send your client a checkfor that thousand, $1,500 for
the exchange, which seemed kindacrazy to us. So we inverted that
business model, and we justdon't charge fees. And it's not
that crazy because 80% of the QIrevenue already comes from
(05:33):
holding the funds. So buildingthe best QI experience, the best
technology, and then invertingthe business model so it's
better for clients.
And ultimately, what that allowsis there's no risk to do an
exchange because we don't chargea fee. If you talk to smart
investors, they're gonna go paythat exchange fee just to have a
free option on potentiallysaving the taxes. We don't make
that a choice. It's it's free ifwe if you go through the
(05:54):
exchange, it's free if youdon't. If you change your mind,
there's really no downside tostarting exchange with deferred.
And so but yeah, we we cameacross the business and we're
fascinated by it and have justbeen pretty obsessed with it for
the past year and a half.
Heidi (06:07):
Yeah. I I'm super excited to have this conversation
because I think what you guys dois it's a complete game changer.
This is an industry that hasbeen around for quite a while.
Do you happen to know stats on,how long has ten thirty one
Exchange been in play?
Judd (06:23):
So it's been in the tax code since 1921, which is crazy.
So over a hundred years, I guessthe background is what it allows
is if you sell a property,basically any property that's
held for investment, meaning notyour primary residence and not a
vacation home you're using formore than, you know, fourteen
days a year or 10% of the timeyou rent it out. So basically
(06:44):
any other property that'scommercially owned, if you sell
it and reinvest the proceedsinto another held for investment
property, you don't pay thecapital gains taxes. And so it's
great for the real estateinvestor because they can move
funds around. It's also, Ithink, great for the economy
because you take funds fromthese appreciated properties
that are sitting there, and youencourage people to move money
(07:06):
around and redevelop newproperties and sort of the
highest and best use of realestate.
So we love it from thosefactors. And, yeah, that's why
it's, I think, been a core partof the tax code since 1921. It's
evolved. You know, there thereweren't a lot of rules back then
about how you're supposed to doan exchange. So there's been
different ways that it hasevolved to sort of make it more
convenient and obvious fortaxpayers.
(07:27):
And so but, yeah, I think if youtalk to sophisticated real
estate investors, this is a corepart of their strategy. I think
the thing that was surprising tous, and you asked about
statistics, there's very littlestatistics in the industry. I
think the IRS released a reportand it's from 2013. Otherwise,
it's pretty hard to find. It'shard to find good data.
(07:49):
Something like less than 10% ofproperties that can't be ten
thirty one exchange are actuallyexchanged. So we came into this
So people are just paying thetax, whether they don't wanna
pay the fees or there's lowawareness, but they don't wanna
deal with the timing. And so weview these as solvable problems.
We think basically everyproperty should probably be
exchanged if, you know, ifyou're looking to put the money
(08:10):
back into real estate. And yeah,so, so just try to raise
awareness, make it easier,reduce the friction, reduce the
fees, and help more people gothrough the exchange process.
Heidi (08:22):
It's the ten thirty one exchange is one of the biggest
tax deferral strategies thatexists. It's one of those things
that always seems to come upwhen there is a debate about tax
reform. Have you heard anyupdates or are in any
discussions in the currentadministration as they're diving
into tax reform about ten thirtyone exchange?
Judd (08:42):
It's a great question. I think in the previous
administration, it was in theeconomic plans as a thing to
look at potentially not cut. Ithink the last Biden proposal,
which never made it to any billsor any actual tax reform, was
something like they were gonnacap it. So we were gonna cap the
benefit. And so potentiallyonly, like, $500,000 worth of
(09:03):
exchanges, I think, was was thelast proposal.
And that obviously didn'thappen. I think to give credit
to the existing industry, theydid a good job of explaining how
maybe it looks like a tax break,but it actually encourages all
this redevelopment andencourages all this economic
activity. And the net taxbenefit from that, along with
the usefulness for theredevelopment of the properties
(09:23):
and the economy, it it createsway more economic activity than
the tax break would offset. So Ithink they did a good job of
sort of controlling thenarrative there. And then, yeah,
I haven't heard anything in thecurrent administration.
I understand that I'm not a I'mnot a student of history here,
but that maybe Trump's been abeneficiary of the ten thirty
one state personally. So I don'tknow where he is, like, line
(09:43):
item line item may his taxbills, but I don't think that
would be the first, you know,thing that they've cut. So no, I
think it's endured for a hundredyears for a reason. And I think
it'll continue to endure and,you know, it it's evolved in
terms of how it's been done. Andyou used to be able to exchange
all sorts of things that youcan't exchange anymore, but real
estate's persisted.
And I think it should, it willand should persist for the next
(10:06):
hundred years.
Heidi (10:07):
Yep, absolutely. So so as I'm looking at TapTPT, thank
you. What did we ever do withoutAI?
Judd (10:13):
Oh, know, we built a special version of, it's built
on ChatGPT, but there's a toolwe have called Arty. You can
find it on our website and it'sa version of that, but it's,
it's specifically trained on allthe tax code, ten thirty ones,
all the private letter rulings,a lot of very specific tax, but
specifically ten thirty one. Andwe got it actually to pass the
(10:35):
CPA exam. So this is probably awhole episode in and of itself.
Heidi (10:39):
That is.
Judd (10:39):
But yeah. So it's a really useful tool. It's totally free.
So yeah, definitely ask it sometax questions, but I think,
yeah, ChatGPT is getting prettygood at just like the baseline
ChatGPT is getting pretty goodat taxes too.
Heidi (10:50):
Yep. So we have used your AI and we agree. It is a
fantastic tool and it is such agreat resource for real estate
investors, not just on tenthirty one exchange questions,
but a lot of tax technicalquestions. And to your point
about what we're seeing inregards to tax reform and what
the discussion is about that,certainly the current
(11:10):
administration is highlyfavorable towards real estate
incentives and tax deferrals fordriving transactions. So yes, we
also have not heard that there'sanything on the table in regards
to changing or removing theopportunity for ten thirty one
exchange.
ChatGPT does say, and you cantell that it's a rough estimate,
that it's interesting thatthere's not a lot of data out
(11:33):
there about exchanges, but it'sestimating somewhere about
$100,000,000,000 to$170,000,000,000 of real estate
value is exchanged every singleyear. And roughly 6% of
transactions, which is, isactually, I think surprisingly
small. I love what you weresaying that that tell me again,
(11:53):
what was the percentage ofproperties that could do an
exchange that actually utilizeit?
Judd (11:57):
Well, I think I think we've seen that somewhere to six
to 10% number of, yeah,potential. So any, yeah, any
investment property could beexchanged and only, yeah, only
it depends, I think, whether youslice it by all or commercial or
asset class, but I think sub 10%is definitely where we're at.
And then I think that hundredbillion dollar number, I think
that comes from potentially anNAR report, but I I that's what
(12:19):
I've seen bandied around aswell. So a hundred billion
dollars worth of property isactually exchanged. People are
definitely taking advantage ofit.
Again, yeah, core real estatestrategy. And then where we come
in is just try to make it easierand less friction and lower fees
and more pervasive and, yeah,trying to just be the best
exchange company in the world.
Heidi (12:39):
Yeah, absolutely. Well, what you guys are doing to your
point is so innovative. I alwayssay on this podcast, I love
interviewing companies that Isee as disruptors and you are
absolutely one of thosecompanies. The traditional ten
thirty one exchange model orprocess, it's, it's been
expensive, has been completelyopaque. So there's zero
(13:01):
visibility with where thosefunds are while they're being
held in an escrow account.
I had always assumed, maybe byfault, I had always assumed that
there's some type of aregulatory scenario where when
that money's held in escrow,when it's pending, you know,
they've sold the building. We'renow, what is it? One hundred and
(13:21):
eighty days waiting to close onthe new replacement property. I
actually assumed that in escrowthat the property owner's not
eligible to earn interest onthat money. Is that not true?
Judd (13:33):
Yeah. It's it's just not true. I think it's Wow. It's a
closely guarded secret from thewell, I mean, it's so again,
savvy real estate investors,people who, are doing this
often, they know that somebody'searning interest in their money
they have the ability toindividually negotiate it. And I
think that was one of the thingsabout the industry that we
didn't love, that there's thiskind of inequal treatment.
(13:56):
If you had the knew the rightway to ask and the code word,
you know, you could earninterest on the funds. But if
not, you're not going to. And soI think some companies'
policies, you earn a smallamount of interest. Many don't
pay any interest. So we justwanted to make it more
transparent of a business model.
Mean, I mean, to be fullytransparent, we make money
earning a share of thatinterest, but we just try to
(14:17):
make it, as optimal as possiblefor the client, and we wanna,
you know, deliver the service atthe lowest possible cost. Yeah.
So, yeah,
Heidi (14:26):
that's how we do I mean, other intermediary
intermediaries, they essentiallyare holding all of the interest
earned on that plus the fees,right? Just to clarify.
Judd (14:36):
Yeah, yeah, yeah. No. And I'm like, how can I give the
most amount of interest to ourclients? By being as efficient
as possible. That's, that'sultimately what we're trying to
do.
But other people could try tomatch the pricing, but I think
ultimately it's buildingtechnology to make the process
faster to let the client domore. You mentioned how it's
archaic from a CPA perspective.I think the other thing that
we're focused on is what we callmultiplayer. We want the CPA,
(14:59):
the real estate agent, thewealth advisor who's potentially
helping to actually be able tolog in and use the software as
well. And so, you know, maybe asan individual exchange where
you're doing one exchange, it'seasy to manage, but we talked to
CPA firm, and we love ETFs, andallowing you to see the 60
clients that we're activelyworking with together, and to
see where they're all at, and tohave a centralized repository
for all the paperwork, and forus to actually help you do some
(15:21):
of the paperwork.
We're not allowed to give taxadvice. We're not allowed to be
a CPA, but we could summarizethings and make your lives
easier and make everything moreaccessible. So those are kind of
the things we're trying to dojust to be just to be the best.
Heidi (15:33):
Yeah, absolutely. Okay. So let's let's talk about this
no fee exchange because itsounds too good to be true. And
even when I tell people they'relike, wait, what?
Judd (15:44):
So you
Heidi (15:46):
have to explain how this works and how deferred makes
this possible. Like, I mean, youknow, I I know it's a lot
because you guys have built areally cool platform, but let's
back up a little bit and reallyexplain what does this process
look like and how did you do it?Sure.
Judd (16:03):
Well, it's more simple than it sounds. I think, we hold
the funds for so as thequalified intermediary, we take
receipt of the funds when theproperty sells. Mhmm. We hold
those funds. Some exchanges arepretty short.
We only hold the funds for a fewdays. Let's say the client is
reinvesting into a DST fund.It's ready to go. It's all lined
up. You know, we'll process it.
(16:25):
We've had one day holds. We'rewe're we work very fast. The
process for the ten thirty oneuses you have forty five days to
identify what you're gonna buy.And so we're gonna need to hold
those funds for at least theidentification period. If the
client decides not to go throughwith the exchange, still no fee,
hold the funds for forty fivedays, get the funds back at the
end of forty five days.
And then, within the tax code,you have one hundred and eighty
(16:47):
days to purchase what you'veidentified. So we can hold the
funds for a short period oftime. We can hold the funds for
one hundred and eighty days.What we do is we hold the funds
into a, we call it a segregateddedicated bank account for that
client. It's held at a majorpublicly traded banking
institution.
We work with a bunch ofdifferent banks. Like a high
yield savings account, it justearns interest. It's not nothing
(17:07):
risky about the money. It's heldin an FDIC insured account. And
so, yeah, the bank pays interestbecause that's the bank's
business model.
And, I think they're lending outthe money on the back end, but
it's essentially held in shortterm treasuries. So because the
because the funds generateinterest, and our average
exchange amount is in thehundreds of thousands of
(17:28):
dollars, the average amount weearn per exchange just for
interest from the whole periodis in the multiple thousands of
dollars. And so it's not likethat crazy. We just don't charge
that extra thousand dollar feeon the, you know, flat fee on
the exchange. And so for shorterexchanges, yes, we make less
money and it's great for theclient on longer exchanges or
larger balances.
We make more money, but the waywe look at it is it all comes
(17:49):
bowed in the wash and the no feemakes a lot of sense. And it's
winning a lot of business,making people really happy,
reducing the friction and sortof the downside to doing an
exchange, especially if itdoesn't go through. So, yeah,
it's really not verycomplicated. I think the way we
best explain it is just tounderstand that the QIs earning
interest and not necessarilytransparently sharing with the
(18:10):
client usually. And so we justtry to be super transparent
about that and we don't need tocharge an extra fee on top of
the interest earned.
Heidi (18:19):
Yeah. It's actually very simple. It makes all the sense
in the world. And that's, I haveto laugh because this has been
an industry to your point thathas been around for a hundred
years. And it's just been alittle bit, it's almost like,
It's like getting title, like,you know, going to the title
company for title insurance.
It's just the thing you do. Itjust goes to the title company.
(18:39):
I feel like ten thirty oneexchange has been kind of the
same deal. It's just, you justpush it to the intermediary and
don't worry about it.
Judd (18:46):
Well, there's an interesting title analogy. This
is a free business idea foreverybody, but you know, the
title and escrow company, itdepends on there's more
regulation in title and escrow,it depends what state you're in.
But my understanding, and I'mnot an expert here, is that the
escrow fee is also a lossleader. The escrow company is
making money selling titleinsurance. So they're gonna make
$6,000 selling you a titlepolicy, and they still charge
(19:07):
you an $800 escrow fee.
So, you know, free idea, butmaybe some should have a, you
know, a no fee escrow, whichmonetizes on the title
insurance. And, I'm not sure whythat doesn't exist, but it's
it's it's similar to title andescrow. We're we're very similar
to a title escrow business. Iactually think in many ways,
these changes morestraightforward. It's more
linear.
And that's actually good becauseI think then you can apply
(19:29):
technology to really streamlineit and automate it versus in my
experience with title andescrow, they're wrangling, you
know, wrangling cats with 10different parties. And, it's a
little more of an open ended,complicated process.
Heidi (19:42):
Yeah, so interesting. Talk a little bit about IRS
compliance. Like how does themodel deal with IRS compliance?
Talk a little bit about yourteam that developed this, you
know, because this is theintersection of technology and
technical, I mean, it's exactlywhat we deal with at ETS,
dealing with a lot of the taxincentives and deploying some
(20:04):
technology, but how do we dealwith compliance in very complex
areas with a lot of regulation?So how have you guys had to
handle that?
Judd (20:11):
Well, I think that was one of the most surprising things
coming into the business. Thetraditional QIs, it's kind of
like a trust us model. Likemaybe we held the funds and
maybe we gave you the rightreport at the end, but
ultimately it's the CPA's job tofile the taxes. And they're
ultimately responsible for thecompliance, the IRS compliance
and filing. The QI is this, youknow, necessarily this
(20:35):
disinterested party.
So, but that was surprising tous. So I think, I mean, one of
the first things we did was wemodeled all the rules in
software. And so there's maybelike a hundred rules, not that
they apply to everybody, butthrough all the edge cases. And
so modeling all the rules insoftware means that every single
exchange that goes through oursystem, we know that it passes
all the rules. And so you've gotthis one check that this
exchange is compliant.
(20:56):
We can show you all the rulesit's passing. If it comes up
with an error, it can surface itto the exchange officer and the
user. And so I think just likemodeling rules and software is
the first step, and we can makesure that everything passes. I
think the second thing we do iswe have what we call an audit
trail, and you see the fullhistory of everything that's
happened on the Exchange down toa date stamp across every part
(21:16):
of our platform. And it's reallyuseful for us internally.
We can see why somethingchanged. Let's say the name
changed on something, and thenthis doc had a different name.
We actually have a full it's notlike, hey, these docs don't
match. It's like, hey, we seewhere and when this actually
happened. At the end of change,we can actually produce the full
audit trail.
This is an internal thing, but,you actually see the full
(21:36):
history of the change. You seethat it's passing all the rules.
And so to this idea of IRScompliance, we move from trust
us to something that's much moreverifiable and auditable. And so
I think, knock on wood, we'vebeen fortunate enough not to go
through any audits, although,you know, it happens regularly.
It's just part of the IRSprocess.
But instead of producing like afew end documents and a letter
(21:58):
at the end saying that we thinkthis is compliant, we actually
can produce the full audittrail, the fact that it passes
all the rules along with thenormal documentation. So I think
that's like a really importantpart of our process, not really
what we lead with in terms oflike marketing the service, but
something that's like highlydifferentiated and a reason to
use us as an exchange companyopposed to the like trust us
(22:19):
model.
Heidi (22:19):
Yeah. Yeah. I mean, that's one of the many
advantages with, with using yourplatform. Talk a little bit
about some more other advantagesthat maybe a first time investor
who's looking to do a ten thirtyone exchange. What are some of
the things that they'll noticeabout using your platform?
Judd (22:36):
Yeah. Well, it's a great question. I mean, I think first
time investor maybe be nervous,but I would encourage them to
try it. But I think one thingthat we allow that's very unique
is this idea of self-service.And so right now, you know, with
other before we started, the wayyou did an exchange is you like
called somebody and maybe theytook the right notes, maybe not.
And maybe they sent you back theright documents, maybe not. We
(22:57):
built an online platform thatpeople can actually go through
and they can do as much or aslittle of the exchange as they
want. They can still call. Theycan probably, actually they can
fax. They can email.
They can come and type it inwith us. But if they want, they
can also go through, we call itself-service. And so they can
enter in all the details aboutthe exchange. It goes pretty
(23:17):
detailed to make sure thatthey're passing all the
different rules. They enterdetails about the relinquished
property.
Their identification can be doneonline. So you can basically do
the entire exchange in software.You don't have to, but it's very
cool. It also means that likeyou can see the details in
software. So maybe today you'dlike see an error on the closing
statement or something, if therehappened to be an error.
(23:38):
With our platform, you can gosee here's the property I'm
selling. Here are all thedetails. Here's the seller.
Here's the amount. You can editit.
So you actually have visibilityinto like the full aspect of the
exchange. And again, if youwanna self-service, I think you
could probably set up anexchange. We haven't really
speeded about it. We should timeit, but you could start start
the exchange, fill out theinformation, sign the docs,
(24:00):
generate all the docs, get anemail, I'd say in a minute,
through self-service, which iskinda crazy. No.
That's great. And again, that'slike the key points are, like,
helping somebody actuallystructure correctly, answering
all the questions, making surethat the entities are correct.
Sometimes you have these layersof entity. It's not like we are
encouraging everybody tospeedrun it. We're still heavily
reviewing it, on the back end,but because the Exchange is able
(24:23):
to do that, it's pretty uniqueand I think a way better way to
avoid mistakes.
Heidi (24:27):
Yeah. Have you guys built in like a scanning technology
where people can just uploaddocuments? So if they have a
purchase agreement or they havesomething in place.
Judd (24:37):
That is a, that is a great question. It's a little bit of a
secret, secret sauce, but yeah.So we're working on a piece
where, so the settlementstatement is like a key
document. It contains prettymuch, so everything could be
wrong before the settlementstatement, but you really need
the settlement statement to beright. And not that we got it
wrong, but just like you decidednot to do an exchange, you have
your offer you know, the selleris is the entity.
(24:57):
It's fine. So the settlementstatement needs to be right. We
want us on the settlementstatement. We wanna make sure
that the funds are directed inthe right place. And so that's
like a very important document.
It also contains all theinformation you need to do an
exchange. We're building theallowance of, okay, you can fill
out this form. And as I said, ittakes a minute, but you can also
just forward us the settlementstatement. We can abstract all
(25:17):
the necessary information andthen send you back the documents
you need. And so it'scomplicated because while
there's sort of a consistency tohow settlement statements work,
it's not like the HUD one orsomething where you can actually
that the data is exact.
But if you look forward, theexperience looks like totally
frictionless. You're justforwarding a couple docs. The AI
is looking to make sureeverything's right. The exchange
(25:38):
officer is the double check, andthey're there to really explain
everything through the process.But you're not able to make
manual mistakes becauseeverything is done through
software.
And so, I don't know, I guess itcould sound kind of dystopic,
but I think what it does isallows everybody to focus on
what matters. It allows the, youknow, exchange officers are
really the experts in helpingstructure the exchange
correctly, and guiding thecustomer. It helps the CPA.
(26:00):
They're not doing manual busywork. They're not missing a
weird line item somewhere.
And so it's not really areplacement of people in the
process. It's just a replacementof mistakes. And like you have
all these like great checks tomake sure everything is perfect.
And so I think ingestingdocuments and turning them into
structured data, it's weird. Youthink it'd be a super solved
problem, but working on it inthe backend, there's there's
tools and primitives for it, butit's not, it's not super solved
(26:21):
yet.
We're, we're working on it, Iguess, is the simple answer.
Heidi (26:25):
That's awesome. I love your definition of that in terms
of, replacing mistakes. And thatmakes a lot of sense with how
that's structured. In terms ofhow it's helping the CPAs, so
are you guys going through anddoing the form 8824s where
you're calculating all of theknow, the exchange basis and the
carryover basis and all that?
Judd (26:45):
We don't fill out the eighty eight twenty four, but
the way we do it today, and weshould talk either on air or
after this, is we we like to gofurther. We just provide all the
necessary document for documentsand information in this closing
reports for the CPA to do that.I'm not sure where the bounds
are. I think we could draft thereport. We could say, hey, your
report should look like this,but you need to fill it out.
We're not allowed to give taxadvice. We're definitely not
(27:05):
allowed to replace CPAs, but wecan definitely help CPAs do
their jobs better. We could alsolet's say we ingest the eight
eight two four that you guysfill out, and we run it against
our records, and we make sureit's correct. So I think there's
a lot to be done there. I thinkright now we're at the point
where we just give the CPAs thefinal information that I think
is a % correct and in the rightformats and makes it easy, but
we're we're not filling out thatform yet for anybody, but let's,
(27:27):
let's talk.
We could, we could ship it toyou guys. Maybe what's it
Tuesday? Maybe by the end of theweek, could, we could have it.
Heidi (27:31):
There you go. By the time we publish the podcast.
Judd (27:35):
Tuesday somewhere.
Heidi (27:36):
That's awesome. I mean, it's just an interesting process
and even in the current statewith intermediaries and how that
works with the property ownerand then how that's working,
like with us doing cost segs. Sowe're thrilled to have partnered
with Deferred at Engineered TaxServices. The relationship
between cost segregation and tenthirty one exchange is very hand
(27:58):
in hand as well to reallymaximize the tax deferral and
maximize the tax benefits forreal estate, whether there was a
cost seg done on therelinquished property and or
cost seg done on the newreplacement property. We also
have some very fascinating itemsthat have come to light in terms
of making certain elections tobe able to restart depreciation,
(28:20):
including the original orreplacement basis, which again,
really just catapults thebenefits for investors, the
depreciation, the bonusdepreciation benefits that they
can capture from investing inreal estate.
So what's interesting is thiswhole relationship is with many
things in our world is nowevolving so much with AI and
(28:40):
technology in creating such aneasier flow, a process flow and
a handoff process betweendifferent areas of expertise.
It's been an area we havehistorically struggled when we
have a client who says, I justacquired this property. I'd like
to do cost segregation. However,I did a ten thirty one exchange.
Well, that actually complicatesit for us because we need the
(29:02):
basis amount.
We need to know what is the newbasis, and the taxpayer rarely
knows, or the property ownerrarely knows. The CPA is like, I
haven't worked on that yet.We'll get to it in a year when
we're working on the tax return.And so some of that data gets a
little bit cumbersome. So havingall the right partners in play
that communicate and work welltogether, going through that
(29:23):
flow of handling the exchange,working with us on the cost seg,
getting the correct data, whichthen, because the same thing
rings true with the CPAs whenwe're performing cost
segregation, is it's reallycreating an easier process that
is eliminating errors, becausewe're really doing the land
allocations, the buildingallocations, reclassifying
assets, filing for bonusdepreciation, and then linking
(29:47):
that all together so that thetax filing actually becomes a
bit of an easier process becausethey have the correct data
points to enter in there.
So I kind of love that you guysare very much following in line
or in suit with that blend ofhand in hand service and
technology. So to that point,even though you're using amazing
(30:09):
technology, you have thisbeautiful platform,
self-service, you've got anincredible AI that answers all
the right questions, you stillhave people. Right? There's the
you still have staff. You havegreat professionals that are
there ready to answer questionsand working with customers.
Is that correct?
Judd (30:24):
Yeah, it's a % correct. I mean, I think our vision is,
again, we will, because we havethe best platform, we're able to
hire the best people, which isgreat. Right? You are able to
take somebody who's a deepexpert. And, what you say is,
you know, you're an expert inexchanges, Explain exchanges way
better than I or Marko orwhoever will, maybe in another
twenty years.
(30:45):
But how much of your time areyou spending creating documents
for signatures? How much timeare you spending entering data
into duplicate systems? How muchtime are you spending on really
complicated money movementthat's fraught with error that
could result in a bad mistake?And so you say, what if we take
all that away from you withtechnology and make it really
like one click so you can focuson the things that really
(31:06):
matter, which is talking tocustomers and making sure that
they feel well guided throughthe process, making sure that
the exchange is structuredcorrectly, talking to other
service providers like theirCPA, like their real estate
agent. And these are things thatare like very, very hard to
replace with software.
But it's the part if you talk toour exchange officers, it's the
part they love doing. They loveeducating people on exchanges,
and they love understandingthese, like, long tail,
(31:27):
esoteric, you know, undefinedtax things. This this is like
what they're obsessed with. Andso, you know, allow them to do
the parts that they're reallygreat at and really obsessed
with, And then don't give themthen, okay, great. I talked to
customers for two hours today, Ihave to go do six hours of busy
work.
Just talk to customers. Also,you're not chained to a piece of
software all day. You can take acall from anywhere. One the
(31:50):
things we pride ourselves on isthat we're really responsive
after hours. So we, we staffbusiness hours up to twelve
midnight, Eastern time.
And the way it's possible isthat you need somebody, you
know, in front of a computer,if, if you've built really good
systems and you've got all yourdata well organized and
everything's really automated,it's mostly just answering
questions and putting and thenclicking a button hopefully, or,
(32:12):
you know, all all the littlethings. So I think we translated
the job into one that's way moreeasy and enjoyable. And then
from there, you're able to hirethe best people who are just
able to do what they love andyou get rid of all the, you
know, the non sexy, you know,super mind numbing parts of the
job. And then you just focus onthe sexy tax advice, which is
great.
Heidi (32:32):
That's awesome. The sexy tax advice.
Judd (32:35):
Yeah. Well, but that's, I mean, that's where, I mean,
yeah, we talked about likealready answering questions and
things like that, but at the endof the day, like, I mean, the
team has seen so much, like thedebates. I mean, you have to be
a real nerd to be excited aboutthese debates we have
internally, but hey. Has anybodyseen this? Like, what's the best
practice for this?
And these are, like, undefinedthings that maybe there's a
private letter ruling or maybeit's a, like, a conference topic
that somebody has seen or maybejust some weird state level but
(32:59):
there there's this world of kindof, like, undocumented knowledge
that everybody has. And so howdo you, again, just give people
the space to be able to focus onthat really hard stuff and not
be mired down by all the manualwork that could be possible or
was was was what they needed todo in their in their previous
world? And I think ultimatelythat's a better customer
experience.
Heidi (33:19):
Yeah. Mean, that's what's so fun about innovation and
really solving problems. I mean,it's fun. It's very dynamic. To
that point, so what are some ofthe innovations or the
improvements that you are themost excited about that you kind
of expect to have online in thenext, you know, twelve, eighteen
months?
Judd (33:36):
That's a great question. I mean, if we talk about some of
them, I'd like to again,anything that could be one
click, could it be zero clicks?Anything that right now is
spilling out some information,can it be verified by documents?
I think one thing that we're, wetalked about helping CPAs do
their job better. So I thinkthere's things like that.
Right now we have themultiplayer mode where they can
see their clients, but yeah,going in and actually helping
reduce work for our partners isa big piece. We partner with a
(33:59):
lot of real estate agents. So wehave real estate brokers,
commercial real estate brokerswho, you know, maybe the end
exchanger is not as familiarwith 1031s, but if you're a
commercial real estate broker,especially in certain asset
classes and spaces, you'retalking 10:30 one's every day.
We've been building and arecontinuing to build a lot of
tools for those real estatebrokers. So to give one example,
they present the benefits of aten thirty one exchange.
(34:21):
It tends to be, no offense toour real estate partners, well,
before they start using us, likea really janky handed down
spreadsheet, you know, wherethey're doing some rough tax
calculation, and they're showinghere's your ROE today and here's
what it could be in the future.And so we saw enough of these
spreadsheets. So we just built,you can see a version of it on
our resources page, just anexample, but it's mostly
distributed through real estatebrokers, but we just built a way
(34:41):
better version of that forclients. We can point it at
listing data for so it's alisting for their client, and it
tells them, here's the estimateof what their taxes are gonna
be. I think the other this is atotal aside, but people are
really surprised by the taxes.
And I think you guys on the CPAside and brokers, you think, oh,
I'm paying long term capitalgains. It's gonna be 20%. But,
well, one is it's 20% off yourgain, not on your cash. So if
(35:06):
you've depreciated a lot or yourleverage amounts are different,
you're potentially faced with again less cash out of a
transaction. So that's one mindblowing thing.
I think the other things aredepreciation recapture. So, hey,
I've been taking depreciationfor ten years with this
property. Well, now my basis isdepreciated to zero, and so my
gain is the full amount. Sothat's crazy. And it's taxed at
a higher rate.
(35:27):
And then you're also subject tostate tax and net income
investment tax, NIIT. So you'retalking about, in certain high
tax states, upwards of 48% taxhit on your gain, not on your
cash. So surprising a lot in theten thirty one exchange actually
defers the entire amount. Sothat's incredible. So one just,
(35:47):
and you don't wanna be a brokertrying to explain this.
I just badly explained to them,a pseudo expert. Giving them a
tool that shows them what the,what the tax impact's gonna be,
is really mind blowing. And it,the tool actually looks at, you
know, the basis, the leverage,and it, it does a pretty complex
tax analysis to give them thebenefit, the tax hit. Then, and
(36:07):
then it explains here's what aten thirty one's gonna look like
if you reinvest the money intothese different asset classes
with these cap rates. Where youasked what we're excited about
in the future.
We're building a way for thebrokers to actually put in
specific properties that theywanna show to their clients,
because the big part of theirstrategy is to help them do the
ten thirty one and to the nextproperty. And then the other
(36:28):
thing that we do, which is verycool, is we show the comparison
between paying the tax andreinvesting the money in the S
and P versus doing the tenthirty one exchange. And what
you see is, depending on thereturn profile and the taxes,
it's gonna take you seven to tenyears just to catch up after
that tax reduction to get tobreakeven if you pay the tax and
reinvest. And that's at a prettyI think we assume like a eight
(36:51):
to 10% compounding S and P rate.And so ultimately people are
looking to sell and they wannareinvest in the S and P or, you
know, in the stock marketbroadly, and they look at that
as an index and you're gonnatake ten years just to get to
breakeven with the tax benefitof a ten thirty one.
We, this is something thatbrokers were trying to explain
individually through these jankyspreadsheets. So we built a tool
(37:11):
for them just to do it reallyeasily and manage their
business. And it's interactivefor their clients, which is
really cool. So I'm reallyexcited about just like getting
that, making that tool reallygreat and getting it into more
brokers' hands. And again, it'sfree, like the AI research tool,
it's totally free.
But the way we see it is if wejust are incredibly helpful to
our partners, to brokerpartners, to CPA partners,
(37:32):
wealth advisors, title andescrow is another big one, we
they'll just wanna work with us,and they'll naturally recommend
us. And so that's that's how wehow we see it. We there's a
world if if you look at theproblem of ten thirty one
exchange, which we're obsessedwith, there's a lot, and we've
gotten through many of theoptimizations. But if you look
at the world broadly of how arepeople helping potential
clients, there's probablylimitless things that we could
(37:54):
help them do and help peoplewith. And those are the type of
things where, now that we've gotthe core piece working really
well, excited to put more focuson.
And then we've got some otherwacky ideas, but I think those
are more, you know, like the nofee exchange. I think there's
other things that can reallyaccelerate the ten thirty one
industry. And so Wednesday we'relike, we're there yet. We got
(38:15):
some weird ideas. We just it'sbeen interesting.
So we we just got a team ofpeople who just, really love ten
thirty ones, and we're kindanerdy, and we like building
software problems for stuff. Andso, you know, we sample eight
just thinking about how tenthirty ones could be better. I
don't know. It's not very cool,but it's it's it generates some
cool awareness.
Heidi (38:34):
Well, it's cool for real estate investors, especially
when we're looking at how tomitigate tax. And, you know, you
hit on a couple of really keyfactors like the recapture and
people not thinking about thetax implications when they sell
a property. We deal with thisevery single day that either
one, they sold a property anddidn't consider the tax
implications. They thought a tenthirty one exchange was going to
(38:55):
be really complicated and, youknow, just
Judd (38:58):
Well, they thought they could do it after. That's the
that's the look. If you know onething, it's do just call us
before we close.
Heidi (39:04):
Yeah. Yeah.
Judd (39:05):
Absolutely. Thing that we can't change.
Heidi (39:08):
I you know, it's it's amazing because the tax
implications and I love yourexample of the ten year payback.
Essentially, it'll take you tenyears to recoup that the value
or the cost you paid in tax toactually get that back in gains
after you cash out. That'spretty compelling. I love that
you have that tool. I'm going tolink it in the show notes and
(39:28):
share that.
I'm actually presenting with abig real estate group tomorrow
and, you know, it gets meexcited. I'm like, Hey, I'm
gonna bring the link and give itto them and say, Hey, here's a
great resource that can bereally helpful.
Judd (39:39):
And if they sign up with us, we can give them their own
link. And then we actually canthe thing that's cool that we
built is we can point it. Itdepends whether their listings
are online or not, but we canpoint it at an online listing
and actually generate the reportautomatically, which is pretty
cool. Oh, wow. So yeah, we'retrying to, we're trying to make
it easy for people.
Absolutely. Easy button. Yeah.Not a lot of clicks. You already
entered the information online,so we can just grab it from
(40:01):
there.
Heidi (40:01):
Yeah. Amazing. Well, you know, you guys have absolutely
done that, working with, youknow, developing the easy button
process. Not only that, the NOFIexchange, which is unbelievable.
I mean, you are a complete gamechanger or disruptor in this
industry, and I'm very thrilledto be partnered with you guys.
We have had a ton of our clientsbe very excited. Your team has
(40:23):
been phenomenal, so we've gotsome great contacts and love the
conversations. Shifting a littlebit before we close-up and kind
of finish, over to you just alittle bit. I mean, you have
really built some amazingventures. You've been involved
in some really cool platforms,and technology is not for the
faint of heart.
(40:44):
I have so much respect forpeople who are innovators and
who are diving into buildingsomething new because it also
always feels like a race. Know,who's the first one to get there
with everything that's beingdeveloped these days and how
quickly technology is moving? SoI would love to know what's a
piece of advice that you wouldgive to business owners or
(41:04):
someone who has an idea andthey're thinking about trying to
take it to market like you'vedone. What's a piece of advice
or something you've learnedthrough that process?
Judd (41:14):
Totally. Yeah. Well, I think I'm gonna give two. I
think one is just do it, getstarted. I think, you know,
ideas are free and plentiful,but effort is hard.
So, you know, a lot of peopleare, like, looking how to get
over the hump. I talk to a lotof entrepreneurs. And I always
want people to just, like, startand start building. And, you
(41:36):
know, analysis paralysis is isthe enemy. So I think when we
were just interested in tenthirty ones, we started making
content about it.
We built a couple tools. Webuilt a calculator because we
barely understood it. Thecalculator's still on there. So,
you know, we wanted to build ina way that we understood the
matching of the taxes andmortgage boot and how these
things work. And so I would sayjust like, you know, definitely
(41:58):
get started.
And then the most importantpiece of advice is talk to
customers. Like, don't be inyour own head. I think we
thought a lot of things aboutten thirty one's, oh, it could
be all magical and, you know, Idon't know. Once you go through
and talk to a customer and watchthem watch them use your
software, I mean, we we, know,we think we're we think we're
(42:20):
the bees knees, and you watchsomebody use a form that we've
been working on for six monthsand they don't know to use the
the label is totally wrong orwhatever. I think if you get
started and you talk tocustomers and you keep iterating
and, you know, one of ourprinciples is to make things 1%
better every day.
And so you really can't fail.You may not end up where you
started. You probably will endup probably in a far different
(42:41):
place than you started, butit'll be the right place because
of the place that customersbrought you to. We didn't start
with this idea of a no feeexchange. We just wanted to make
exchanges better, we thought theindustry was interesting, and we
didn't think anybody was takingtechnology.
And we just started talking topeople. We learned about
interest sharing. We started,you know, asking questions about
fees and asking questions abouthow the process should work and
(43:02):
understanding how the ecosystemand how, you know, you guys are
are deeply involved and arerecommending it. And and we
didn't know any of this. If wehadn't gotten started and we
hadn't talked to, you know,clients, customers, partners,
we'd be nowhere.
It'd be still in my head. I havethis dumb idea about the $10.31
thing or something. So, yeah. SoI think it's not that comp- it's
(43:26):
not that complicated. You justgotta do it, take the leap.
I mean, well, hopefully take theleap. Be smart about it. Be
concerted, but, but yeah, go forit and talk to customers and
make it better every day. Youyou'd be amazed how much
progress you make in, in, youknow, a short period of time.
Heidi (43:42):
Yeah, absolutely. Well, you're definitely showing that
and your group, your team, Iagree. I mean, you guys have
such great expertise. We havebeen really so pleasantly
surprised with our experience Soawesome here,
Judd (43:54):
no, that's, it's all With our partnership. That's amazing.
No, we love working with youguys too, and helping clients on
all these different aspects andreferring clients back to you. I
mean, we recommend thateverybody try to do a cost seg
after they close on theirreplacement properties. That's a
natural hand back.
And it's been awesome. We'velearned a ton and it's, it's
really great to hear that, thateverybody loves working with us.
Heidi (44:14):
Well, thank you so much. Judd, thank you so much for
being a guest. I'm going to haveall kinds of things in the show
notes, and we'll share some ofthese data points and some of
these tools with our listenersas well. But just looking
forward to continue to expandand share the word and get your
name out there, because Iabsolutely believe in what
you're doing, and I think it isjust fantastic. So kudos to you.
(44:36):
And before we wrap up, actually,any comments on what is the best
way for people to reach out toyou if they'd like to chat with
you personally or stay in touch?
Judd (44:46):
Well, the best pay, best way to reach deferred in
general, well, you can go todeferred.com. We probably should
have said that earlier,DEFERRED.com. I guess it'll be
in the show notes in the name.Maybe it's not that complicated,
but deferred.com was one of thebetter decisions that we made.
The best way to reach us, youknow, it's funny, support, s u p
p o r t, I didn't need to spellthat, at deferred.com.
(45:08):
It actually goes to everyone.You get the fastest response. It
can be the most esoteric CASTquestion. I read everything. So
that's really good.
You can also, my first name atdeferred, dot com. If you wanna
find me personally, that's alsogreat. But I think we've
centralized support dot com.It's, it's boring because it's
like an email address, but it'sanother tech innovation where no
(45:29):
matter what it gets emailed, weknow what file it is. We know
who it should go to andeverybody has eyes on it and it
gets a really fast response.
So that's always a cool way toget in touch with us. You can
call us, fill out a form on ourwebsite. I don't know. Page me.
Heidi (45:42):
Pager? What's a pager? I remember those days.
Judd (45:47):
No, we're, we're, we're always working on this. I say
this, but we're like scarilyfindable. Yeah. Yeah. No, come,
come talk to us if you, if youwanna, partner with us, ten
thirty one questions, reallyanything.
We're just excited to be in thespace and moving it forward and,
excited for ETS for all thesupport and the cool partnership
(46:08):
we have. And, yeah, it's it's,excited to talk to you.
Heidi (46:11):
I love it. Thank you so much, Judd. Alright. Thanks
again. We'll we'll be in touchsoon.
Judd (46:15):
Bye bye.
Heidi (46:16):
Thank you. Well, that wraps up another episode of
SlashTax. A huge thank you toJudd for sharing his insights on
how deferred is transforming theworld of ten thirty one
exchanges and helping realestate investors keep more of
their hard earned capital. Ifyou're ready to explore the no
fee exchange and take control ofyour next property transaction,
(46:37):
be sure to check out the shownotes below. We have links
directly to their website andinformation for how to move
forward.
And don't forget, SlashTax isall about giving you the tools
and strategies to slash your taxbill, build wealth, and reinvest
smarter. Make sure to subscribe,leave a review, and share the
episode with someone who mayneed to hear it. Thank you so
(46:59):
much for joining. Until nexttime.
Welcome to SlashTax Podcast. I'm your host, Heidi
Henderson, and today's episodeis all about ten thirty one
exchanges done smarter. I'mjoined by Jed Schoenholz. He is
the cofounder and CEO ofDeferred. This is a technology
powered ten thirty one qualifiedintermediary that is shaking up
(00:29):
the industry with the innovativeno fee exchange.
And, yes, I said no fee. And youmight ask, how can we do that?
Well, that's exactly what Iwanna dive into with Judd today.
At SlashTax, we believe inequipping investors, business
owners, and CPAs with strategiesto slash tax liability, build
(00:51):
wealth, and maximizereinvestment. Today, we're
exploring how Deferred'splatform is cutting costs,
increasing transparency, andhelping clients preserve more
equity so they can reinvestsmarter and then grow their
portfolios faster.
Before launching Deferred, Judd,the cofounder, he cofounded Open
(01:13):
Listings, which a which wayBefore launching Deferred, Judd
cofounded Open Listings, a homebuying platform backed by Y
Combinator, which was lateracquired by Opendoor. He led
their buyer business through theIPO, and he's also the former
(01:37):
cofounder of Balance Homes andan engineer and product designer
by trading. Before launchingDeferred, Judd co founded Open
Listings, a home buying platformbacked by Y Combinator, was
(01:57):
later acquired by Opendoor. Heled their buyer business through
the IPO, and then he was alsothe former co founder of Balance
Homes and an engineer andproduct designer by training
with a career that spanned tech,real estate, and digital
innovation. So he has a reallyinteresting background that
(02:17):
links directly into his pathtoday.
I'm really excited to share thatEngineered Tax Services has
officially partnered withDeferred to offer ten thirty one
exchange services to our clientsbecause we believe their
platform brings a whole newlevel of transparency,
simplicity, and cost savings toreal estate investors, And ETS
(02:40):
is performing over 600 costsegregation studies every single
month. This partnership is anatural evolution in helping our
clients defer taxes and reinvestmore of their hard earned
capital. And with that, let'swelcome Judd to the show. Judd,
hi, and welcome to the show.
Judd (02:58):
Hi. Thanks for having me.
Heidi (03:00):
Looking forward to the conversation. This is a fun one.
So you have a pretty fascinatingjourney from open listings to
Opendoor and now launchingdeferred. So what inspired you
to dive into the world of tenthirty one exchanges, and what
problem were you aiming tosolve?
Judd (03:19):
Well, I was looking to do a ten thirty one exchange,
actually. So I I guess I hadheard of ten thirty ones. It's
something that, you know,bounces around if you're in real
estate or, understand anythingabout taxes and tax real estate.
But it was when I was looking toactually exchange a property
when I understood exactly thedynamics of how it worked and
uncovered this qualifiedintermediary industry. And so
(03:43):
once we pulled that thread, meand my business partners, it was
really fascinating.
Think one is it's just the mostflying and archaic type process
you can imagine. If you'relooking to do a ten thirty one,
the qualified intermediary isthe service that holds the funds
and helps you structure theexchange and then, you know,
distributes the funds on yourbehalf so that you don't take
(04:04):
receipt of the funds and itdoesn't become taxable. And we
can talk about ten thirty one's,the specifics of it in the
future. But, it was like a filecabinet business. People were
running it on spreadsheets ifyou're lucky, maybe, you know,
written down pieces of paper.
And for us, it, it really islike a financial technology
business once you look at itunder the hood. It should be
managed entirely with software.You should see a full audit of
(04:26):
everything that's happening.There's a lot of money movement
involved. So you wanna do thatprobably with, you know, FinTech
rails as opposed to manualprocesses.
So that was one. It was, we justsaw a huge opportunity to make
it a much better process forclients. And then also for the
people, the people managing theexchange, they're spending, you
know, 60 to 80% of their timeproducing paperwork and tracking
(04:50):
things down and things thatcould just be automated so that
they could focus better oncustomers. So this whole, like,
interesting technology problemthat we saw. And then I think
the second piece is thequalified intermediary, because
they hold the funds, theyactually earn interest on the
funds, not by doing anythingweird, just by holding it in a
depository account.
And so the unlock for us, thesecret was the qualified
(05:11):
intermediary is charging theclient a thousand dollars, but
if they're doing a $5,000,000exchange and they're holding the
funds for ninety days, they'remaking $50,000. And they they
still send your client a checkfor that thousand, $1,500 for
the exchange, which seemed kindacrazy to us. So we inverted that
business model, and we justdon't charge fees. And it's not
that crazy because 80% of the QIrevenue already comes from
(05:33):
holding the funds. So buildingthe best QI experience, the best
technology, and then invertingthe business model so it's
better for clients.
And ultimately, what that allowsis there's no risk to do an
exchange because we don't chargea fee. If you talk to smart
investors, they're gonna go paythat exchange fee just to have a
free option on potentiallysaving the taxes. We don't make
that a choice. It's it's free ifwe if you go through the
(05:54):
exchange, it's free if youdon't. If you change your mind,
there's really no downside tostarting exchange with deferred.
And so but yeah, we we cameacross the business and we're
fascinated by it and have justbeen pretty obsessed with it for
the past year and a half.
Heidi (06:07):
Yeah. I I'm super excited to have this conversation
because I think what you guys dois it's a complete game changer.
This is an industry that hasbeen around for quite a while.
Do you happen to know stats on,how long has ten thirty one
Exchange been in play?
Judd (06:23):
So it's been in the tax code since 1921, which is crazy.
So over a hundred years, I guessthe background is what it allows
is if you sell a property,basically any property that's
held for investment, meaning notyour primary residence and not a
vacation home you're using formore than, you know, fourteen
days a year or 10% of the timeyou rent it out. So basically
(06:44):
any other property that'scommercially owned, if you sell
it and reinvest the proceedsinto another held for investment
property, you don't pay thecapital gains taxes. And so it's
great for the real estateinvestor because they can move
funds around. It's also, Ithink, great for the economy
because you take funds fromthese appreciated properties
that are sitting there, and youencourage people to move money
(07:06):
around and redevelop newproperties and sort of the
highest and best use of realestate.
So we love it from thosefactors. And, yeah, that's why
it's, I think, been a core partof the tax code since 1921. It's
evolved. You know, there thereweren't a lot of rules back then
about how you're supposed to doan exchange. So there's been
different ways that it hasevolved to sort of make it more
convenient and obvious fortaxpayers.
(07:27):
And so but, yeah, I think if youtalk to sophisticated real
estate investors, this is a corepart of their strategy. I think
the thing that was surprising tous, and you asked about
statistics, there's very littlestatistics in the industry. I
think the IRS released a reportand it's from 2013. Otherwise,
it's pretty hard to find. It'shard to find good data.
(07:49):
Something like less than 10% ofproperties that can't be ten
thirty one exchange are actuallyexchanged. So we came into this
So people are just paying thetax, whether they don't wanna
pay the fees or there's lowawareness, but they don't wanna
deal with the timing. And so weview these as solvable problems.
We think basically everyproperty should probably be
exchanged if, you know, ifyou're looking to put the money
(08:10):
back into real estate. And yeah,so, so just try to raise
awareness, make it easier,reduce the friction, reduce the
fees, and help more people gothrough the exchange process.
Heidi (08:22):
It's the ten thirty one exchange is one of the biggest
tax deferral strategies thatexists. It's one of those things
that always seems to come upwhen there is a debate about tax
reform. Have you heard anyupdates or are in any
discussions in the currentadministration as they're diving
into tax reform about ten thirtyone exchange?
Judd (08:42):
It's a great question. I think in the previous
administration, it was in theeconomic plans as a thing to
look at potentially not cut. Ithink the last Biden proposal,
which never made it to any billsor any actual tax reform, was
something like they were gonnacap it. So we were gonna cap the
benefit. And so potentiallyonly, like, $500,000 worth of
(09:03):
exchanges, I think, was was thelast proposal.
And that obviously didn'thappen. I think to give credit
to the existing industry, theydid a good job of explaining how
maybe it looks like a tax break,but it actually encourages all
this redevelopment andencourages all this economic
activity. And the net taxbenefit from that, along with
the usefulness for theredevelopment of the properties
(09:23):
and the economy, it it createsway more economic activity than
the tax break would offset. So Ithink they did a good job of
sort of controlling thenarrative there. And then, yeah,
I haven't heard anything in thecurrent administration.
I understand that I'm not a I'mnot a student of history here,
but that maybe Trump's been abeneficiary of the ten thirty
one state personally. So I don'tknow where he is, like, line
(09:43):
item line item may his taxbills, but I don't think that
would be the first, you know,thing that they've cut. So no, I
think it's endured for a hundredyears for a reason. And I think
it'll continue to endure and,you know, it it's evolved in
terms of how it's been done. Andyou used to be able to exchange
all sorts of things that youcan't exchange anymore, but real
estate's persisted.
And I think it should, it willand should persist for the next
(10:06):
hundred years.
Heidi (10:07):
Yep, absolutely. So so as I'm looking at TapTPT, thank
you. What did we ever do withoutAI?
Judd (10:13):
Oh, know, we built a special version of, it's built
on ChatGPT, but there's a toolwe have called Arty. You can
find it on our website and it'sa version of that, but it's,
it's specifically trained on allthe tax code, ten thirty ones,
all the private letter rulings,a lot of very specific tax, but
specifically ten thirty one. Andwe got it actually to pass the
(10:35):
CPA exam. So this is probably awhole episode in and of itself.
Heidi (10:39):
That is.
Judd (10:39):
But yeah. So it's a really useful tool. It's totally free.
So yeah, definitely ask it sometax questions, but I think,
yeah, ChatGPT is getting prettygood at just like the baseline
ChatGPT is getting pretty goodat taxes too.
Heidi (10:50):
Yep. So we have used your AI and we agree. It is a
fantastic tool and it is such agreat resource for real estate
investors, not just on tenthirty one exchange questions,
but a lot of tax technicalquestions. And to your point
about what we're seeing inregards to tax reform and what
the discussion is about that,certainly the current
(11:10):
administration is highlyfavorable towards real estate
incentives and tax deferrals fordriving transactions. So yes, we
also have not heard that there'sanything on the table in regards
to changing or removing theopportunity for ten thirty one
exchange.
ChatGPT does say, and you cantell that it's a rough estimate,
that it's interesting thatthere's not a lot of data out
(11:33):
there about exchanges, but it'sestimating somewhere about
$100,000,000,000 to$170,000,000,000 of real estate
value is exchanged every singleyear. And roughly 6% of
transactions, which is, isactually, I think surprisingly
small. I love what you weresaying that that tell me again,
(11:53):
what was the percentage ofproperties that could do an
exchange that actually utilizeit?
Judd (11:57):
Well, I think I think we've seen that somewhere to six
to 10% number of, yeah,potential. So any, yeah, any
investment property could beexchanged and only, yeah, only
it depends, I think, whether youslice it by all or commercial or
asset class, but I think sub 10%is definitely where we're at.
And then I think that hundredbillion dollar number, I think
that comes from potentially anNAR report, but I I that's what
(12:19):
I've seen bandied around aswell. So a hundred billion
dollars worth of property isactually exchanged. People are
definitely taking advantage ofit.
Again, yeah, core real estatestrategy. And then where we come
in is just try to make it easierand less friction and lower fees
and more pervasive and, yeah,trying to just be the best
exchange company in the world.
Heidi (12:39):
Yeah, absolutely. Well, what you guys are doing to your
point is so innovative. I alwayssay on this podcast, I love
interviewing companies that Isee as disruptors and you are
absolutely one of thosecompanies. The traditional ten
thirty one exchange model orprocess, it's, it's been
expensive, has been completelyopaque. So there's zero
(13:01):
visibility with where thosefunds are while they're being
held in an escrow account.
I had always assumed, maybe byfault, I had always assumed that
there's some type of aregulatory scenario where when
that money's held in escrow,when it's pending, you know,
they've sold the building. We'renow, what is it? One hundred and
(13:21):
eighty days waiting to close onthe new replacement property. I
actually assumed that in escrowthat the property owner's not
eligible to earn interest onthat money. Is that not true?
Judd (13:33):
Yeah. It's it's just not true. I think it's Wow. It's a
closely guarded secret from thewell, I mean, it's so again,
savvy real estate investors,people who, are doing this
often, they know that somebody'searning interest in their money
they have the ability toindividually negotiate it. And I
think that was one of the thingsabout the industry that we
didn't love, that there's thiskind of inequal treatment.
(13:56):
If you had the knew the rightway to ask and the code word,
you know, you could earninterest on the funds. But if
not, you're not going to. And soI think some companies'
policies, you earn a smallamount of interest. Many don't
pay any interest. So we justwanted to make it more
transparent of a business model.
Mean, I mean, to be fullytransparent, we make money
earning a share of thatinterest, but we just try to
(14:17):
make it, as optimal as possiblefor the client, and we wanna,
you know, deliver the service atthe lowest possible cost. Yeah.
So, yeah,
Heidi (14:26):
that's how we do I mean, other intermediary
intermediaries, they essentiallyare holding all of the interest
earned on that plus the fees,right? Just to clarify.
Judd (14:36):
Yeah, yeah, yeah. No. And I'm like, how can I give the
most amount of interest to ourclients? By being as efficient
as possible. That's, that'sultimately what we're trying to
do.
But other people could try tomatch the pricing, but I think
ultimately it's buildingtechnology to make the process
faster to let the client domore. You mentioned how it's
archaic from a CPA perspective.I think the other thing that
we're focused on is what we callmultiplayer. We want the CPA,
(14:59):
the real estate agent, thewealth advisor who's potentially
helping to actually be able tolog in and use the software as
well. And so, you know, maybe asan individual exchange where
you're doing one exchange, it'seasy to manage, but we talked to
CPA firm, and we love ETFs, andallowing you to see the 60
clients that we're activelyworking with together, and to
see where they're all at, and tohave a centralized repository
for all the paperwork, and forus to actually help you do some
(15:21):
of the paperwork.
We're not allowed to give taxadvice. We're not allowed to be
a CPA, but we could summarizethings and make your lives
easier and make everything moreaccessible. So those are kind of
the things we're trying to dojust to be just to be the best.
Heidi (15:33):
Yeah, absolutely. Okay. So let's let's talk about this
no fee exchange because itsounds too good to be true. And
even when I tell people they'relike, wait, what?
Judd (15:44):
So you
Heidi (15:46):
have to explain how this works and how deferred makes
this possible. Like, I mean, youknow, I I know it's a lot
because you guys have built areally cool platform, but let's
back up a little bit and reallyexplain what does this process
look like and how did you do it?Sure.
Judd (16:03):
Well, it's more simple than it sounds. I think, we hold
the funds for so as thequalified intermediary, we take
receipt of the funds when theproperty sells. Mhmm. We hold
those funds. Some exchanges arepretty short.
We only hold the funds for a fewdays. Let's say the client is
reinvesting into a DST fund.It's ready to go. It's all lined
up. You know, we'll process it.
(16:25):
We've had one day holds. We'rewe're we work very fast. The
process for the ten thirty oneuses you have forty five days to
identify what you're gonna buy.And so we're gonna need to hold
those funds for at least theidentification period. If the
client decides not to go throughwith the exchange, still no fee,
hold the funds for forty fivedays, get the funds back at the
end of forty five days.
And then, within the tax code,you have one hundred and eighty
(16:47):
days to purchase what you'veidentified. So we can hold the
funds for a short period oftime. We can hold the funds for
one hundred and eighty days.What we do is we hold the funds
into a, we call it a segregateddedicated bank account for that
client. It's held at a majorpublicly traded banking
institution.
We work with a bunch ofdifferent banks. Like a high
yield savings account, it justearns interest. It's not nothing
(17:07):
risky about the money. It's heldin an FDIC insured account. And
so, yeah, the bank pays interestbecause that's the bank's
business model.
And, I think they're lending outthe money on the back end, but
it's essentially held in shortterm treasuries. So because the
because the funds generateinterest, and our average
exchange amount is in thehundreds of thousands of
(17:28):
dollars, the average amount weearn per exchange just for
interest from the whole periodis in the multiple thousands of
dollars. And so it's not likethat crazy. We just don't charge
that extra thousand dollar feeon the, you know, flat fee on
the exchange. And so for shorterexchanges, yes, we make less
money and it's great for theclient on longer exchanges or
larger balances.
We make more money, but the waywe look at it is it all comes
(17:49):
bowed in the wash and the no feemakes a lot of sense. And it's
winning a lot of business,making people really happy,
reducing the friction and sortof the downside to doing an
exchange, especially if itdoesn't go through. So, yeah,
it's really not verycomplicated. I think the way we
best explain it is just tounderstand that the QIs earning
interest and not necessarilytransparently sharing with the
(18:10):
client usually. And so we justtry to be super transparent
about that and we don't need tocharge an extra fee on top of
the interest earned.
Heidi (18:19):
Yeah. It's actually very simple. It makes all the sense
in the world. And that's, I haveto laugh because this has been
an industry to your point thathas been around for a hundred
years. And it's just been alittle bit, it's almost like,
It's like getting title, like,you know, going to the title
company for title insurance.
It's just the thing you do. Itjust goes to the title company.
(18:39):
I feel like ten thirty oneexchange has been kind of the
same deal. It's just, you justpush it to the intermediary and
don't worry about it.
Judd (18:46):
Well, there's an interesting title analogy. This
is a free business idea foreverybody, but you know, the
title and escrow company, itdepends on there's more
regulation in title and escrow,it depends what state you're in.
But my understanding, and I'mnot an expert here, is that the
escrow fee is also a lossleader. The escrow company is
making money selling titleinsurance. So they're gonna make
$6,000 selling you a titlepolicy, and they still charge
(19:07):
you an $800 escrow fee.
So, you know, free idea, butmaybe some should have a, you
know, a no fee escrow, whichmonetizes on the title
insurance. And, I'm not sure whythat doesn't exist, but it's
it's it's similar to title andescrow. We're we're very similar
to a title escrow business. Iactually think in many ways,
these changes morestraightforward. It's more
linear.
And that's actually good becauseI think then you can apply
(19:29):
technology to really streamlineit and automate it versus in my
experience with title andescrow, they're wrangling, you
know, wrangling cats with 10different parties. And, it's a
little more of an open ended,complicated process.
Heidi (19:42):
Yeah, so interesting. Talk a little bit about IRS
compliance. Like how does themodel deal with IRS compliance?
Talk a little bit about yourteam that developed this, you
know, because this is theintersection of technology and
technical, I mean, it's exactlywhat we deal with at ETS,
dealing with a lot of the taxincentives and deploying some
(20:04):
technology, but how do we dealwith compliance in very complex
areas with a lot of regulation?So how have you guys had to
handle that?
Judd (20:11):
Well, I think that was one of the most surprising things
coming into the business. Thetraditional QIs, it's kind of
like a trust us model. Likemaybe we held the funds and
maybe we gave you the rightreport at the end, but
ultimately it's the CPA's job tofile the taxes. And they're
ultimately responsible for thecompliance, the IRS compliance
and filing. The QI is this, youknow, necessarily this
(20:35):
disinterested party.
So, but that was surprising tous. So I think, I mean, one of
the first things we did was wemodeled all the rules in
software. And so there's maybelike a hundred rules, not that
they apply to everybody, butthrough all the edge cases. And
so modeling all the rules insoftware means that every single
exchange that goes through oursystem, we know that it passes
all the rules. And so you've gotthis one check that this
exchange is compliant.
(20:56):
We can show you all the rulesit's passing. If it comes up
with an error, it can surface itto the exchange officer and the
user. And so I think just likemodeling rules and software is
the first step, and we can makesure that everything passes. I
think the second thing we do iswe have what we call an audit
trail, and you see the fullhistory of everything that's
happened on the Exchange down toa date stamp across every part
(21:16):
of our platform. And it's reallyuseful for us internally.
We can see why somethingchanged. Let's say the name
changed on something, and thenthis doc had a different name.
We actually have a full it's notlike, hey, these docs don't
match. It's like, hey, we seewhere and when this actually
happened. At the end of change,we can actually produce the full
audit trail.
This is an internal thing, but,you actually see the full
(21:36):
history of the change. You seethat it's passing all the rules.
And so to this idea of IRScompliance, we move from trust
us to something that's much moreverifiable and auditable. And so
I think, knock on wood, we'vebeen fortunate enough not to go
through any audits, although,you know, it happens regularly.
It's just part of the IRSprocess.
But instead of producing like afew end documents and a letter
(21:58):
at the end saying that we thinkthis is compliant, we actually
can produce the full audittrail, the fact that it passes
all the rules along with thenormal documentation. So I think
that's like a really importantpart of our process, not really
what we lead with in terms oflike marketing the service, but
something that's like highlydifferentiated and a reason to
use us as an exchange companyopposed to the like trust us
(22:19):
model.
Heidi (22:19):
Yeah. Yeah. I mean, that's one of the many
advantages with, with using yourplatform. Talk a little bit
about some more other advantagesthat maybe a first time investor
who's looking to do a ten thirtyone exchange. What are some of
the things that they'll noticeabout using your platform?
Judd (22:36):
Yeah. Well, it's a great question. I mean, I think first
time investor maybe be nervous,but I would encourage them to
try it. But I think one thingthat we allow that's very unique
is this idea of self-service.And so right now, you know, with
other before we started, the wayyou did an exchange is you like
called somebody and maybe theytook the right notes, maybe not.
And maybe they sent you back theright documents, maybe not. We
(22:57):
built an online platform thatpeople can actually go through
and they can do as much or aslittle of the exchange as they
want. They can still call. Theycan probably, actually they can
fax. They can email.
They can come and type it inwith us. But if they want, they
can also go through, we call itself-service. And so they can
enter in all the details aboutthe exchange. It goes pretty
(23:17):
detailed to make sure thatthey're passing all the
different rules. They enterdetails about the relinquished
property.
Their identification can be doneonline. So you can basically do
the entire exchange in software.You don't have to, but it's very
cool. It also means that likeyou can see the details in
software. So maybe today you'dlike see an error on the closing
statement or something, if therehappened to be an error.
(23:38):
With our platform, you can gosee here's the property I'm
selling. Here are all thedetails. Here's the seller.
Here's the amount. You can editit.
So you actually have visibilityinto like the full aspect of the
exchange. And again, if youwanna self-service, I think you
could probably set up anexchange. We haven't really
speeded about it. We should timeit, but you could start start
the exchange, fill out theinformation, sign the docs,
(24:00):
generate all the docs, get anemail, I'd say in a minute,
through self-service, which iskinda crazy. No.
That's great. And again, that'slike the key points are, like,
helping somebody actuallystructure correctly, answering
all the questions, making surethat the entities are correct.
Sometimes you have these layersof entity. It's not like we are
encouraging everybody tospeedrun it. We're still heavily
reviewing it, on the back end,but because the Exchange is able
(24:23):
to do that, it's pretty uniqueand I think a way better way to
avoid mistakes.
Heidi (24:27):
Yeah. Have you guys built in like a scanning technology
where people can just uploaddocuments? So if they have a
purchase agreement or they havesomething in place.
Judd (24:37):
That is a, that is a great question. It's a little bit of a
secret, secret sauce, but yeah.So we're working on a piece
where, so the settlementstatement is like a key
document. It contains prettymuch, so everything could be
wrong before the settlementstatement, but you really need
the settlement statement to beright. And not that we got it
wrong, but just like you decidednot to do an exchange, you have
your offer you know, the selleris is the entity.
(24:57):
It's fine. So the settlementstatement needs to be right. We
want us on the settlementstatement. We wanna make sure
that the funds are directed inthe right place. And so that's
like a very important document.
It also contains all theinformation you need to do an
exchange. We're building theallowance of, okay, you can fill
out this form. And as I said, ittakes a minute, but you can also
just forward us the settlementstatement. We can abstract all
(25:17):
the necessary information andthen send you back the documents
you need. And so it'scomplicated because while
there's sort of a consistency tohow settlement statements work,
it's not like the HUD one orsomething where you can actually
that the data is exact.
But if you look forward, theexperience looks like totally
frictionless. You're justforwarding a couple docs. The AI
is looking to make sureeverything's right. The exchange
(25:38):
officer is the double check, andthey're there to really explain
everything through the process.But you're not able to make
manual mistakes becauseeverything is done through
software.
And so, I don't know, I guess itcould sound kind of dystopic,
but I think what it does isallows everybody to focus on
what matters. It allows the, youknow, exchange officers are
really the experts in helpingstructure the exchange
correctly, and guiding thecustomer. It helps the CPA.
(26:00):
They're not doing manual busywork. They're not missing a
weird line item somewhere.
And so it's not really areplacement of people in the
process. It's just a replacementof mistakes. And like you have
all these like great checks tomake sure everything is perfect.
And so I think ingestingdocuments and turning them into
structured data, it's weird. Youthink it'd be a super solved
problem, but working on it inthe backend, there's there's
tools and primitives for it, butit's not, it's not super solved
(26:21):
yet.
We're, we're working on it, Iguess, is the simple answer.
Heidi (26:25):
That's awesome. I love your definition of that in terms
of, replacing mistakes. And thatmakes a lot of sense with how
that's structured. In terms ofhow it's helping the CPAs, so
are you guys going through anddoing the form 8824s where
you're calculating all of theknow, the exchange basis and the
carryover basis and all that?
Judd (26:45):
We don't fill out the eighty eight twenty four, but
the way we do it today, and weshould talk either on air or
after this, is we we like to gofurther. We just provide all the
necessary document for documentsand information in this closing
reports for the CPA to do that.I'm not sure where the bounds
are. I think we could draft thereport. We could say, hey, your
report should look like this,but you need to fill it out.
We're not allowed to give taxadvice. We're definitely not
(27:05):
allowed to replace CPAs, but wecan definitely help CPAs do
their jobs better. We could alsolet's say we ingest the eight
eight two four that you guysfill out, and we run it against
our records, and we make sureit's correct. So I think there's
a lot to be done there. I thinkright now we're at the point
where we just give the CPAs thefinal information that I think
is a % correct and in the rightformats and makes it easy, but
we're we're not filling out thatform yet for anybody, but let's,
(27:27):
let's talk.
We could, we could ship it toyou guys. Maybe what's it
Tuesday? Maybe by the end of theweek, could, we could have it.
Heidi (27:31):
There you go. By the time we publish the podcast.
Judd (27:35):
Tuesday somewhere.
Heidi (27:36):
That's awesome. I mean, it's just an interesting process
and even in the current statewith intermediaries and how that
works with the property ownerand then how that's working,
like with us doing cost segs. Sowe're thrilled to have partnered
with Deferred at Engineered TaxServices. The relationship
between cost segregation and tenthirty one exchange is very hand
(27:58):
in hand as well to reallymaximize the tax deferral and
maximize the tax benefits forreal estate, whether there was a
cost seg done on therelinquished property and or
cost seg done on the newreplacement property. We also
have some very fascinating itemsthat have come to light in terms
of making certain elections tobe able to restart depreciation,
(28:20):
including the original orreplacement basis, which again,
really just catapults thebenefits for investors, the
depreciation, the bonusdepreciation benefits that they
can capture from investing inreal estate.
So what's interesting is thiswhole relationship is with many
things in our world is nowevolving so much with AI and
(28:40):
technology in creating such aneasier flow, a process flow and
a handoff process betweendifferent areas of expertise.
It's been an area we havehistorically struggled when we
have a client who says, I justacquired this property. I'd like
to do cost segregation. However,I did a ten thirty one exchange.
Well, that actually complicatesit for us because we need the
(29:02):
basis amount.
We need to know what is the newbasis, and the taxpayer rarely
knows, or the property ownerrarely knows. The CPA is like, I
haven't worked on that yet.We'll get to it in a year when
we're working on the tax return.And so some of that data gets a
little bit cumbersome. So havingall the right partners in play
that communicate and work welltogether, going through that
(29:23):
flow of handling the exchange,working with us on the cost seg,
getting the correct data, whichthen, because the same thing
rings true with the CPAs whenwe're performing cost
segregation, is it's reallycreating an easier process that
is eliminating errors, becausewe're really doing the land
allocations, the buildingallocations, reclassifying
assets, filing for bonusdepreciation, and then linking
(29:47):
that all together so that thetax filing actually becomes a
bit of an easier process becausethey have the correct data
points to enter in there.
So I kind of love that you guysare very much following in line
or in suit with that blend ofhand in hand service and
technology. So to that point,even though you're using amazing
(30:09):
technology, you have thisbeautiful platform,
self-service, you've got anincredible AI that answers all
the right questions, you stillhave people. Right? There's the
you still have staff. You havegreat professionals that are
there ready to answer questionsand working with customers.
Is that correct?
Judd (30:24):
Yeah, it's a % correct. I mean, I think our vision is,
again, we will, because we havethe best platform, we're able to
hire the best people, which isgreat. Right? You are able to
take somebody who's a deepexpert. And, what you say is,
you know, you're an expert inexchanges, Explain exchanges way
better than I or Marko orwhoever will, maybe in another
twenty years.
(30:45):
But how much of your time areyou spending creating documents
for signatures? How much timeare you spending entering data
into duplicate systems? How muchtime are you spending on really
complicated money movementthat's fraught with error that
could result in a bad mistake?And so you say, what if we take
all that away from you withtechnology and make it really
like one click so you can focuson the things that really
(31:06):
matter, which is talking tocustomers and making sure that
they feel well guided throughthe process, making sure that
the exchange is structuredcorrectly, talking to other
service providers like theirCPA, like their real estate
agent. And these are things thatare like very, very hard to
replace with software.
But it's the part if you talk toour exchange officers, it's the
part they love doing. They loveeducating people on exchanges,
and they love understandingthese, like, long tail,
(31:27):
esoteric, you know, undefinedtax things. This this is like
what they're obsessed with. Andso, you know, allow them to do
the parts that they're reallygreat at and really obsessed
with, And then don't give themthen, okay, great. I talked to
customers for two hours today, Ihave to go do six hours of busy
work.
Just talk to customers. Also,you're not chained to a piece of
software all day. You can take acall from anywhere. One the
(31:50):
things we pride ourselves on isthat we're really responsive
after hours. So we, we staffbusiness hours up to twelve
midnight, Eastern time.
And the way it's possible isthat you need somebody, you
know, in front of a computer,if, if you've built really good
systems and you've got all yourdata well organized and
everything's really automated,it's mostly just answering
questions and putting and thenclicking a button hopefully, or,
(32:12):
you know, all all the littlethings. So I think we translated
the job into one that's way moreeasy and enjoyable. And then
from there, you're able to hirethe best people who are just
able to do what they love andyou get rid of all the, you
know, the non sexy, you know,super mind numbing parts of the
job. And then you just focus onthe sexy tax advice, which is
great.
Heidi (32:32):
That's awesome. The sexy tax advice.
Judd (32:35):
Yeah. Well, but that's, I mean, that's where, I mean,
yeah, we talked about likealready answering questions and
things like that, but at the endof the day, like, I mean, the
team has seen so much, like thedebates. I mean, you have to be
a real nerd to be excited aboutthese debates we have
internally, but hey. Has anybodyseen this? Like, what's the best
practice for this?
And these are, like, undefinedthings that maybe there's a
private letter ruling or maybeit's a, like, a conference topic
that somebody has seen or maybejust some weird state level but
(32:59):
there there's this world of kindof, like, undocumented knowledge
that everybody has. And so howdo you, again, just give people
the space to be able to focus onthat really hard stuff and not
be mired down by all the manualwork that could be possible or
was was was what they needed todo in their in their previous
world? And I think ultimatelythat's a better customer
experience.
Heidi (33:19):
Yeah. Mean, that's what's so fun about innovation and
really solving problems. I mean,it's fun. It's very dynamic. To
that point, so what are some ofthe innovations or the
improvements that you are themost excited about that you kind
of expect to have online in thenext, you know, twelve, eighteen
months?
Judd (33:36):
That's a great question. I mean, if we talk about some of
them, I'd like to again,anything that could be one
click, could it be zero clicks?Anything that right now is
spilling out some information,can it be verified by documents?
I think one thing that we're, wetalked about helping CPAs do
their job better. So I thinkthere's things like that.
Right now we have themultiplayer mode where they can
see their clients, but yeah,going in and actually helping
reduce work for our partners isa big piece. We partner with a
(33:59):
lot of real estate agents. So wehave real estate brokers,
commercial real estate brokerswho, you know, maybe the end
exchanger is not as familiarwith 1031s, but if you're a
commercial real estate broker,especially in certain asset
classes and spaces, you'retalking 10:30 one's every day.
We've been building and arecontinuing to build a lot of
tools for those real estatebrokers. So to give one example,
they present the benefits of aten thirty one exchange.
(34:21):
It tends to be, no offense toour real estate partners, well,
before they start using us, likea really janky handed down
spreadsheet, you know, wherethey're doing some rough tax
calculation, and they're showinghere's your ROE today and here's
what it could be in the future.And so we saw enough of these
spreadsheets. So we just built,you can see a version of it on
our resources page, just anexample, but it's mostly
distributed through real estatebrokers, but we just built a way
(34:41):
better version of that forclients. We can point it at
listing data for so it's alisting for their client, and it
tells them, here's the estimateof what their taxes are gonna
be. I think the other this is atotal aside, but people are
really surprised by the taxes.
And I think you guys on the CPAside and brokers, you think, oh,
I'm paying long term capitalgains. It's gonna be 20%. But,
well, one is it's 20% off yourgain, not on your cash. So if
(35:06):
you've depreciated a lot or yourleverage amounts are different,
you're potentially faced with again less cash out of a
transaction. So that's one mindblowing thing.
I think the other things aredepreciation recapture. So, hey,
I've been taking depreciationfor ten years with this
property. Well, now my basis isdepreciated to zero, and so my
gain is the full amount. Sothat's crazy. And it's taxed at
a higher rate.
(35:27):
And then you're also subject tostate tax and net income
investment tax, NIIT. So you'retalking about, in certain high
tax states, upwards of 48% taxhit on your gain, not on your
cash. So surprising a lot in theten thirty one exchange actually
defers the entire amount. Sothat's incredible. So one just,
(35:47):
and you don't wanna be a brokertrying to explain this.
I just badly explained to them,a pseudo expert. Giving them a
tool that shows them what the,what the tax impact's gonna be,
is really mind blowing. And it,the tool actually looks at, you
know, the basis, the leverage,and it, it does a pretty complex
tax analysis to give them thebenefit, the tax hit. Then, and
(36:07):
then it explains here's what aten thirty one's gonna look like
if you reinvest the money intothese different asset classes
with these cap rates. Where youasked what we're excited about
in the future.
We're building a way for thebrokers to actually put in
specific properties that theywanna show to their clients,
because the big part of theirstrategy is to help them do the
ten thirty one and to the nextproperty. And then the other
(36:28):
thing that we do, which is verycool, is we show the comparison
between paying the tax andreinvesting the money in the S
and P versus doing the tenthirty one exchange. And what
you see is, depending on thereturn profile and the taxes,
it's gonna take you seven to tenyears just to catch up after
that tax reduction to get tobreakeven if you pay the tax and
reinvest. And that's at a prettyI think we assume like a eight
(36:51):
to 10% compounding S and P rate.And so ultimately people are
looking to sell and they wannareinvest in the S and P or, you
know, in the stock marketbroadly, and they look at that
as an index and you're gonnatake ten years just to get to
breakeven with the tax benefitof a ten thirty one.
We, this is something thatbrokers were trying to explain
individually through these jankyspreadsheets. So we built a tool
(37:11):
for them just to do it reallyeasily and manage their
business. And it's interactivefor their clients, which is
really cool. So I'm reallyexcited about just like getting
that, making that tool reallygreat and getting it into more
brokers' hands. And again, it'sfree, like the AI research tool,
it's totally free.
But the way we see it is if wejust are incredibly helpful to
our partners, to brokerpartners, to CPA partners,
(37:32):
wealth advisors, title andescrow is another big one, we
they'll just wanna work with us,and they'll naturally recommend
us. And so that's that's how wehow we see it. We there's a
world if if you look at theproblem of ten thirty one
exchange, which we're obsessedwith, there's a lot, and we've
gotten through many of theoptimizations. But if you look
at the world broadly of how arepeople helping potential
clients, there's probablylimitless things that we could
(37:54):
help them do and help peoplewith. And those are the type of
things where, now that we've gotthe core piece working really
well, excited to put more focuson.
And then we've got some otherwacky ideas, but I think those
are more, you know, like the nofee exchange. I think there's
other things that can reallyaccelerate the ten thirty one
industry. And so Wednesday we'relike, we're there yet. We got
(38:15):
some weird ideas. We just it'sbeen interesting.
So we we just got a team ofpeople who just, really love ten
thirty ones, and we're kindanerdy, and we like building
software problems for stuff. Andso, you know, we sample eight
just thinking about how tenthirty ones could be better. I
don't know. It's not very cool,but it's it's it generates some
cool awareness.
Heidi (38:34):
Well, it's cool for real estate investors, especially
when we're looking at how tomitigate tax. And, you know, you
hit on a couple of really keyfactors like the recapture and
people not thinking about thetax implications when they sell
a property. We deal with thisevery single day that either
one, they sold a property anddidn't consider the tax
implications. They thought a tenthirty one exchange was going to
(38:55):
be really complicated and, youknow, just
Judd (38:58):
Well, they thought they could do it after. That's the
that's the look. If you know onething, it's do just call us
before we close.
Heidi (39:04):
Yeah. Yeah.
Judd (39:05):
Absolutely. Thing that we can't change.
Heidi (39:08):
I you know, it's it's amazing because the tax
implications and I love yourexample of the ten year payback.
Essentially, it'll take you tenyears to recoup that the value
or the cost you paid in tax toactually get that back in gains
after you cash out. That'spretty compelling. I love that
you have that tool. I'm going tolink it in the show notes and
(39:28):
share that.
I'm actually presenting with abig real estate group tomorrow
and, you know, it gets meexcited. I'm like, Hey, I'm
gonna bring the link and give itto them and say, Hey, here's a
great resource that can bereally helpful.
Judd (39:39):
And if they sign up with us, we can give them their own
link. And then we actually canthe thing that's cool that we
built is we can point it. Itdepends whether their listings
are online or not, but we canpoint it at an online listing
and actually generate the reportautomatically, which is pretty
cool. Oh, wow. So yeah, we'retrying to, we're trying to make
it easy for people.
Absolutely. Easy button. Yeah.Not a lot of clicks. You already
entered the information online,so we can just grab it from
(40:01):
there.
Heidi (40:01):
Yeah. Amazing. Well, you know, you guys have absolutely
done that, working with, youknow, developing the easy button
process. Not only that, the NOFIexchange, which is unbelievable.
I mean, you are a complete gamechanger or disruptor in this
industry, and I'm very thrilledto be partnered with you guys.
We have had a ton of our clientsbe very excited. Your team has
(40:23):
been phenomenal, so we've gotsome great contacts and love the
conversations. Shifting a littlebit before we close-up and kind
of finish, over to you just alittle bit. I mean, you have
really built some amazingventures. You've been involved
in some really cool platforms,and technology is not for the
faint of heart.
(40:44):
I have so much respect forpeople who are innovators and
who are diving into buildingsomething new because it also
always feels like a race. Know,who's the first one to get there
with everything that's beingdeveloped these days and how
quickly technology is moving? SoI would love to know what's a
piece of advice that you wouldgive to business owners or
(41:04):
someone who has an idea andthey're thinking about trying to
take it to market like you'vedone. What's a piece of advice
or something you've learnedthrough that process?
Judd (41:14):
Totally. Yeah. Well, I think I'm gonna give two. I
think one is just do it, getstarted. I think, you know,
ideas are free and plentiful,but effort is hard.
So, you know, a lot of peopleare, like, looking how to get
over the hump. I talk to a lotof entrepreneurs. And I always
want people to just, like, startand start building. And, you
(41:36):
know, analysis paralysis is isthe enemy. So I think when we
were just interested in tenthirty ones, we started making
content about it.
We built a couple tools. Webuilt a calculator because we
barely understood it. Thecalculator's still on there. So,
you know, we wanted to build ina way that we understood the
matching of the taxes andmortgage boot and how these
things work. And so I would sayjust like, you know, definitely
(41:58):
get started.
And then the most importantpiece of advice is talk to
customers. Like, don't be inyour own head. I think we
thought a lot of things aboutten thirty one's, oh, it could
be all magical and, you know, Idon't know. Once you go through
and talk to a customer and watchthem watch them use your
software, I mean, we we, know,we think we're we think we're
(42:20):
the bees knees, and you watchsomebody use a form that we've
been working on for six monthsand they don't know to use the
the label is totally wrong orwhatever. I think if you get
started and you talk tocustomers and you keep iterating
and, you know, one of ourprinciples is to make things 1%
better every day.
And so you really can't fail.You may not end up where you
started. You probably will endup probably in a far different
(42:41):
place than you started, butit'll be the right place because
of the place that customersbrought you to. We didn't start
with this idea of a no feeexchange. We just wanted to make
exchanges better, we thought theindustry was interesting, and we
didn't think anybody was takingtechnology.
And we just started talking topeople. We learned about
interest sharing. We started,you know, asking questions about
fees and asking questions abouthow the process should work and
(43:02):
understanding how the ecosystemand how, you know, you guys are
are deeply involved and arerecommending it. And and we
didn't know any of this. If wehadn't gotten started and we
hadn't talked to, you know,clients, customers, partners,
we'd be nowhere.
It'd be still in my head. I havethis dumb idea about the $10.31
thing or something. So, yeah. SoI think it's not that comp- it's
(43:26):
not that complicated. You justgotta do it, take the leap.
I mean, well, hopefully take theleap. Be smart about it. Be
concerted, but, but yeah, go forit and talk to customers and
make it better every day. Youyou'd be amazed how much
progress you make in, in, youknow, a short period of time.
Heidi (43:42):
Yeah, absolutely. Well, you're definitely showing that
and your group, your team, Iagree. I mean, you guys have
such great expertise. We havebeen really so pleasantly
surprised with our experience Soawesome here,
Judd (43:54):
no, that's, it's all With our partnership. That's amazing.
No, we love working with youguys too, and helping clients on
all these different aspects andreferring clients back to you. I
mean, we recommend thateverybody try to do a cost seg
after they close on theirreplacement properties. That's a
natural hand back.
And it's been awesome. We'velearned a ton and it's, it's
really great to hear that, thateverybody loves working with us.
Heidi (44:14):
Well, thank you so much. Judd, thank you so much for
being a guest. I'm going to haveall kinds of things in the show
notes, and we'll share some ofthese data points and some of
these tools with our listenersas well. But just looking
forward to continue to expandand share the word and get your
name out there, because Iabsolutely believe in what
you're doing, and I think it isjust fantastic. So kudos to you.
(44:36):
And before we wrap up, actually,any comments on what is the best
way for people to reach out toyou if they'd like to chat with
you personally or stay in touch?
Judd (44:46):
Well, the best pay, best way to reach deferred in
general, well, you can go todeferred.com. We probably should
have said that earlier,DEFERRED.com. I guess it'll be
in the show notes in the name.Maybe it's not that complicated,
but deferred.com was one of thebetter decisions that we made.
The best way to reach us, youknow, it's funny, support, s u p
p o r t, I didn't need to spellthat, at deferred.com.
(45:08):
It actually goes to everyone.You get the fastest response. It
can be the most esoteric CASTquestion. I read everything. So
that's really good.
You can also, my first name atdeferred, dot com. If you wanna
find me personally, that's alsogreat. But I think we've
centralized support dot com.It's, it's boring because it's
like an email address, but it'sanother tech innovation where no
(45:29):
matter what it gets emailed, weknow what file it is. We know
who it should go to andeverybody has eyes on it and it
gets a really fast response.
So that's always a cool way toget in touch with us. You can
call us, fill out a form on ourwebsite. I don't know. Page me.
Heidi (45:42):
Pager? What's a pager? I remember those days.
Judd (45:47):
No, we're, we're, we're always working on this. I say
this, but we're like scarilyfindable. Yeah. Yeah. No, come,
come talk to us if you, if youwanna, partner with us, ten
thirty one questions, reallyanything.
We're just excited to be in thespace and moving it forward and,
excited for ETS for all thesupport and the cool partnership
(46:08):
we have. And, yeah, it's it's,excited to talk to you.
Heidi (46:11):
I love it. Thank you so much, Judd. Alright. Thanks
again. We'll we'll be in touchsoon.
Judd (46:15):
Bye bye.
Heidi (46:16):
Thank you. Well, that wraps up another episode of
SlashTax. A huge thank you toJudd for sharing his insights on
how deferred is transforming theworld of ten thirty one
exchanges and helping realestate investors keep more of
their hard earned capital. Ifyou're ready to explore the no
fee exchange and take control ofyour next property transaction,
(46:37):
be sure to check out the shownotes below. We have links
directly to their website andinformation for how to move
forward.
And don't forget, SlashTax isall about giving you the tools
and strategies to slash your taxbill, build wealth, and reinvest
smarter. Make sure to subscribe,leave a review, and share the
episode with someone who mayneed to hear it. Thank you so
(46:59):
much for joining. Until nexttime.
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