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Episode 36: He strung together multiple 1031s then bought a sailboat!

Episode 36: He strung together multiple 1031s then bought a sailboat!

Dave Foster
Tax

Dave Foster, executive director of The 1031 Investor, joins True Multifamily to talk about a better way of real estate investing that didn't involve paying taxes on his profits during his transition from one investment to another using 1031 exchange. He shares his journey as a real estate investor over the past two decades and how he maximized his potential returns in the long run by changing his investment strategy.

As a result of his transition, Dave's portfolio builds and he preserved real estate wealth that allowed him to buy a sailboat, where he lived with his family.

Dave Foster
Tax
Dave Foster

My name is Dave Foster. I decided to get into real estate investing right after my first son was born. He was amazing and made me want to chuck my 9 to 5 job, live on a sailboat, and travel with my family.

I figured I would work my way into generating passive real estate income that wouldn’t require my full-time, hands-on management. My goal was to do this before my son turned 10, so that there would be years left to explore and adventure together before he was grown.

The thing was, when I sold my first renovation project for what I thought was a decent profit, the government took 40% of my gain. And then, when I sold my small business to generate more capital to invest in real estate, Uncle Sam and the great state of Colorado took 40% of the profit there, too.

Even though my wife and I were working full time AND investing, the return on our efforts wasn’t in line with the time and resources we were committing to it. Our goal of sailing with our family while we were all young seemed unattainable.

I felt terrible because I had worked so hard but had retained less than two-thirds of my gain. To make things even worse, instead of giving me more time with my family (my ultimate goal), it was diverting much of my energy and attention. I felt like I was becalmed by the tax hit and unable to make meaningful progress.

The other problem was that when I wrote those tax checks for 40% of my profit, it turned what had felt like a win into just a mediocre play. Even though I have an undergraduate degree in accounting and a master’s degree in management, I was shocked by the size of the tax bill and how it eroded what was left for me to build toward the future I envisioned with my growing family.

Then one day, some friends said they were starting a company to help investors just like me avoid paying capital gains taxes when building their portfolio. These “qualified intermediaries” told me about a better way of real estate investing that didn’t involve paying taxes on my profits when I transitioned from one investment to another. It’s called a 1031 exchange.

It was now crystal clear to me how to maximize my potential return: by rolling all the gain on a business real estate sale – including the taxes – into my next investment property. I saw that I could increase my funds available for reinvestment by 40% and use them to grow my holdings faster.

Even with my advanced degrees, I had thought that paying taxes on real estate investment profits immediately was required. But now I understood there was a way to keep them working for my own benefit instead.

As a result, I immediately changed my investment strategy to match the requirements of this new tool.

Not only was I motivated to make this easy transition, but I was also well rewarded for doing so.

With my new approach, I started buying property to hold a bit longer and using all the profits to buy even more property any time I wanted to move or reapportion my portfolio.

Suddenly, I was growing and transitioning my real estate portfolio without paying a penny in capital gains tax.

That’s when I realized the long-term path for me was to buy and sell properties in a way that allowed me to use the 1031 exchange process: using the deferred tax to buy more property instead of paying the taxes to the government.

But I didn’t stop there.

When I was ready to sell, I either used a 1031 exchange, which then allowed me to buy more real estate and avoid paying taxes on the profits, or I would move into the property with my family and use it as our primary residence until we qualified for the IRS section 121 exclusion of up to $500,000 in gain ($250,000 for individuals), thereby paying no tax on the gain when we made the sale.

This is PERFECTLY LEGAL.

I could not believe the difference this strategy made in my ability to grow my holdings.

Over the past two decades, I have built and moved my real estate portfolio across four states without paying a penny in capital gains tax from real estate activity whenever I used a 1031 exchange or the section 121 homestead exemption.

I was so excited about this opportunity, that when I had three years of experience doing it myself, I decided to make it my job to share this strategy with other investors, and I became a Qualified Intermediary representative.

I have helped thousands of investors maximize their reinvestment capacity as well.

But it is still so frustrating to me that the huge benefits, legality, and ease of this remarkable opportunity are not universally known or understood. Most investors either have never heard of it or are intimidated by the rules and regulations surrounding this critically important tool.

That’s why I am establishing The 1031 Investor, a website for investors to connect with me – a fellow investor – shored up with years of experience and knowledge.

I want to create something that makes it possible for other professionals – investors perhaps with full-time jobs or growing families – to connect with 1031 Exchange resources and expertise to let them pursue their goals. It is so simple to use this tax deferral strategy that motivated investors can easily change their investing future.

I have helped thousands of investors build and preserve real estate wealth for themselves and their heirs, allowing them to succeed and follow their passion by maximizing their reinvestment opportunities over their lifetime of investing.

Now, I want to help you.

Not only have I helped many others but my own story highlights the possibilities. Using the proceeds from my 1031 exchanges and the 121 homestead exemption on my primary residence, I was able to purchase a sailboat WITH CASH by the time my eldest son was six years old. My 1031 exchange to 121 to sailboat path looked like this:

  • Completed 1031 exchanges out of investment properties in former home city =>

  • Purchased distressed property held for renovation and rental near new home=>

  • Eventually transitioned investment property to primary residence=>

  • Sold tax-free under section 121=>

  • Purchased a sailboat!

As a result, I lived with my young family on our sailboat, Odysea, for 10 years; it was a fabulous adventure.

I want to show you how you can live your dream, too, with the help of a 1031 exchange.

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