1031 Exchanges, DSTs & Tax Strategies: A Real Estate Attorney Explains

Kishore Kapoor (00:00)

I’ve got an investor that bought a beach house or a lake house. Well, the lake house, the seller was foreclosed on and the bank only foreclosed on two thirds of the property. So now this guy thought that he bought this beautiful lake house, had access to the lake, and he didn’t have access to the lake or his well because they were on properties that the guy had bought, because the guy bought three pieces of land at three different times and combined it all, but only had a mortgage on one piece of land.

My client got screwed. He had to go and spend a couple extra hundred thousand dollars, a couple an extra hundred thousand dollars to buy this these two pieces of land for the guy.

Dylan Silver (02:05)

Hey folks, welcome back to the show. Today we’re joined by Kishore Kapoor, a real estate attorney in Connecticut who understands and handles 1031 exchanges as well. Kishore, thanks for joining us here today.

Kishore Kapoor (02:17)

Thank you for having me. How are you doing today?

Dylan Silver (02:19)

Doing great. Thank you for joining us here. What types of deals are coming across your desk at these days?

Kishore Kapoor (02:26)

So we do your traditional real residential real estate deals. We get always get fix flips coming in left and right. It’s just we’re in Connecticut. There’s a lot of old houses, so it makes sense. And then we do a lot of 1031 exchanges too. Your standard 1031 exchange, you sell a house, buy a house, also 1031 exchanges into a Delaware Statutory Trust. So you sell a rental property, you no longer want to manage it, and now you put it into a Delaware Statutory Trust and you just get a check basically every month. You don’t manage the property at all.

Dylan Silver (02:53)

You mentioned the age of these homes in Connecticut. This is a great point. We haven’t discussed this previously on the show. Connecticut’s got some old homes, doesn’t it?

Kishore Kapoor (03:00)

Yeah. Old homes, some of them are historical, which raise their own share of problems, but we also just have some really old houses. I mean, you we’re one of the original thirteen colonies, so houses go back to the seventeen hundreds, bring their share of issues too. We’re starting to see more and more newer developments, but still you still have a lot of old properties that are hanging around.

Dylan Silver (03:21)

Is development, for folks who want to put up a subdivision, is there vacant land left in Connecticut? Is it also hard to get those permits?

Kishore Kapoor (03:32)

There is vacant land. I can’t say if it’s hard or not because I don’t get involved with new construction that much on the developer side and more so on the buying side of those. But yeah, there’s still land. It’s just not in the areas people think, right? It’s, northeast, northwest corner of the state. But there is there is a good amount of land still in Connecticut that’s available. Or you have a lot of clients that come in and knock down houses and put up new, not necessarily new development, but maybe a new, more modernized house.

Dylan Silver (03:58)

Right, and I think in a lot of markets you see these infill lots where there may be some serious distress where it’s gonna warrant a roof to studs rehab and you see people doing a teardown and rebuild or some variation thereof. I do wanna dive in and talk about closing because I’m a Texas licensed realtor and you specialize in closing in Connecticut.

There’s so many issues that arise. I feel like we could talk about lenders all day. We could also talk about people getting cold feet and realizing this is about to happen and there’s so much that goes into it. And of course you see this all day, every day. Is there any one thing that you see being the biggest hurdle most routinely?

Kishore Kapoor (04:40)

So it depends on where we’re looking, right? The type of client. Are we looking at investors? We looking at, your normal mom and pop type buying a house that they’re gonna live in, different issues, different problems, right? A lot of the investors we see coming in, they buy properties with the fix and flip loans, put up a request that’s gonna be a cash offer and then there’s a mortgage and sellers get pissy. So, I’m not blaming the sellers on that, right? If you’re told it’s cash and somebody’s coming in.

With getting an appraisal and doing other with the fix and flips, you have two appraisals a lot of times in Connecticut. You might have the investor, depending if it’s private money coming out to the property. So it’s more of an inconvenience to the owner, right? On the residential side, I don’t say that anything more than getting your offer accepted right now is tough in Connecticut. We are still seeing COVID-style offers, $100,000 coming in and still losing off out an offer.

Buyers feel that they have to waive the inspection to get their offer accepted. It’s things like that. The stuff that we saw in 2021 really are starting to come back.

Dylan Silver (05:42)

It’s a good time to maybe be a seller then in Connecticut. You mentioned that people will receive, cash offers and then there’s some frustration. The reality, and this is the space that I cut my teeth in, is when folks are coming to the table with cash offers, nine times out of ten, it’s someone else’s cash, right? It’s very rarely their own liquid cash sitting in their bank account. It may be some of that, but they’re coming to the table with someone else’s money. So they say it’s a cash offer. Now they need appraisals. Now the lender’s saying, Okay, we have all these things that we need.

And so we have this pre-approval letter, but actually let’s take a look and we have all these contingencies in this pre-approval to have a way out. So we need to really take a look at this property and underwrite the property itself.

Kishore Kapoor (06:23)

And the problem is that the investors don’t get it because they’re like, it’s a cash deal, but we’re getting hard money. So it’s a loan. So when the loan doesn’t get approved, they try to get their deposit back and we’re, you’re in that difficult conversation of you don’t have a right to get your deposit back. Yeah. And now you’re fighting over the deposit and you get upset because I’m like, I’m billing you an hourly rate now versus our flat fee. And they’re pissed because now not only do they lose the property and probably a couple thousand dollars and getting

inspections done, appraisals done, whatever the lender is requiring. Now you gotta pay an attorney to go get your deposit back that you feel like you’re entitled to.

Dylan Silver (06:58)

Let’s talk about that. So you’ve got option money and earnest money. And option money you’re effectively saying, I’m gonna lose this if I don’t end up buying the property. Earnest money, people in many cases think that they’ll get back. What are the situations where they won’t get their earnest money back?

Kishore Kapoor (07:16)

All right, so there’s a legal answer and a practical answer, right? Legal answer is if you’re past the contingencies, you don’t get it back. Practical side is your seller’s stuck. Your seller can’t sell their property if you’re under contract and you don’t release it, right? They can market it, they can do everything, but they need to get their they need to get the contract released. It’s not released, you can’t close. So the practical side becomes a lot of the times we if we put enough pressure, seller can’t do anything. Then we threaten to sue to get our deposit back, and a lot of times sellers back down.

Unfortunately, I feel like the contract is worth the paper it’s written on and that’s about it. Because when push comes to shove, somebody’s gonna back down, right? I don’t want to go to court, buyers wanna go to court, seller doesn’t want to go to court, nobody really wants to go to court over these matters. So we work something out. A lot of the times I tell my sellers, I’m like, listen, this is gonna be a fight. You’re gonna spend twenty five hundred dollars in minimum in legal fees. The deposits five grand. Agree to split it with them. Most of the times you split it with them and you get them to understand it works out, right? Put

some incentive for the seller to want to move on and some the incentive to the buyer to want to move on. I’m a firm believer and you throw enough money at a problem you can make it go away.

Dylan Silver (09:11)

Many cases that’s true, right? I want to ask you about the deals that you’re seeing from an investor standpoint when working with investors. I can imagine you mentioned older homes, you mentioned historical, that there is some intricacies here. Do folks tend to avoid those homes? Do these homes then become ultra valuable? Do they look for these homes? What happens with these older rehabs?

Kishore Kapoor (09:34)

I think it depends, right? It depends on the level. So, I’m in the suburbs of New Haven. We have some really beautiful old houses that got the, intricate detail woodwork that somebody would want. So some of those houses they go in and they just rehab it and restore it. Those are obviously more expensive deals for the investor, but it also means more money when you go to sell it. If it’s an historical home, I don’t see a lot of the investors touching the historical homes or they do and they get themselves in trouble.

Right. We’ve had a few guys that have gone in, done rehabs on historical homes and not applied for the appropriate permits with the historical society, have not kept to the historical, like the town historical society or historical commission can say what materials they can use on the outside and not. Can they put in modern windows or do they have to go back and find somebody put paned glass windows in? So I’ve had investors go in and not knowing that, rehab it and then they go to sell it and it becomes an issue.

Dylan Silver (10:28)

Yikes.

Kishore Kapoor (10:29)

Right. And that’s an expensive issue because the town makes you basically rip out whatever you did and replace it with historically correct materials.

Dylan Silver (10:37)

Now are they not pulling permits in these cases? Is that how this is happening? Or are they pulling the wrong kind of permits?

Kishore Kapoor (10:44)

I think they’re pulling the wrong kind of permits. I think sometimes they’re not pulling permits. And I think sometimes the building department doesn’t do their due diligence.

Dylan Silver (10:51)

At the end of it. That’s how these things happen.

Kishore Kapoor (10:54)

With the older homes I don’t that are just older, I don’t see anyone avoiding those. It’s just you gotta go in with it with a different mindset.

Dylan Silver (11:01)

I’d like to pivot here, Kishore, and talk about the ten thirty-one exchanges. I’ve had multiple people talk about ten thirty-one exchanges, when’s the right time to do it. I’ve also heard some differing opinions on, what the duration is. And I’d like to get your perspective, for our audience who may be aware but would like to hear it from the mouth of an attorney, what is a ten thirty one exchange and how long do you have to make that exchange?

Kishore Kapoor (11:25)

All

right, so let’s start with basic what it is, right? You’re exchanging like kind property, right? So what that means is you’re trading, in a sense, a house for a house, or a house for a piece of commercial property, or a house for a piece of industrial property. You basically have to trade one piece of real estate for another, right? So I’ve got clients that come to me creative and they’re like, a 1031 exchange, we’re just trading houses. Can I buy a houseboat? I’m like, great idea, but no, it doesn’t work. It needs to be real estate. You need to own the land.

Right. You could probably do a 1031 exchange selling a piece of property and then finding a piece of land that you’re gonna buy mineral rights off of, right? But you have the only real requirement is it has to be for it’s gotta be real estate, has to be for investment purposes or business purposes, right? And you have to comply with the timelines. So from the day you sell, you have 45 days to find the next property. Right. So if you sold September 1st, October 14th, you have to identify your property buy. If you don’t find a property in that time frame,

You pay the taxes.

Dylan Silver (12:24)

Do you have to close on the property in a certain time frame?

Kishore Kapoor (12:27)

You do. So first step is to find the property, right? Forty five days. And then a hundred and eighty days from the date you sell. So everything’s gonna trigger the day you sell the property. Mm-hmm. You have a hundred and eighty days to close.

Dylan Silver (12:40)

If something were to happen and that initial property you get under contract, seller backs out something like this, do you have another opportunity to go take a look at a different property? Is that kind of a one and done?

Kishore Kapoor (12:51)

It’s kind of a one and done. So what we recommend to people is you identify two properties, right? So you’re allowed to identify up to three and you can buy one. If you buy more, if you identify more than that, there’s restrictions on how much you have to spend. If that’s something somebody’s interested in, it’s more of a conversation than I can just tell you off the cuff or a general rule. But you can identify to up to three properties and only have to buy one. If you identify two properties and then you find a Delaware Statutory Trust company that will allow you to go buy into a Delaware Statutory Trust.

That’s your safety net. So if you’re doing a 1031 exchange, the piece of advice I tell everybody is connect with the 1031 exchange company to do the exchange, but then also a Delaware statutory like an investment financial advisor that deals with 1031 exchanges, meaning the Delaware Statutory Trust.

Dylan Silver (13:36)

wanna get into DSTs as they’re known right in a minute, but I also want to get a little bit granular here on this idea of the 1031 exchange. You mentioned I think it was a like kind asset for a like kind asset. And we also were talking about some other asset classes as well. If folks are looking at a different type of asset class, say they’re selling their single family residence and they realize, hey, I’d like to go

buy a multifamily property or a small apartment complex, does that become more complicated? Are both of those feasible?

Kishore Kapoor (14:08)

Both of those are feasible. The only thing is you’ve got to take whatever profits you got out of the house, you have to reinvest. Plus whatever the purchase price is, you have to buy a bigger, a more expensive property. Right. So for example, you sell a house for a single family house for five hundred thousand dollars. You walk away with two hundred and fifty thousand dollars of profit. You now have to go buy a house that is five hundred thousand and one dollar. Hmm. And you have to put the two hundred and fifty thousand dollars into that property. Right. so you couldn’t go get,

A $400,000 mortgage and say I’m gonna pocket money. Right. And you’re not allowed to get any of that money. The other thing to mention, because accountants think you can do 1031s after we close. Once your representative, whether it’s an attorney or the title company, touches the money, it’s done. You have to pay the taxes on it because you’ve constructively got it, right? Somebody’s got it on your behalf.

Dylan Silver (14:55)

Even if it’s not in your account, right?

Kishore Kapoor (14:57)

Even if it’s not in your account. Those are the big two biggest mistakes we see people make outside of the missing timeline.

Dylan Silver (15:03)

So when folks are doing or considering doing a ten thirty one exchange,

and correct me if I’m wrong here, they should really be looking at this before they even list their home. They should at least have it in their mind that they’re gonna be doing this.

Kishore Kapoor (15:14)

Yes. Okay. And the other thing I didn’t mention is you could buy a house in Connecticut, sell a house in Connecticut and go buy one in Florida or Texas. Right. As long as it’s within the United States, you’re fine.

Dylan Silver (15:25)

I wanna pivot now. I mentioned DSTs, Delaware Statutory Trust. This is another area where we had a lot of folks talk about and again I’d like to get your perspective on DSTs and who they’re useful for and what their best use case is.

Kishore Kapoor (15:40)

Also, who they’re useful. I think it’s anybody that’s got an investment property that no longer wants to be a landlord. Typically, though, we see this as somebody, getting ready to retire. They don’t want the headache of maintaining properties. So they want a check in the mail and they don’t want to pay the taxes now, right? DSTs are another way you can defer taxes. The only where the problem becomes is you give up all control. But they have a way to work it. So if you again have a five hundred thousand dollar property, you need a two hundred and fifty thousand dollar mortgage.

You’re gonna buy into a DST that has a mortgage on it then, right? And your share would have to be 50% cash and 50% mortgage. So you might get a little bit less each month because they’re paying down the mortgage for your share.

Dylan Silver (17:02)

So shareholder idea. So there’s multiple owners, there’s multiple individuals that are typically part of a DST.

Kishore Kapoor (17:08)

Yeah. So let let’s just say you sell a five hundred thousand dollar property and you want to go buy a ten million dollar ranch in Texas. They buy a ten million dollar ranch and you’ve got, maybe twenty other owners with or nineteen other owners with you. Okay.

Dylan Silver (17:20)

Property management in place, kind of arm’s length so you’re not involved in the day to day, that type of thing.

Kishore Kapoor (17:25)

Yeah. And they get paid off the top, right? So let’s say that property throws off. I’m just gonna throw random numbers out there because I have no idea what a ranch would actually produce somebody. I’m in Connecticut, I’ll remind you of that. But let’s say it makes a million dollars a year and it costs a hundred thousand dollars a year to operate. Well, they take that hundred thousand dollars, pay themselves the operations fees, and then they split the nine hundred thousand dollars however it needs to be split, right?

Dylan Silver (17:49)

Interesting. There’s so much talk about tax strategy, and I’ve even seen this very recently, this term HENRY, high earner, not rich yet. So folks who may have a high W-2 job, a doctor, for instance, and they have lifestyle inflation, their income is going up, but they’re also paying more and more in taxes. So I’ve seen various different real estate strategies, cost segregation analysis, for instance, being one where folks will use real estate.

As a way to offset their W-2 taxes that they’re paying. So even though the real estate portfolio might not be this huge cash count for them, it could potentially be negatively cash flowing. They’re saving, a hundred thousand dollars or more a year in taxes. I’ve seen more and more folks dive into the tax strategy portion of this, even younger investors.

Kishore Kapoor (18:36)

Right. Yeah. We hear it all the time. I’ve heard of spend any time on YouTube and real estate, you’re hearing about cost segregation studies, right? Yeah, it’s true. The thing I’d say is make sure you have a competent CPA or even go to the extreme of a tax attorney, right? If you’re thinking some of these strategies, because you also want to make sure that, if you’ve got to have a if you need to be a real estate investor, real estate professional in order to get some of these deductions, you need to plan some of this.

So you really do need a team of people. And, obviously I’m biased. I’m an attorney. I prefer my tax attorney over a CPA, right? Different responsibilities, different duties. the obligation to a tax attorney is to the client. The obligation of a CPA is to the IRS. So just thinking of it that way, it’s a different type of person you’re dealing with. But yeah, if you’re gonna look at any of those strategies, you really need somebody that understands a tax code really, well.

That’s the reason I recommend attorneys, because most of them study the tax code more than CPAs. And then you need somebody that also understands real estate.

Dylan Silver (19:35)

Little bit of out of left field question here. I know this may be totally out of the wheelhouse here for you, but when you have folks that are

looking at a project and it could be development, but it could also be a fire damage property, water damage, and maybe they’re looking at re envisioning this property in some capacity. Is that something where they themselves can safely go research it? Or is there a level of complexity when it comes to what something is zoned and what you can entitle it for, where you should be reaching out to a real estate attorney who understands what the use is of this plot of land?

Kishore Kapoor (20:09)

I mean, listen, if I do it, it’s gonna take me an hour. If you do it, might take ten. Right. So it’s that’s what you gotta look at. I mean, the information, you can find all the information, read it and understand it and possibly get through it correctly. But the reality is it’s gonna take you ten times longer it’s gonna take me.

Dylan Silver (20:27)

I’ve also seen and this is surprising that this happens so often is folks will be seeing a property that is effectively landlocked there’s no access to it and that can be a devastating situation because they could do this wonderful development on it or be trying to and

halfway through after they purchased it, they realize this thing is landlocked. I’m gonna need to get an easement of some kind. This type of thing I think folks should do their due diligence, spend a little more money up front, talk to someone like yourself to find out, hey, is this something that is valuable or is this property landlocked?

Kishore Kapoor (21:02)

And a lot of the times, and I’m not I don’t want to throw anyone on the bus, but a lot of times the title search should reveal that. Right. Should your title search is gonna see okay, there’s something off with your rent-looking maps, something’s gonna trigger that, it should not be a surprise after you close. Okay.

Dylan Silver (21:17)

maybe having your own, don’t just go trust the title company always have your own real estate attorney who you can get a second opinion from.

Kishore Kapoor (21:24)

Right. And sometimes it’s a matter of, we got questions about the property, something doesn’t make sense. You’re planning doing development, pay for the survey.

Dylan Silver (21:31)

Pay for the survey.

Kishore Kapoor (21:32)

All else fails, I mean, Connecticut’s a state, we don’t require surveys out on every closing. Are some states in the middle of the country that still require that, but it never harms you if you’re buying raw land to do a survey, or if you’re questioning the boundary lines, right? We’ve had a lot of disputes over boundary lines over the years and people just

If don’t do the survey, don’t know, right? I’ve got an investor that bought a beach house or a lake house. Well, the lake house, the seller was foreclosed on and the bank only foreclosed on two thirds of the property. So now this guy thought that he bought this beautiful lake house, had access to the lake, and he didn’t have access to the lake or his well because they were on properties that the guy had bought, because the guy bought three pieces of land at three different times and combined it all, but only had a mortgage on one piece of land.

My client got screwed. He had to go and spend a couple extra hundred thousand dollars, a couple an extra hundred thousand dollars to buy this these two pieces of land for the guy. So anytime I tell clients, anytime there’s questionable things, somebody is saying something that doesn’t make sense, use some common sense, yeah, you’re gonna spend an extra what, fifteen, sixteen hundred dollars for a survey, you might as well do it.

Dylan Silver (22:36)

The other thing too, I think this is worth mentioning, I’m a realtor, so I feel like I can say this with some degree of transparency here, is the realtor can get it wrong, right? The realtor can be marketing this and be wildly wrong. I hate to say that, but it’s many times true, right? So you see folks where they’ll ask the seller’s realtor, hey,

Is this a buildable lot? So forth. And there because maybe this is their first investment in this capacity, and they’re going to the realtor, they think this is their professional, they hear the information from the title company, they think, okay, and they don’t think I’m gonna go spend this additional expense. The reality is that those two pieces there are sometimes working, I don’t want to say just two, but in many cases.

to get the property to close. That’s what their biggest concern is. Let’s get this deal closed. Their concern is not, will this investor lose their money?

Kishore Kapoor (23:27)

Right. And you gotta realize any one of the professionals in your transaction can make a mistake, right? It happens. But at the end of the day, like, and this is why I think, having a state that’s a an attorney state’s a little bit better. You have a very limited liability as a title company, right? I got a much bigger requirement. I have to have a bigger policy for my E and O than a title company does. And also have a lot more that you can sue me for, right? So that’s really the advantage. You have a protection having an attorney for that sense.

Dylan Silver (23:56)

I wanna pivot here, talk about the podcast that you have. We were talking in the green room, Kishore about the podcast that you’ve been running, I believe, since January of this year and talking about a lot of different scenarios that come up and sometimes some rather tricky real estate situations and we all have these stories as real estate operators. Where did the idea for the podcast come about?

Kishore Kapoor (24:20)

So it started actually with another idea. So years ago I created a newsletter and I again it’s called A Series of Unfortunate Real Estate Events. And I talked about issues I ran into educating you as the realtors, right? Because I was like, listen, if I could save, if I could tell a story and it saves me a headache later on, it saves me. And then I saw I had an eighty five percent open rate on my newsletter, which anybody that knows newsletters, that’s insane. And

So I was like, okay, so this was great. Let’s flip this now and show away that the agents to the public what you guys do behind the scenes, right? So we’ve talked about things from we had a bank that we felt was discriminating against one of our clients, right? She was a young black woman, made decent money. They were giving her the runaround. And the agent and her showed up at the bank and just sat there and said, I want to speak to the manager of the banking the loan department, mortgage department. And that agent

That’s not an a duty you guys would do as an agent to sit there and go help this lady through it. And they kept going back and just sat there for hours and hours to make it work. And they eventually they got her qualified, but they put her through hurdles that I don’t think anyone else would have gone to and that militar didn’t. Then we’ve got situations where we’ve got, a walk, a final walkthrough and the house has been vacant for two weeks, the heat went out in the middle of the winter, and they walk into, a winter wonderland. Right. Everything is frozen.

What do you do to negotiate that? Again, we talked about here is the luckily the seller wanted to still sell, the buyer still wanted to buy. The realtor was involved with the insurance adjusters and getting everything in, opening the doors to help people in, getting quotes, contractors there, things that most people would never realize that the real estate agent would be doing. So you guys are my lifeblood. Why can’t I help promote you guys in a way that’s easy and

You’re fine on video, but most of your colleagues might not be okay with doing a video, may not know what to say or how to say it or edit it or do all the things that come with it. So that’s where I was like, This is a great idea. I actually went out and hired a company that helps me with it, coaches me a little bit, so kind of giving me a little bit of guidance on how to do this. And it’s been a game changer.

Dylan Silver (26:27)

When we talk about these real estate stories, especially when you’re dealing with situations that you haven’t encountered before, you have to really look at it like you’re a problem solver. Because it’s easy to tap out. It is. And frankly speaking, I see this a lot, more often than not, where real estate professionals are looking for layups. I’ve talked about this before. I think a lot of lenders, if for our lenders listening, sorry in advance, I think a lot of lenders are looking for kind of the layup and are not willing to go to the mat. But the same thing could be true, said for realtors, right? And I think when we do go that

extra mile and go to the mat. There is a certain sense of learning that we do with that. I remember my days before I had a real estate license as a wholesaler, I felt like every deal was like me doing some type of family triage situation. There was a probate deal I had to get

siblings together that hadn’t spoken in years, and they were now at odds with each other. One of them thought it was their property, they were living in it, and turns out that they didn’t have right to the property. And I’m sitting here thinking, I’m not, equipped to handle this, but here we go. And then you do 20 deals that way. And before you know it, you start looking at real estate a different way. Hey, I’m not just someone who is making offers on properties or selling homes or, doing walkthroughs.

I’m really helping people navigate these really complex situations that otherwise, like in the case of the woman with the bank, might not have happened. If she didn’t have someone sitting there with her, would that deal have happened? And so many other cases I’m sure that you’ve come across.

Kishore Kapoor (28:02)

And that’s the same thing how I feel with 1031 exchanges, right? I was scared of them at first. I know a lot of my colleagues in our state know the bare minimum, can’t answer any questions. And some of them are just terrified of, they’re actually a lot of fun. They’re easy once you get it. And it’s a topic I really enjoy talking about, right? But it’s the same thing. Yeah, I and I think the key you said there is it’s a problem solver, right? Whether you’re a real estate agent or you’re a real estate investor, you need a team. I don’t think that gets highlighted enough.

You need a team that’s gonna be there to help you in any situation, right? You need your realtor, you need your mortgage broker, you need your attorney, you need or your title company, you need your home inspector, you need the people that you can call, six o’clock on a Friday night and because you’ve done enough work with them and you have a relationship with them, they’ll pick up the call.

Dylan Silver (28:47)

wanna ask you about this idea of your sphere, the people around you, right? We talk a lot as entrepreneurs, as folks who are building businesses, as real estate operators about having that team and kind of who’s on your starting five, who can come off the bench. Oftentimes, and I’m sure you’ve seen this, your team becomes a source of distress, right? You could be involved in some type of deal where there’s several limited partners, a syndication deal, contractors, subcontractors

And things break down, right? And then we have to get attorneys involved in many cases. Where do you see this happening the most and why does it happen the most? Is it because people stopped communicating? Is it because they chose the wrong partner? Is it because they were just looking for a cash grab? Why does this happen?

Kishore Kapoor (29:30)

I think it happens for a couple different reasons. Right. My view is like, so we’ve done a lot of growing this year. Some of our systems broke, right? The problem is in the middle of your busy season, it’s really hard to keep everything going and fix the systems. Right. So that’s one part of this, right? And I see this with contractors that they grow so quickly because there’s not enough of them, not enough good ones right now, right? You’re good. You’re busy. Right. So sometimes it takes them longer to get back to you. And instead of hiring help, they just keep

pushing and doing more and more and more. Right. So a lot of it I think is communication. But I think the other it the other part of this is it’s we see a lot of people, especially in our industries, where it’s easy to get in the your foot in the door. If you’re good, it’s easy to grow, but you don’t have the entrepreneurial skills to grow. And I think that’s probably the biggest breakdown is that you don’t have the skills to get to the next level. And rather than asking somebody and getting to the next level is where there’s the break.

Right. And I know you talked about you guys have a mastermind group, right? Having a mastermind group is key. Right. It’s allowed me for myself to go from a solo attorney to a team of six in the last five or six years. Right. Grow

Dylan Silver (30:36)

You

Kishore Kapoor (30:36)

As you grow, what is it? Somebody says new level, new devil. I think that’s exactly what I would say. If you ask me, one thing would be it’s you get to new level, there’s a new devil, and if you’re not having the support or the team to help you as the entrepreneur, you’re gonna break your team and probably get replaced in places.

Dylan Silver (30:53)

You know, there’s the same type of person who

is excellent at getting something off the ground and being maybe a cowboy a and asking shoot first ask questions later type of thing is good for getting something off the ground in many cases or stacking up a small portfolio but then when you’re doing things at volume you need processes you need someone who may be able to stay in contact with multiple different people and have a set system and

SOPs for their team. And that person who’s a cowboy who might not love any of that can sometimes struggle with those situations. So at that point, it’s bringing on someone who is going to have that kind of yin to your yang, so to speak. Or realizing that, I’m not someone who wants to scale potentially. I’m happy being the size that I am because I want to stay a cowboy.

Kishore Kapoor (31:41)

Yeah, but being aware of that is the key. I think the two positions that as you grow, you need to get on very quickly as executive assistant, right? Help answer all those calls and those emails and whatever communication. And then eventually you need a COO type person that’s gonna go out there and build the systems for you. Cause without those two, I mean, you could be great at your craft, then you’re gonna get bogged down with answering emails or getting an invoice out on time.

Dylan Silver (32:07)

It’s true.

Kishore Kapoor (32:07)

Right. It’s true. And that’s

where I see a lot of breakdown in communication once you get to the point where you’re too busy and you can’t do it all.

Dylan Silver (32:15)

I wanna go back to the beginning here for a second, as we are coming up on time here. I’ve talked to quite a few real estate attorneys from across the country. Each of them has a different story. Many of them will deal with one specific niche in real estate. If you go back to the beginning, when you were determining where you were gonna fit in as a attorney and you chose real estate, what was it about real estate that made you pick that niche?

Kishore Kapoor (32:38)

So I’m gonna go a little bit deeper and I might get a little emotional, so I’m just gonna warn you there. But so my parents moved to the US in 1978 with two or three beef, in India they have metal trunks instead of suitcases. They came to the US with four metal suitcases, two kids, built their life. I was born in ’85, so they were here for a little bit, established, getting things going. But through the 80s, my dad had a job at a manufacturing company, and one of the guys recommended real estate.

And my dad slowly invested in real estate, invested in real estate, invested in real estate, put me through college with very little debt, put me on a path to understand what goes on to real estate, both on the investor side and then being interested in law, I learned the legal side of it. So a lot of it had to do with the stability that my family had because of the investments they made. But it also all ties into I’m a big proponent of the American Dream, right? We live in a time where if you want to be wealthy, you can do it.

Right. You just gotta have that drive. So that’s all the American Dream. And the American Dream such a tie into real estate, right? You look at wealthy individual, and if you look behind the scenes, there’s real estate. So I always have been fascinated with the American Dream. My family’s accomplished the American Dream, put me in a position where I can now help others. So I get to be able to usher families, whether it’s their investment or their first home, through that process and get on their journey of accomplishing their American Dream. Amen.

Dylan Silver (34:03)

That amen to that. We are coming up on time here. Also anything you’d like to mention directly to our audience.

Kishore Kapoor (34:14)

Now

we’re doing a lot with 1031 exchanges lately. I think people are starting to listen and understand them. Like you said earlier, there’s a big push to figuring out how to save some tax dollars. So we’re doing a lot of that. We also do get a lot of investors buying Airbnbs now, which is relatively new in our industry. The one thing I’ll leave people with, especially your investors, make sure you understand the documents you sign at closing. I can’t tell you how many times I’ve had investors buy a property that have prepayment penalties.

And are completely clueless about them, right? Which is somebody didn’t explain it or they just didn’t remember it. So before you start listing your investment properties, look that you don’t have a prepayment penalty. And then the other thing I’m gonna leave you with, we forgot to mention with 1031 exchanges, the timing. There is no set time as to how long you own the property, but you need to show that you’re doing it for an investment and a business purpose. Fix and flips don’t count. I know a lot of investors try to. There’s a tax people out there that say a minimum of two years.

I’ve heard a minimum of year. My answer is if you bought it for the purpose of buying it for a rental property or to run a business out of, you’re fine. Even if you get an offer the day after you buy it to sell it, that wasn’t your intended purpose. And the IRS looks at the intended purpose.

Dylan Silver (35:24)

Kishore, thank you so much for joining us again. Thank you again for your time.

Kishore Kapoor (35:28)

No problem. Thank you for having me.