William “Bill” L. Exeter is a highly respected expert in the financial services industry with over 40 years of experience, specializing in real estate tax strategies, including 1031 Exchanges, Self-Directed IRAs, and Title Holding Trusts. As the CEO, Chief Trust Officer, CFO, and Treasurer of The Exeter Group of Companies, Bill oversees operations for Exeter 1031 Exchange Services, LLC, Exeter Trust Company, and Exeter Asset Services Corporation.
A pioneer in the 1031 Exchange industry, Bill has administered over 125,000 transactions and is a founding member of the Federation of Exchange Accommodators. He is a sought-after speaker, educator, and expert witness, sharing his knowledge on investment strategies and alternative assets through seminars, podcasts, and media appearances.
Bill holds a Bachelor of Science degree in Accounting from California State University, Los Angeles, and the Certified Securities Operations Professional (CSOP) designation from the Cannon Financial Institute. He is based in San Diego, California.
In this episode:
- Meet Bill Exeter: CEO of Exeter 1031 Exchange Services and industry expert.
- 1031 Exchanges Explained: Their history, purpose, and tax-deferral benefits for real estate investors.
- Why choosing a regulated expert is critical.
- Qualified use, intent to hold, and compliance essentials.
- Importance of consultation and strategic preparation.
- Eligible Property Types: What qualifies for a like-kind exchange, including DSTs.
- Reinvestment Requirements: Meeting deadlines, partial exchanges, and avoiding pitfalls.
- Steps for identifying replacement properties.
Episode:
Narrator Welcome to The Norris Group real estate podcast, a show committed to bringing you insights from thought leaders shaping the real estate industry. In each episode, we’ll dive into conversations with industry experts and local insiders, all aimed at helping you thrive in an ever-changing real estate market. continuing the legacy that Bruce Norris created, sharing valuable knowledge, and empowering you on your real estate journey. Whether you’re a seasoned pro or a newcomer, this is your go-to source for insider tips, market trends and success strategies. Here’s your host, Craig Evans.
Joey Romero Hey everybody, and welcome to The Norris Group Real Estate Podcast. Once again, I am your host, Joey Romero, today we have another great guest, been on with us for quite a bit of time, but hasn’t been on since 2021, so we thought it was a good time to get him back on. Joining us today is Bill Exeter of Exeter 1031 Exchange Services, LLC. He is the Chief Executive Officer, Chief Trust Officer, Chief Financial Officer and Treasurer. Bill’s been in the financial services industry for over 40 years. He is administered in excess of 125,000 1031 Exchanges. And is one of the founding members of the 1031 Exchange Industries Trade Association, the Federation of exchange accommodators. And has administered 1000s of self directed IRAs and individual 401 (k) plans during his extensive career, prior to funding the Exeter Group of Companies. Bill served as President and Chief Executive Officer of TransUnion Exchange Corporation in San Diego, and prior to that, as Executive Vice President and Chief Operating Officer and Chief Financial Officer of the Chicago Trust Company of California and its 1031 subsidiary in San Diego. In addition, he has served as President and Chief Executive Officer and Chief Financial Officer with two 1031 exchange companies in the 80s, during the 1031 exchanges industry’s infancy. Bill is also served as Assistant Vice President and Controller of Providence Savings Bank in Riverside, California, and Assistant Vice President and Controller of OneCentral bank in Glendale, California during the 1980s. His professional experience includes 1031 Exchange, 1033 Exchange, 721 Exchanges, 121 Exclusions, self-directed retirement accounts, including Self-Directed IRAs and Individual 401(k) Plans, title insurance and escrow services, trust company management, trust operations; custody and investment accounts and investment services; commercial banking; and insurance agency administration.Bill graduated from Cal State, LA with a Bachelor of Science degree in accounting from the Canon financial institute, attaining certified securities operations professionals, a CSOP designation. That’s quite a bio. So, let’s get into the interview. So, welcome to the show again, Bill, it’s been a while. It’s been since 2021 since you’ve been on the podcast. I know, we’ve been partners for for quite a bit on the Florida boot camp, but it’s been a little bit since we’ve been on the podcast.
Bill Exeter It has been a while. It’s been that long. It’s amazing how time flies, right?
Joey Romero Yes, so, let’s get right into it, just with some general questions, what is the history and the main purpose of the 1031 exchange,?
Bill Exeter Oh, great question. You know, it goes way back. This is actually just past the 103rd anniversary of 1031 exchanges that dates back to 1921. Yeah, you know, it originally came out because you have farmers and ranchers who are, you know, exchanging equipment or livestock, or what have you. And the question is, well, what’s the value of those things? And, you know, the value is kind of difficult to ascertain. So that’s where Congress kind of came out and said, ‘Well, you know, if you guys say they’re worth, you know, both herds of cattle or whatever are worth the same, then we’re just going to let you swap it, and it’s tax deferred.’ So that’s really where it came about. And then fast forward to today. You know, it’s, it’s just applies to real estate now. So you can’t exchange, you know, livestock and equipment like we used to be able to, but now it’s all about deferring the taxes, so you can sell your current real estate that’s held for rental investment or business use and reinvest in other real estate also held for rental or investment purposes, and then defer your capital gain tax, defer your depreciation recapture tax, which also means that, that gain will not be recognized. So you also avoid the net investment income tax, or what people call the Obamacare tax. So all about deferring taxes and keeping all of your equity in your pocket.
Joey Romero Yeah, we’ll get into some of those things a little more in detail, a little bit. But what’s, what’s your role in the exchange process?
Bill Exeter So we’re the Qualified Intermediary, at least on the Exeter 1031 Exchange side. That’s the Qualified Intermediary. You know, some people call it an Accommodator, facilitator, you know, I’ve been in this 41 years. When I first got into it, people would call it ‘Strawman’, never really liked that one. Always sounded kind of weird. And then on the Exeter Trust Company side, Exeter Trust Serves as trustee of the qualified trust account, which is the actual trust account that holds the 1031 exchange proceeds.
Joey Romero And are you guys regulated?
Bill Exeter We are regulated. That makes us one of the few qualified intermediaries that has any kind of government or regulatory oversight. That’s a good question, because a lot of folks don’t realize our industry. I should say the 1031 Exchange Qualified Intermediary industry doesn’t have any licensing or regulatory body. There’s no capability to be licensed or regulated. So for someone to be regulated, they have to go down a different path and we went down the banking path and got our own Trust Company charter.
Joey Romero Okay, so one of the questions I ran across in doing some of the research, what is the qualified use rule?
Bill Exeter Ooh, good question. That’s probably the most important thing in the 1031 exchange world, and it really boils down to the properties you sell and the properties you purchase through the 1031 exchange have to be held for qualified use, and that means that it’s held for some kind of income production. You could rent the property out. You could lease the property out, you know, whatever it might be, but you’re producing income. Contrary to what you see on the internet, though, where it says, in a lot of sites, it’ll say it has to be held for rental. What they really mean is it has to be held for investment. So you could buy property, usually dirt, but you could buy any kind of real estate and hold it for capital appreciation. So held for investment would also qualify or you could buy a piece of real estate that you can use in your business. Maybe it’s a little office or retail or warehouse building that you can use in your business. So as long as it falls into one of those categories, it satisfies the qualified use. And a lot of folks get hung up on the length of time they’ve held title to the property.
Joey Romero And I was also going to ask, how long do I have to own it before I can exchange it?
Bill Exeter Yeah, that’s one of the big questions you get all the time. And I totally get that, you know, a lot of stuff that you read out there, or when you talk to people, they will say you have to hold it for two years or 18 months or a year and a day, or, you know, whatever it might be. And it’s important to note that the tax code, the regulations, they don’t have any holding period required. It really just says you have to have the intent to hold for rental, investment or business use. Now, the reason people get hung up on the length of time that you’ve held the property is the longer you hold it as rental or investment property, the easier it is to prove intent. But we’ve got transactions where they held it for a month or two, and were audited, and they were allowed to, you know, continue with the 1031 exchange, because they could prove there was intent to, oh, excuse me, and you know, one of them that I can think of, right off the bat, the intent was to hold for rental. But out of the blue, they got this offer that was a phenomenal offer, and they took it. And of course, they got audited, and they tried to disallow the exchange, but he was able to prove that his intent was to hold, but he got an offer out of the blue, and we had another one where there was a business reason why he couldn’t rent the property. So again, even though it was a month and a half, they allowed his exchange to qualify. So it’s all about intent and what you can prove, but the longer you rent that, the easier it is to prove intent.
Joey Romero With that in mind, do you have a recommendation, if somebody like, let’s say they reach out to you and say, I’m thinking about, you know, buying a property and possibly exchanging it. Like, can they do any kind of preemptive like, just, consultation with you, and do you have a recommendation six months a year, you know, two years or anything like that.
Bill Exeter Sure, we can always do consultations. We’re more advisory and consultative in nature than a lot of our competitors. You know, 1031 exchanges they should be really simple, and they’ve just gotten really complicated over the years.
Joey Romero They’re scary for a lot of people.
Bill Exeter They really are. Yeah, people go, Oh, geez, I don’t want to do one of those, but I guess I have to, you know, that kind of stuff. And you know, once you get to know them, they’re actually not that scary, but they just appear that way. So we certainly can walk through the process, answer questions, bounce ideas, office, things like that. So that’s always important. When folks ask us the question, you know, how long do I have to hold title to the property. Usually it’s in conjunction with, can I move into the property later, or something along that line. So the issue is, again, goes back to intent. So if it’s a plain vanilla transaction and you’re selling rental property, you’re buying rental property, you’re not going to push the envelope or anything like that. I think one year is sufficient. I think it straddles two tax periods. You’re in really good shape, you know, if, if you’re going to plan on maybe moving into it, you know, you want your initial intent to be held for rental or investment purposes. I’d probably rent it for two years, which will straddle three tax period, which is really conservative. I just don’t want to do battle with any kind of auditor. It’s always tough.
Joey Romero So, let me understand that. So let’s say I started and I moved to a house, lived there for two years, but then I rented it for five years. Now, even if I moved back and lived for one more year there, I could still use it as a 1031 exchange?
Bill Exeter Once you move back into it and convert it to your primary residence, then it wouldn’t qualify for 1031 exchange at that point. But there’s some interesting tax planning opportunities there, because you’ve got the 121 exclusion. That’s the $250,000 in tax free gain, or 500,000 if you’re married, really 250 per person. And so if you, if you bought property, you and you could say you lived in it for two out of the last five years, you’re going to get 250 or 500,000 tax free. Now, when you move into it, and then move out and rent it, then move back into it, it gets a little more complicated. So that’s where your tax advisor is going to have to sit there and look at it. Okay, how does this affect it? For example, if it was a primary residence first, and then you moved into it, a lot of people think all I have to do is live there for two years and I get 500,000 tax free. Unfortunately, it doesn’t work that way. It’s pro-rated, but there’s a lots of planning opportunities there, so.
Joey Romero Then, and that’s what maybe we should have started this whole show as talk to your CPA before you talk to anybody, right?
Bill Exeter Very, very true.
Joey Romero Now, we got to what you can exchange. But what can you change into and have? How has that changed over the years? Hey, really good question, because there’s a lot of there’s still curriculum out there, online material and things that will say, if you sell a condo, you have to buy a condo. If you sell apartments, you have to buy apartments, etc. And that is absolutely not true. It never has been true. The definition of like kind property is literally you have to sell real estate and buy real estate. So, anything that is considered to be real property will qualify for 1031 exchange treatment. So the real issue is, is it held for qualified use? Yes or No. If it is and it’s real estate, then it’s going to, it’ll satisfy that requirement. And Like-Kind includes things people wouldn’t even think of, like air rights and water rights and mineral rights, certain types of oil and gas investments would qualify. We’ve done exchanges on timberland, vineyards, cell site towers, billboards. There’s lots of things you can exchange, either out of or into, as long as it’s considered to be real property.Before 2017 you actually were able to do 1031 exchanges on non real estate or personal property. So we would do exchanges on, you know, aircraft, shipping, trucking, equipment, livestock, all sorts of things. But today it only applies to real estate. Yeah, you know, a lot of investors that call us to get to refuse. It’s like they ‘Well, I want a 1031 an apartment building, but I can’t buy houses with that? Can I?’
Bill Exeter Yes, absolutely. And the answer is, absolutely. As long as it’s real estate, you can absolutely do that. Yeah.
Joey Romero Now this was interesting. You can exchange foreign properties?
Bill Exeter You can, you know a lot of things you, again, a lot of things you see on the internet out there will say you cannot exchange foreign properties, which is not true. But what they’re trying to say is you can’t sell foreign property and buy US property or exchange into US property, and you can’t sell US property in exchange into foreign property. But if you’re a US taxpayer, and you’ve got rental, investment or business use property in a foreign country, and the sale of that property is going to trigger a US tax consequence. You could do a 1031 exchange, but it has to be selling foreign property and buying foreign property. Of course, it won’t defer any of the foreign property taxes that might be due. It would only defer the US tax consequences, but we’ve done them now in about 45 different countries, and every country is a little different.
Joey Romero That’s gotta be quite a circus. Now, before I decide to do a 1031 exchange, what would you say is the most important thing to consider, if I’m an investor?
Bill Exeter Great question, because I think the most important thing right off the bat is talk to your tax advisor. And almost nobody does that, which is unfortunate. But, you know, as a taxpayer, you have all sorts of things on your tax return. So you may have suspended passive activity, losses you may have net operating loss carry you forwards. I mean, there could be all sorts of things that could offset some gain, or all of your gains. So you need to know, what are your tax consequences from the sale of that real estate? And then do you have to do a complete 100% tax deferred exchange? You do a partial exchange and still not pay tax? There may be things that offset that, or maybe you don’t have to do a 1031 exchange at all. So very important, and we get people all the time to call and say, ‘Well, I really shouldn’t have done one,’ but they did it, and it’s too late, so meet with your tax advisor. The number two is, always have your team together. You know, you never know what’s going to come up in the middle of your transactions. And if you don’t have your team, we’re ready to go in case something drops in your lap, then it can be a little challenging.
Joey Romero Yeah. So what would you say? I guess this is just a general question, and maybe it’s too random to answer, but one would be the best time or the right time to exchange?
Bill Exeter Oh, great question. It’s my favorite answer, it depends. And I say that because, you know, you’ve got economic cycles and so that comes into play. You have scenarios where maybe you bought one property as a rental property. It’s been five years, and you like the business and you want to do more, it might be time to diversify. So maybe you sell one and buy two or three. You might be retired, and you’re tired of all the you know, repairs and maintenance and things you have to do. So maybe you’re ready to sell three or four and buy one that’s easier to manage. So there’s all sorts of different things that you can take a look at. Some people are in a, you know, let’s say a Class C market, and they want to get into a Class A market. So there’s just all sorts of different things that may come into play. I think most of the time, you see people repositioning based on the economic cycles and what they think is going to be the next best investment for the next, say, the next 10 years, or something.
Joey Romero Well, that’s basically what we did with our boot camp in Florida. You know, a lot of weeks later, you know, the appreciation was through the roof, and went and built, you know, for the price of selling one or two here they were, you know, we were building two and two five, you know, out in Florida. What’s, you know, this is another one of these confusing questions that we get from investors is, you know, they don’t really truly understand the difference between a 1031 and a DST. Can you tell people how that’s different?
Bill Exeter Absolutely. And I completely get the confusion out there, because a lot of the DST sponsors and DST brokers the way they’ve done their websites and brochures, you can’t quite tell you know who’s a DST sponsor, who’s…
Joey Romero So, what is the DST? Just to for those that may not know.
Bill Exeter Sure. So the DST is a Delaware Statutory Trust, and so ignore the fact that it’s called the Delaware Statutory Trust. It’s a statutory trust. It owns a very large properties. It could be one property, it could be a portfolio of properties, but typically, the value of these DSTs are, most of them are anywhere from 50 million to say, 250 million, so very large trusts, and they qualify as real estate for 1031 exchange purposes. So I could sell my property, 1031 exchange into a DST, and I could identify, like a point .25% interest, so very tiny fractional ownership position in the DST. And if I own a quarter of 1% of the DST, I own a quarter of 1% of everything in that DST. So if it’s one property or multiple properties, I own a little piece of all of that. And if there’s debt in the DST, which there usually is, the debt, you don’t have to go through underwriting or be approved or anything like that. You automatically get, let’s say, a quarter of 1% of whatever the debt is. It’s effectively non recourse, so they can’t go after you as an investor if the property goes south. So it’s really a great deal there all the way around, but that’s what it so it’s really a replacement property option for the 1031 exchange. So when you’re looking at the various players, you have your 1031 exchange qualified intermediary. That’s what we do. That’s where you structure the 1031 exchange. We work on with the sale of the closing of your relinquished property. We work with the closing of your replacement properties. And the DST is one of the tools in the toolbox. So it gives you one more option to look at for reinvesting in replacement property.
Joey Romero Interesting. So what if a partner is on a on a property, or I have a multi member LLC. How does that work for an exchange?
Bill Exeter Oh, those get confusing and complicated, of course. The one thing I guess I could say right off the bat is investors often think they own real estate and they don’t. If it’s an LLC like you, like in your example, and there’s multiple members. It’s typically treated as a partnership for tax purposes, so what the investor really owns is a membership interest, which is also treated as a partnership interest for tax purposes. They don’t own real estate, and then the entity itself actually owns the real property. So if the LLC is going to sell real estate. The LLC does a 1031 exchange, and the LLC reinvest in replacement property, nice and clean, perfectly okay, as no issues, it gets really complicated when people are want to go different directions, and they all want to do a 1031 exchange, but they all want to buy their own property, and they don’t want to stay together as a partnership, what they’re really getting is a distribution from the sale of the real estate through the partnership. And that doesn’t qualify for 1031 exchange treatment. There are all sorts of solutions there. If you have, probably the easiest way to look at is if you have plenty of time, and plenty of time would be defined as probably two years, you can drop the property out of the LLC, deed it out to the individual members as tenants in common. Now they’re individual owners. Hold it for two years, and then it’s easy. You could sell, and each person can make their own decision. The problem is, nobody wants to wait two years. So there are options, it just we have to look at the facts and circumstances and then try to figure out with their advisors what we can do.
Joey Romero Can you expand a little bit on the reinvestment requirement? What does that mean? And can you do a partial?
Bill Exeter Yep, good question. I guess first what you can’t do or what is not correct, because a lot of people will call us and say, I thought all you had to do was reinvest your equity or your cash coming out of the sale, or all I had to do was reinvest my taxable gain, my profit. Then neither of those are true or correct. It’s really the top level. So let’s say you sell property for a million dollars. You could subtract your routine selling expenses, so your broker’s commission, title, escrow, documentary, transfer packs and things like that, and that’s going to get you down to a net sale price of about 950ish. And that’s the magic number. That’s what you have to reinvest. So if you like, with with your Florida boot camp. You know, if you sell in California for two or 3 million, it’s very easy to buy five to 10 properties in Florida equal to or greater than whatever your net sale price is. So it’s a great way to diversify, as long as you’re buying equal or greater based on that net sale price.
Joey Romero Well, yeah, a lot of these folks there, like you’re seeing a lot of these old 50s and 60s build just in great locations that are, you know, a million and $2 million and they’re 1300 square feet.
Bill Exeter It does part of the mind.
Joey Romero And they go and exchange it. They’re getting almost 2000 square feet of brand new build. And, you know, they’re getting three Orville, you know. So it’s crazy before I get into the specific types of exchanges. Well, actually, let’s just jump right in. I know there’s three main, main ones. So, let’s go dive into them a little bit. The first one I want to talk about is the straightforward exchange.
Bill Exeter And what I could say too about the forward exchange first is about 97% of our transaction volume, or forward 1031 exchanges. So almost everybody does these type and the forward exchange is where you sell your current property first, and then you reinvest another property after the fact. Excuse me. So, so most people sell first and then you’ve got your time frames, which I guess we’ll talk about to reinvest in the various replacing properties you choose.
Joey Romero Yeah, let’s talk about that right now. So when is the 180 day trigger?
Bill Exeter So, let’s see that your the sale of your current property closes today, tomorrow is day number one, and you’ve got exactly 45 calendar days to identify what you’re going to buy, and then after that, you have an additional 135 days to complete your exchange. And that’s a total of 180 so a lot of investors who call us will say, ‘Well, I thought it was 45 plus 180’ it’s not. It’s a total of 180. Yeah, that’s a it’s like, whoops. You off by 45 days. That could be a big whoops. So it’s really 45 days to ID, another 135 to complete.
Joey Romero Now, can I, can I identify multiple properties, and can I change it? Or once I’m like, once I get to the 45 I understand, like, you’re stuck, right? You have to change into one of those. But so at day 45 you have to pick the one that you’re going into, right?
Bill Exeter Yeah, there’s really three identification rules, and as long as you are in compliance with one of those three, you’re okay. Now, the vast majority of people use the three property rules. So within that 45 days, you can identify up to, but not more than three properties, and you’re absolutely right. When you hit that 45 day mark, you’re done. During the 45 days, you can change your mind if a property you had listed is it turns out to be a disaster, so you want to take it off the list, you can change your mind. Once you pass the 45 day mark, then you’re stuck with what you’ve identified, and you have to buy something on that identification list. It’s funny, we get calls all the time and say, I just thought you had to identify but you can buy anything. So it’s like, you know, you have to find something on the ID list, so that’s critical. But then you get investors who say, I want to sell one property, and California is a good example. As an example, we had somebody sell property a few months ago, closed here in California for 4 million. He wanted to diversify, and he was going to Tennessee. So he could use the second identification rule, which is what we call the 200% of fair market value. He sold for 4,000,000, 200% would be 8 million. So he could identify as many properties in Tennessee, up to $8 million in value. So he identified 56 single family properties. Well, why anybody would I want to do that? I don’t know.
Joey Romero A lot of time on his hands, I guess.
Bill Exeter That does. Now he doesn’t have to buy all those. It just gives him the ability to identify more and go through due diligence and then narrow it down to what they actually want to buy. So I forget, in his case, he bought 20 some of those. So in his case, he sold for 4 million. You subtract your closing costs. So his net sale price was probably 3.8-3.85 something like that. That’s all he has to buy. So he could buy as many of those single families, up to or more than that, 3.8 and then he’s reinvested everything.
Joey Romero That leads me to the question you get. So let’s say, let’s say he wanted to, you know what? I just love some of these properties. I know I’m going to go over my 3.8 What if I want to buy $5 million worth of properties in my exchange? What happens at that point?
Bill Exeter Certainly, trading up in value is not a problem. The more properties involved, the more complicated it gets. But in that example, you know his 200% limit was 8 million. So if he identified 56 and he bought five or six or $7 million worth, perfectly, okay. So you could certainly do that. It’s a great way to to use the equity that’s trapped in your current property and then really leverage that up and buy a lot of assets.
Joey Romero Well, everyone that’s going to do it for part one of our interview with Bill Exeter of Exeter of Exeter 1031 Exchange Services, LLC. Be sure to tune in next week to catch part two.
Narrator For more information on hard money loans, trust deed investing, and upcoming events with The Norris group. Check out thenorrisgroup.com. For more information on passive investing through the DBL Capital Real Estate Investment Fund, please visit dblapital.com.
Joey Romero The Norris group originates and services loans in California and Florida under California DRE license 01219911. Florida mortgage lender license 1577 and NMLS license 1623669. For more information on hard money lending go to thenorrisgroup.com and click the hard money tab.