Commercial Real Estate Internship Update #1 – Blake Imperl

Commercial Real Estate Internship Update #1 – Blake Imperl

How My Views on Commercial Real Estate Are Changing

By: Blake Imperl

As I am approaching the end of my first month as an intern at Gabhart Investments, I’d like to reflect on what I’ve learned, and what has changed thus far.

What I’ve Been Doing

Over the past few weeks, I have been spending a lot of time reading the material Curtis has provided me on Property Valuation & Investment Analysis. Although it is mainly an overview of the subject, it has proved to be some highly valuable content. This material essentially picked up where I left off in my Real Estate Investment Analysis class that I took last semester at San Diego State. I have been brushing up on subjects like tax benefits, 1031 exchanges, expenses, leverage, returns, evaluating cash flow, and much more. I still have a great deal of learning to do on these subjects, but it is exciting to see how what I’ve learned in the classroom correlates to real world applications. It is my intention to continue to read up on these subjects and ask as many questions as I can.

I’ve also been observing how Curtis and his team assemble marketing packages for commercial properties they are listing. I was doing things similar to this at my last internship at Realty National, so I’ve enjoyed seeing how this translates in the commercial arena

Commercial Real Estate Blog Posts

Another task I have taken on is the editing of Curtis’s blog posts. My first edit was a post on property walkthroughs. One tremendous benefit of doing this has been the information I’m learning is sticking much deeper than if I just glanced over it. It’s proved to be a great learning tool for me and I’ve even taken on the task of researching some of the topics I was curious about. Writing has always been a passion of mine, so getting the opportunity to revise and write some stuff has been great. I’m excited that I will get to continue to edit blog posts during my time here.

Property Walkthroughs

This past week I had a great learning opportunity with Curtis to do a walkthrough of a 13-unit apartment building in Fallbrook. I was able to learn about some of the things you should be looking for in a property, both on the interior and exterior. This was a neat real life application after reading Curtis’s article on property walkthroughs. This is certainly the kind of stuff you’d never learn in a class room.

13-Unit Apartment Building In Fallbrook

La Jolla Multi-Family Building

Another property we looked at was a 5 unit multi-family building in La Jolla. This was a very intriguing property because it had great bones, was less than a block to the beach and offered several routes for renovation. When walking the property, we looked at things like the condition of the floors, the bathrooms, kitchens, balconies, electrical, etc… It was far from move-in-ready, however, at the right price this could prove to be a great deal.

Curtis and Abe inspecting the condition of the upstairs balcony

the interior of the detached studio

Co-Star Lunch & Learns

In addition to the property walkthrough, I’ve also attended two Co-Star lunch and learns with Curtis and his assistant Dianne. The one that stood out to me was on the housing forecast over the next few years in San Diego County. I enjoyed this meeting because this is a real problem we will be tasked with fixing over the next decade. This past semester in my investment analysis class I did a great deal of research on this subject, so it was neat to hear the industry take on the issue.

Other Opportunities

Lastly, I have very much enjoyed the opportunity to pick Curtis’s brain. He’s always offering me valuable tips and knowledge about real estate and just life in general. Whether it be tips on client relations, listing properties, or even just financial management, I’ve been trying to act like a sponge of knowledge. He’s always honest about things and I respect that.

My views on real estate are growing stronger than ever and I’m excited all the learning opportunities that lie ahead. I am finding that the San Diego Commercial Real Estate Market contains more possibilities than I ever could have expected. Stay posted for my final update in August!

In a bit,

Blake Imperl

Intern, Gabhart Investments


I received this email a few days ago from the 1031 exchange company I like. The article below describes some situations where people tried to do a 1031 exchange and turn it into there personal residence incorrectly and because of that not only had to pay the taxes but penalties in addition.

Doing it correctly can be a powerful way of getting some of your money out of your properties tax free but not without risk or planning. If memory serves me right (consult with these guys for professional advice) the property needs to be rented for 3 years before you move in. In addition there are other requirements involved and maybe Vince and Ryan can shed some light on those requirements.

Let’s just play this out and say you got all your ducks in a row you could potentially exchange into a single family home you wouldn’t mind living in, rent it out for the appropriate amount of time and get $250,000 if you are single and $500,000 tax free if you are married by moving in for 2  years in a 5 year period.

I know quite a few people who have done this successfully and moved into there dream retirement home in San Diego using this method. Consider looking into it if you have an apartment building or other piece of real estate you would like to sell but don’t want to pay the taxes.


Goolsby v. Commissioner (April 1, 2010); T.C. Memo. 2010-64

How Soon After a Taxpayer acquires property through a 1031 exchange can the Taxpayer treat the property as a personal residence?

The Tax Court recently held that property acquired by taxpayers in a Section 1031 exchange did not qualify as replacement property when the taxpayers moved into the property two months after acquiring it.  Taxpayers were also held liable for the accuracy-related penalty.

In October 2002 taxpayers signed a purchase agreement to acquire a single family property in Georgia (the Pebble Beach property). The purchase agreement was contingent upon sale of taxpayers’ personal residence in California. In February 2003 taxpayers sold their principal residence in California and began living with their in-laws in Georgia. In March 2003 taxpayers sold rental property located in California and used a QI to structure an exchange. Taxpayers purchased the Pebble Beach property as replacement property.

The court ruled that taxpayers did not intend to hold the Pebble Beach property for productive use in a trade or business or for investment at the time of exchange, and therefore it was not valid replacement property. The court first noted that taxpayers moved into the Pebble Beach property two months after acquiring it. Further, they did not move into it temporarily until renters could be found. Their efforts to rent the Pebble Beach property were minimal. They merely placed an advertisement in a neighborhood newspaper for a few months, and no further efforts were made to gain more exposure for the Pebble Beach property. Moreover, taxpayers began preparations to finish the basement of the Pebble Beach property, having a builder obtain permits for construction, within two weeks of purchase.

The court surmised that taxpayers were contemplating use of the Pebble Beach property as a personal residence before the exchange. It noted that taxpayers made purchase of the Pebble Beach property contingent upon sale of their personal residence in California. They sought advice from the QI regarding whether they could move into the property if renters could not be found.   Taxpayers did not research whether covenants of the homeowners association would allow for rental of the Pebble Beach property before the exchange. They also did not research rental opportunities in the area prior to the exchange.

Taxpayers contended that purchase of the Pebble Beach property was not extravagant when compared to costs of California properties. The court responded that the relative values of properties were irrelevant. Taxpayers also argued, as evidence of their intent not to reside at the Pebble Beach property that they lived with their in-laws upon their move to Georgia.  The court dismissed this argument as non-persuasive.

The court also found the taxpayers liable for the accuracy related penalty due to a substantial understatement of tax.  Taxpayers failed to present any evidence that they acted with reasonable cause and in good faith.  The taxpayers did not use counsel and represented themselves.

This case highlights that taxpayers should not be too quick to move into property acquired in an exchange. They should make substantial efforts to rent the property and avoid evidence of intent to use it as a residence.   The taxpayers asked the QI if they could move into the property if renters could not be found.  You probably get this or similar questions from clients frequently.  Be careful with your answers and let the client know about the fate of the Goolsbys.

If you have ANY 1031 Exchange inquiries, or questions relating to the above article, please contact our offices.  Pacific Capital Exchange looks forward to meeting ALL YOUR 1031 EXCHANGE NEEDS!  Call us today at 1-888-398-1031 or visit our website at



Visit our Website:


Ryan S. Auer, CES

Executive Vice President

Chief Operating Officer
Pacific Capital Exchange Services

(619) 246-7478 Cell

(888) 398-1031 Toll Free

(619) 923 2524 eFax

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How to use the 1031 Exchange to Make As Much Money as You Want without paying the Tax Man a Single Cent!

We are about to reveal to you the details of what is one of the best kept secrets in the Internal Revenue Code. The 1031 Exchange is arguably the most powerful mechanism in the Real Estate business that allows you to make money, and keep it with you without having to pay taxes on your profits. This is a valuable tool that allows you to keep the proceeds of your property sale. This mechanism allows those who are trading their properties “up” to retain their profits by deferring the tax liability. It is therefore crucial that whenever you are about to sell a property, you should always first consider a tax deferred exchange before making a traditional sale (and purchase).

So what is the 1031 Exchange?

The 1031 Exchange is basically a strategy and method of selling one property and reinvesting the proceeds in a like-kind™ property and thereby deferring the capital gain taxes. To qualify for this tax deference one must exchange the property in accordance with the rules set forth under section 1031 of the Internal Revenue Code. It is not considered as a normal sale and purchase but as an exchange, and this exchange can offer significant tax advantages to real estate buyers.

Why Should I go for the 1031 Exchange anyway?

There are numerous reasons you should consider the 1031 Exchange before selling your property. Some of the more common ones include:-

• Defer the payment of capital gain taxes.
• Leverage – continue to use your proceeds to further investments.
• An exchange is effectively an indefinite interest free loan from the government.
• Upgrade or consolidate your property investments.
• Diversify risk – own multiple properties rather that just one.
• Relocation to a new area.
• Benefit from the differences in regional growth or income potential.
• Be relieved of property management let the lessee take responsibility to sublet and maintain the property.
• Change property types among residential, commercial, industrial, retail, etc.

So what are the rules of 1031 Exchange?

While it can become a little complex let me outline the basic rules here for you.

• The property that you sell and buy both must be real and used for productive use in a trade, business or for investment purposes.
• The properties being sold and purchased must be ‘like-kind’ (more on this later).
• The proceeds of the sale must be routed through a qualified intermediary and not yourself or your agent otherwise the proceeds will become taxable.
• Only the amount of the sales proceeds that are reinvested will be tax free. Therefore any cash proceeds that you retain will be taxable.

The replacement property must be subject to an equal or greater level of debt than the property sold or the investor will either have to pay taxes on the amount of the decrease in debt, or invest additional cash funds to offset the lower level of debt in the replacement property.

How long do I have to execute the 1031 Exchange?

The timeline allowed to conduct the transaction can be broken down into various parts.

Identification Period : Once you have sold the property you must identify the replacement property within 45 days of the sale. The 45 day rule is very strict and is not extended even if the 45th day should fall on a Saturday, Sunday or legal holiday. So it is better that you actually scout for appropriate properties even before your sale is executed.

Exchange Period : The exchange period is 180 days from the date the property is relinquished. Therefore the replacement property must be received by the investor within 180 days of relinquishment or the due date for the taxpayer tax return for the taxable year in which the transfer of the relinquished property occurs, whichever is earlier. Again, should the 180th day fall on a Saturday, Sunday or legal holiday, it will not be extended and it treated as a strict deadline.

What are the limitations on the new properties that I can buy under the 1031 Exchange?
One has a variety of freedoms along with limitations when considering replacement property / properties. These are:-

3 Property Rule : You may identify any three properties as possible replacements for your relinquished property. More that 95% of exchanges actually use the 3 property rule.

200% Rule : As long the total value of all the properties that you identify for replacement does not exceed
200% of the value of the relinquished property, you may identify any number of properties as possible replacements for your relinquished property.

95% Exemption : As long as you end up purchasing at least 95% o the aggregate value of all the properties identified, you may identify any number of properties as possible replacements for your relinquished property.
Like-Kind™ Property : According to IRC 1031(a) Like-Kind mean similar in nature or character, not withstanding differences in grade or quality. One class of property may not be exchanged for property of a different kind or class under the 1031 exchange rules.

Here are some examples of qualified 1031 like-kind properties and exchanges:-

• Apartment building for farm/ranch
• Office building for hotel
• Raw land for retail space
• Unimproved property for commercial property
• Airplane for airplane

Whereas examples of non like-kind properties include primary residences, stocks, bonds, notes, partnership interests, developed lots help primarily for sale and property that needs to be resold immediately after the initial purchase or completion of improvements.

So how do I actually conduct a 1031 Exchange?

The normal caveats apply…be sure to consult a lawyer and do not take the guidelines below as completely full and final, etc. etc. but here are the basics:-

Proper Listing : Once you have identified that a 1031 exchange is in your best interests be sure that the listing agreement specifies that you intend to use the property for a 1031 exchange.

Sales Contract : Once you have received and negotiated an offer be sure that everyone is clear about that fact that you are intending to acquire a new property under the terms of Section 1031 of the IRS code.

Facilitator : You will then have to open an escrow account and begin working with a facilitator. The facilitator will prepare all documents required for a 1031 exchange. The facilitator will work with the escrow company during the first phase of the process. The exchange agreement will need to be signed by everyone involved and all the earnest money must be deposited with the title company before the escrow is closed.
Finding a Replacement Property : You will then have to find a replacement property within 45 days of closing. After that you will have 180 days (or less if the investor tax return filing date fall earlier than 180 days) to acquire and close the property making sure that everyone know it is part of a 1031 exchange.
Closing the Replacement Investment : Once you open an escrow account on the new property the facilitator will work on the documents required in phase two of the 1031 exchange process. Until the second phase of the transaction has closed your earnest money and any other funds will be held in a trust by the facilitator in the escrow account.

Those are the basics of the transaction. If sufficient interest is generated about this blog pos then I would be happy to provide more details on points like reverse 1031 exchanges (more complex transactions where the investor buys the replacement property before relinquishing a property), referrals for qualified intermediaries (those who have signed a contract with the IRS for the purpose and have received a QI-EIN) etc.

If you need more details do not hesitate to contact a lawyer, meanwhile, happy 1031 exchanging!

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