Home > Current News, Expert Interview, Investment Strategies, Real Estate, Tax Tips > 1031 Interview: Real Estate Investing with Matthew Frankel, CFP
We explore the upcoming Biden Administration, the effect of COVID vaccines, which metrics matter the most when choosing real estate investments, and much more.

Matthew Frankel, senior real estate analyst for Millionacres, a Motley Fool service, sat down with us (virtually) to share his expertise for our latest 1031 Expert Interview.

As you’ll see, Matthew is a level-headed and clear communicator. He has been a contributor for the Fool.com for nearly a decade and heavily invests in the real estate sector himself.

His answers are direct and actionable — just the way we like it.

Below, we explore:

    • what to expect from a Joe Biden administration
    • active vs. passive management
    • the impact of vaccines on healthcare real estate
    • the RE metrics investors he finds most valuable
    • his background in math
    • his family pets

And lots more.

Let’s get to it.

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Q. Before we get to your background, let’s start with current events. What can real estate investors expect from an administration under President Joe Biden?

Matthew Frankel, CFP: The biggest potential impact to real estate investors would be if the Biden administration successfully eliminates 1031 exchanges.

I personally don’t see this as particularly likely, but it’s certainly possible.

Higher-income investors could potentially face higher taxes, especially on capital gains when selling real estate. Capital gains tax has been discussed often as a way to make the wealthy pay their fair share, as the benefits of lower long-term capital gains rates largely go to the rich.

Q. Explain your moniker “TMFMathGuy”

Matthew Frankel, CFP: Long before I was a full-time analyst and financial planner, I was a high school math teacher. I have a masters degree in Mathematics, and feel like my math background has been a big help in my current role.
(TMF stands for “The Motley Fool”)

Q. So you’re a bit of a quant. What metrics to you consider primary when evaluating real estate investments?

Matthew Frankel, CFP: I’m all about cash-on-cash yield.

As a somewhat younger investor (and one that focuses on stable, cash-flowing properties) I feel like I’m a bit more comfortable with leverage than many other real estate investors.

And I invest in a combination of single-family and multi-family properties, which generally have different down payment requirements from lenders.

My general investment philosophy is that if I can maximize my yield on invested capital with desirable properties, I’ll produce superior total returns in the long run.

Q. Has writing about investing made you a better investor?

Matthew Frankel, CFP: Absolutely. No investor knows everything about investing, and I’m learning every day.

Writing forces me to do research and learn about new companies as well as the latest developments with companies with which I’m already familiar.

I’d say that roughly half of the stocks in my portfolio – real estate and otherwise – were a direct result of research I’ve done in connection with my writing.

Q. OK, so you first dipped into RE investing by house-hacking a duplex. What did that teach you that you couldn’t have learned through writing or number-crunching?

Matthew Frankel, CFP: The most important lesson I learned from my first house-hack investment was to account for variance.

I’m a good number-cruncher, and I knew exactly how much the property should earn.

But I failed to account for things like

  • vacancies,
  • unexpected repairs,
  • other costs that aren’t predictable.

It also taught me to choose my tenants carefully — literally living next door to my tenants really emphasized the need to do my due diligence before signing a lease.

Q. We focus a lot on 1031 exchanges here. What else should buy-and-hold RE investors consider to maximize their tax efficiency?

Matthew Frankel, CFP: Investors with substantial retirement assets might consider owning properties through self-directed IRA or 401(k) accounts.

While these can be complicated at first, some consider this the ultimate way to compound real estate gains on a tax-deferred basis.

Rental income and capital gains are 100% tax-free until the money is withdrawn from the account.

So, if an investor is looking to avoid taxes to the largest extent possible, they could be worth a look.

Q. Most of our audience actively manage their real estate. What are your personal thoughts on active vs. passive management and are there any widespread errors or misconceptions we can help correct for?

Matthew Frankel, CFP: I’m personally more of a passive manager.

I hire a property manager to oversee the day-to-day operations of my properties, simply because I don’t have enough time to give them the attention they deserve.

However, I will say that actively managing properties has become far easier in recent years as a result of technological advances in the real estate industry.

One misconception I see often?

That a property manager isn’t worth the cost, but I can tell you firsthand that’s 100% false.

A good property manager has preferred contractors that can handle repairs quicker and more cost effectively than you can do on your own, for example. And a property manager’s market knowledge can cover their fee in many cases.

I had a property that I was renting for $1,000 because that’s what I thought it could get. When I hire a property manager, they immediately put a tenant in place at $1,200—more than covering their management cost.

Q. Back in July 2020, you spoke with J.T. Thomas (CEO of Physicians Realty Trust) about opportunities in the market for healthcare-adjacent real estate in light of COVID-19. Do you have any intuitions about the rollout of effective vaccines? Will they interrupt or accentuate patterns we saw over 2020?

Matthew Frankel, CFP: Vaccines could be a huge positive catalyst for senior housing properties.

Move-ins and tours by prospective residents are far below pre-COVID levels, and since these groups will be among the first groups to receive the vaccine, I think we could see senior housing make a comeback far sooner than many experts are expecting.

Other property types like medical offices and hospitals will perform just fine, vaccine or not.

And the success with which COVID-19 vaccines were developed could be a big catalyst for investment in medical research, and could lead to further growth and investment opportunities in life-science real estate.

Q. Final question. Your profile on Millionacres mentions “two high-maintenance dogs” – can you share a little bit about them with our audience?

Matthew Frankel, CFP: I have a 105-pound dog that’s a German shepherd and pit bull mix, and an eight-pound Chihuahua.

The little one is definitely the boss, but both are high maintenance. The Chihuahua is 15 years old and nearly deaf, and the big one is three years old and a giant ball of energy.

So, high maintenance in very different ways!

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