REIA 175 Reuben Goldbaum: Why strong buyers are better than higher offers

Welcome to Real Estate Investing Abundance, the show for busy, fulfilled professionals like you to learn how to develop financial independence built on solid passive real estate investments. Now here is your host, Dr. Allen Lomax.

Ruben is a real estate broker helping 1031 buyers show that they are the strongest buyers, not desperate and needy people who can get and be taken advantage of. He also helps investors find off-market opportunities for strong buyers. So Reuben, take us into the show and tell us about a memorable experience that helped you to be who you are today.

Well, thank you, Dr. Allen. Appreciate you having me on the show. Very exciting to be here. It's always exciting when people want to hear what you have to say. Um, a formative experience for For me, I'm still pretty young, but I would like to talk about something that happened when I started my firm. I have just left my job as a qualified intermediary, and I was nervous. I didn't know what to do with myself, and I wasn't sure how to be a broker, what to do, where to do it. And after speaking to a lot of people, I decided to make a big move. At least in my mind, it was a very big move. I didn't have that much money, and I took a very significant portion, and I decided to hire a sales trainer. And I hired a sales trainer. His name is Dale Dupree. He has a company called The Sales Rebellion, and he was unbelievable. It was the best move I ever made for myself. And the reason is having somebody from an outside perspective speak to me and talk to me and understand me and get to know me, it really brought out the best in me. So it was just eye-opening, you know, speaking to somebody outside of my immediate circle and somebody who deals with people like me all day. It was tremendous. So it was such an unbelievable experience to speak to somebody like that, and it was worth every penny. So that's my— As far as experiences are concerned, hiring a sales trainer, which is expensive and you don't necessarily see the ROI day one, he was legendary for me. So highly recommend it. And as far as an experience that really, really, really turned me into what I can be today.

Well, I've heard a lot of good things about coaching, and it is a very good thing, but I'm impressed by the fact that you were just starting out. You didn't have a whole lot of money and You had just left the security of a salaried position, and one of the first things you did was go out and spend that scarce resource on a coach. And I'm sure it did make a tremendous difference in your overall success and probably paid for itself time and time over.

It was unbelievable just from a confidence perspective. I'm a confident person naturally, and I believe in myself and I have faith in myself, but still going out to the big bad world all by yourself, paying for your own Uh, all, everything's now coming out of your pocket. Any event you want to go to, any office space you're renting, anything of that nature, any marketing you want to do, it's all coming out of your own pocket. And it was, it was a big scary world. So to have somebody just really give me the confidence and to really bring in, like, like I said, bringing the best out of me. So it was great.

Yeah. Well, um, I'm glad that worked out well for you. Well, let's go into the brokerage, uh, side of this. And as you mentioned, you had worked as a qualified intermediary, and in working as a qualified intermediary, uh, you learned the importance of a 1031 exchange and the importance of that to a buyer. And you began to see that brokers and owners looked at 1031 exchanges in sometimes not the best light. So tell us about that experience and what you learned from that.

So I'll tell you a story. As a QI, I would go— a qualified intermediary, I would go into brokerages and law firms and tax firms, CPA firms, go into them and present on our company on what a 1031 exchange is and how it works and their role in it and our role in it, et cetera, et cetera. And there was one pretty large brokerage firm. There must've been, 60 agents sitting in the room while we were there. And we started talking about 1031, and one of them just was laughing. And I was looking at him like, what's your problem, dude? He tells me, listen, 1031 guys are the best. We love them. I said, why? He's like, because I have any cruddy deal, I can just bring it to a 1031 guy and he'll buy it because he's desperate. He just needs to save his taxes. So I had my really crappy deal, some Dollar Tree in Virginia that's not doing very well, but they'll buy it because they're desperate to place their funds somewhere. And it was eye-opening to me. I'm looking at this guy who's a broker who had closed many, many deals, and this is the way he looked at 1031 buyers. And I couldn't understand it. I would think on the other hand, just their direct opposite. I'm a broker now and you have deals left and right. And we know there's a lot of buyers that are desperate for deals, But the best buyers are what counts. And if you have a 1031 buyer who has the funds lined up and he's on a timeline to close in a timely manner, and he has to do it because otherwise he won't replace his funds, yes. I mean, that's the best buyer you can possibly bring to the table. Not the worst buyer you should bring your bad deals to. It should be the guy you're bringing your good deals to because you want to make sure that they close. So it was just a very eye-opening experience. I'm sitting in this big brokerage and this is their attitude towards the way they looked at 1031 buyers and it really opened my eyes to what, maybe there's something I can bring to the table here. Maybe there's a need for someone like me who's willing to work with those buyers, represent those buyers, and bring it to the sellers and present them the way they should be presented.

Well, that's really eye-opening for me being a broker myself and also being an investor. It never dawned on me that brokers were actually looking at 1031 exchange buyers from that perspective. And it's starting to make a whole lot of sense. though, in terms of the people I have dealt with and why and how it is that they're operating.

It's almost like they salivate at the mouth. They see these 1031 buyers who are just desperate to place the money and they're like, yes, we can charge them whatever the heck we want. And we know they'll buy it because they need to. And I just, to me, that just didn't make any sense. You're not in the best interest of your agent. Yeah, you might get a higher commission, Yeah, you might force them to close, but you're certainly not doing your job in the right way. So it was, it was a little bit eye-opening.

Yeah, for sure. Well, that is certainly a good piece of wisdom to know and understand, and I appreciate you sharing that. Well, tell us a little bit about the difference between a marketed deal versus an off-market deal, and is that a better way to go? And if it is, why? If it isn't, why not?

So I deal exclusively in off-market deals. I'm not a marketing broker. I'm not CBRE, I'm not JLL, I'm not Cushman. Those are big brokerage shops. And the way they do things, they do an unbelievable job. They market deals. There's certainly the pros to that. There's certainly the cons to that. Some people will tell you that you need to always market deals. Some people tell you you should never market deals. What I found is like this, a marketed deal can and usually does get top of the market pricing because you bring it out to the amount of buyers you could possibly bring it to. If you listen the deal with Marcus Millichap, they have a list of buyers. Their email list is tens and tens of thousands of people that are seeing it. Or if you list it on 10X Commercial, you know, on a website, an auction website, the same kind of thing. Thousands and thousands of viewers are looking at those websites, looking at those properties and bidding on them. However, the downside is that you don't know who the buyer is. The seller doesn't know who the buyer is, and he doesn't know or have any certainty that the buyer can close and can actually execute on the deal. Of course, they can do their research and ask for Proof of assets under management and proof of funds, et cetera. But there's no real relationship there in order to understand, can it get done or can it not get done? So what I've found is very simple. If it's a vanilla easy deal that there's no reason you should never be able to sell it, it's a beautiful deal, it's doing well, but it has upside in any asset class, whatever it might be, there would be no reason to not list it. Listing it is the right way to go. You bring it to a broker, they publicize it, you'll get it in front of thousands of buyers and they should execute. And should they not execute, you'll have 10 backups and you'll be able to find someone who will execute. But oftentimes there are deals either a little bit more hairy or the seller just doesn't want to deal with the lengthy process that it is to market deals. So the way they should, in my opinion, do it is bring it to an off-market broker who will just make a deal happen. And the certainty of close and the relationship that's there can, generally speaking, obviously there are exceptions to the rule, but usually they're dealmakers. Off-market brokers are dealmakers. They will make something out of nothing. I'll give you one quick example. I had a property in Louisiana. It was a nice deal, about 300 units or so in Baton Rouge, Louisiana, that a large brokerage firm had for a 6-month listing. And it was a hairy deal. It was not an easy deal to sell. It had a lot of deferred maintenance and it was problematic in a lot of ways, but it certainly had a lot of value. And this shop shopped it for 6 months and they brought them one offer at a lower price than they wanted. They wanted $29 million plus, and they ended up bringing one offer at $28 million. And it wasn't a very good offer. It was from a firm that wasn't really a good certainty of execution. And they decided not to take the offer. The listing expired. The guy called me and I brought him 2 offers with hard, non-refundable money within the first 10 days that I had the property. And the reason I was able to do that is because I knew who to bring that deal to. Now, that doesn't mean that, like I said, the shop could have done very, very well with it, but the reason they didn't is because it was maybe a little bit more difficult and they didn't have the right buyer to bring it to. They were just putting it on the market and hoping that the right person would come across it. So there certainly are pros and cons. I can go on. There are more points to this, but as a whole, there are pros and cons to everything. There are certainly pros to listing properties. There are certainly pros to not listing properties.

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Well, explain to us the difference between a marketing broker and off-market broker.

So a marketing broker, they do an amazing job at marketing. They take the property, they'll spend thousands of dollars with, with a fancy photographer and creating a beautiful offering memorandum with 130 pages. And they'll get drone shots of the property. They'll make sure to post it on all the listing sites and get it out there to as many people as they possibly can. And like I said, they do a fantastic job at what they do. An off-market deal would not be like that. An off-market deal, if Allen Lomax was selling something, he would bring me a property. Let's say you would have a 150-unit property in Raleigh, North Carolina, and you want to sell it. You call me, you say, hey, Ruben, I have this property. So all I would tell you is, Allen, give me the T12 and the rent roll. That's all I need, the trailing 12 and the rent roll. Let me underwrite it. I'll underwrite it. I'll bring it to the 5 or 6 people that I believe would want it. And I'll bring you an offer. And I don't need 6-month listings. I don't need to come down to the property 14 times with photographers. I bring it to my people and we get a deal done. So there's a difference. And off-market is great if you want to make a deal happen. If you just want to get the top price and it's an easy deal to sell, it would be, like I said earlier, list it. List it, baby. It's much You're likely to get what you need, no question.

Okay. So actually, as a broker, you actually represent the buyer rather than the seller. Am I understanding that correctly?

So I'm a relationship man. So I'll find a seller who needs to sell a property. I have relationships with dozens and dozens of buyers, and I will try to find the unique buyer to bring that property to. I won't publish it on a website and have all my— let's say I have a list of 350 buyers that I have good relationships with. That's not how I would do it. If you give me a multifamily deal, it would be different people that I would bring it to than a self-storage deal or an office deal. So that's my job. My job is to make a deal happen. I get a deal, 150 units, I take it, I underwrite it, and I go through my list of buyers. Who would want such a deal? Oh, he operates in North Carolina. He operates in Alaska. He operates in California. And you bring it to those different people that you know would probably be interested in said deal.

So you're a relationship broker. I guess that's the term they actually use in Florida. In North Carolina, we have a dual agency, which is problematic in so many, many different ways and maybe going by the wayside because there's just so many legal challenges coming up against that.

I'm a people connector. You know, if, if somebody owns something that, you know, I'll put them in touch with the person who would want that property. You're a people— you're my people's person.

Yeah, that makes sense. Uh, that— yeah, that makes a whole lot of sense. So, um, you've kind of touched on it, but let's Let's go into a little bit more detail here. And why is it that the 1031 buyer can be so easily manipulated in that buyer-seller relationship?

It's so obvious in a way, but it's also so surprising in a way. You have a 1031 investor, a guy who just sold a property for $5 million that he bought for $1.5 million 5 years ago. So he has a capital gain of $3.5 million, which if he would not do a 1031 exchange, It would cost him about $1 million in capital gains taxes. So this guy looks at it and he says, look, if I 1031, then I save myself $1 million of capital gains taxes. If I don't 1031, then I lose $1 million that I have to pay. So he views it and says, I may as well just buy anything because what do I have to lose? If I don't buy something, then I'll lose $1 million. If I do buy something, then I save $1 million. So he almost looks at it, there's no reason for me not to just buy anything. And that's where the manipulation is. I don't understand that. To me, it was something very difficult for me to understand. You're still the same buyer that you were before, except you have more strength. You have more strength now. You have the funds backing you up. You have the timeline showing that you need to close in certain amounts of time. Don't look at it as, oh, I need to buy something, so whatever comes across my table, I'll buy. No. Understand your strength of position and go after the deals, and your offer will be taken more seriously. than the other 5 groups bidding on it because of who you are. Now, of course, if a guy gets desperate beyond and it's day 42 of his replacement period and he didn't identify a property yet, that's a different problem. Then you have a problem because it will cost you $1 million. If a guy is smart and he understands, okay, I'm going under contract to sell something, I'm closing in 60 days, and then I have another 45 days to identify which property I'm going to go into, you are the man. Go into it saying as such. Go bid on properties that are publicly— Like I said, that are listed publicly or call all your off-market brokers that you know and say, I'm ready to rock, bring me your deals. So that's just the way they can be manipulated. And the point I'm trying to make across to them to say that you should not be manipulated. Hope that makes sense. Yeah.

So as a buyer, a 1031 exchange buyer, well, first of all, you need to go into it with the mindset that you have something very valuable to offer the seller and not only just mindset, but also don't wait until your property is closed and sold to start looking for the next property to exchange.

Yeah. As a qualified intermediary, I couldn't even tell you how many times I got that call. Ruben, it's day 30, what do I do? I'm like, you know, this is what it is.

Why do that to yourself? Yes, indeed. Well, we're all procrastinators in one way, shape, or form, but—

Yeah.

But in 1031 exchanges, you need to get over that procrastination and get your butt in gear.

As soon as you start even listing your property to sell, You should already start looking for the next one.

Absolutely. Well, alternative investments for 1031 buyers, um, certainly real estate investing is one of those. What are other ways that 1031 buyers can find alternatives?

So when, when you're talking about when they're close to their replacement property, or just, just, you know, whenever?

Just in general. Yeah, just in general.

So in general speaking, you can't. There's, there's almost nothing you can do other than buying real Real property. According to IRS, you have to buy real property. However, what you could do is buy shares of property, not shares of an LLC, but rather shares of a property.

Okay.

It's a common strategy known as a TIC, T-I-C, which stands for tenant in common. So that's another way a 1031 investor can really be a strong person is that he can go to people like syndicators and say, what are you going under contract on? Let's partner up on it. I'll bring half the equity and I'll be a tenant in common with you buying the actual property. If you're willing to get creative, a 1031 buyer, like I said, is so strong and so powerful in the field that it can really, really be bringing a lot to the table and not just being desperate. There's no reason to be desperate. I think we'll get to this soon, but I'll hit on it now. There's a massive billion-dollar industry out there called triple net and DST. Triple net is properties that are single tenant at least, or even let's say a typical single tenant at least, that's a, let's say a CVS, that I will own the real estate and CVS rents it from me with a 30-year lease. And every 5 years the rent goes up 5% or so. And those are typical, very easy, safe investments. You're earning 5% or 6% returns and you have zero management whatsoever. DSTs, that stands for Delaware Statutory Trust, is very similar. You're buying a piece of a very conservative piece of real estate. And they in a way shape the narrative to the 1031 investment. These are billion-dollar industries that 1031 investors get bombarded from these companies and they do a great job. I have a lot of very close friends in the triple net DST industry and they do an unbelievable job. However, one downside is that they shape the narrative for the 1031 investor. So a 1031 buyer will get bombarded by a triple net. He'll start thinking, okay, the only thing I should buy is a CVS or a Walgreens or a Rite Aid or a small piece of a Delaware statutory trust that I'll own for the next 10 years, Earning 6% returns. And they almost changed their objective. Till now they were earning their 15% IRR or 18% IRR on their multifamily deal. And then all of a sudden, okay, because I want to save the million dollars of capital gains, I'm willing to take a really terrible investment based on his prior standards. So again, for a person who's retired and just doesn't want to deal with it and just wants to save the taxes, great. DSTs and triple nets are amazing. But for a real real estate investor, it's just silly. You're the best buyer. Go out there and buy something that will continue your real estate journey.

I was reading, and this was from a really credible source just a couple of days ago, and they were saying, and I don't think this is true, but they were saying, no, you cannot exchange your farm for an apartment. And I've gone, I don't think that's true. Real property is real property. Am I correct? Or was this supposedly credible source correct?

You are 100% correct. All properties can say— it was actually changed. I forget which year, but relatively recently. It used to be that you had to exchange property, specific property for specific property. And the IRS changed the rule to make it that any investment— again, it's very important— investment property can be exchanged for any other investment property. It can't be a personal home.

Right.

And it can't be shares in a property. It actually has to be real property. But if you own a single house that you're renting out to a tenant for the last 10 years and you sell it, you can then buy a piece of an apartment building. You can buy an actual apartment building. You can buy a farm. You can buy a An oil farm, a wind farm, you can buy whatever you'd like as long as investment and you're actually buying the actual property.

The real property.

Yeah.

Yeah, the deed to the property.

Well, thank you for clarifying that. I thought, I thought this credible source was incorrect there. So I'm glad to be validated.

Yes.

So tell us the difference between a greedy seller and a smart seller.

This is one of my favorite things. I got a call about a year ago. These guys call me, property's distressed. Actually also in Baton Rouge, Louisiana, big property. It was distressed, really not doing well. And they call me, they say, Reuben, property's struggling. We need to get out. Figure it out. Bring us an offer. I brought them exactly what they wanted. They wanted to make sure they weren't losing money. I brought them an equity buyout offer with a loan assumption. Perfect. Exactly what they wanted. They started looking at it and they underwrote it as though they were the new buyers. And they're like, listen, we're leaving too much money on the table because if we do it ourselves, We can make so much more. I think it was a $16 million valuation now. And on the pro forma, we could have gotten this to a $24 million valuation. So how can we take it now? We just can't. So I said, guys, you're going to take good money and throw it after bad money. You're not capable of operating this property well. No, but we can't leave so much money on the table. It's crazy. It's okay. Knock yourself out. This is a year ago. I got a call 10 days ago. Reuben, we put in $750,000 this year of CapEx into the property. And it's worse than it was last year. Last year we were 60% occupied. This year we're 48% occupied. And I was like, oh, how? And that's what kills me. Be smart. Don't worry if the next guy will make some money that you— if you're not capable of making the money on the property, sell, get out of it. That's fine. So many sellers are so hung up on every single dollar, they forget that the ultimate goal is to be okay, not to kill yourself in the deal. It was very frustrating for me to see. And I see this constantly. You bring a guy an offer at $15 million and he says, well, I think I could get $15.5 million if I go to market or if I bring it to other guys. And then all of a sudden, 6 months later, he just didn't have it. I have so many examples of this. I can go on and on and on. But the point is, be smart.

Don't be greedy.

It's not worth the extra $500,000 on the deal. Sorry, the potential for the extra $500,000 on the deal. You know, if, if there's a very good chance it's not going to come through, it's just not worth it. Be smart. Be smart. That's all.

Yeah. There's always another deal down the road. Yeah. And you don't need to make everything in, in one deal, in one sale. Well, Ruben, you've got a lot to offer investors. So tell our investors how to get in touch with you and what you specifically have to offer.

To anyone who's looking to buy or sell real estate, I'd like to speak to them. specifically people who are in the 1031 exchange world. I love getting to know more and more people in that world. I've been to all the conferences. I know all the people in that world, but please everyone should feel free to contact me on my cell directly at 347-471-3669. You can call me, you can text me, you can WhatsApp me, or you can follow my journey along with me on LinkedIn. Just search for my name, Reuben Goldbaum, and we'll learn more about real estate together.

Ruben, thank you so much for sharing your expertise and your wisdom and knowledge. It's been a wonderful pleasure having you. And enlightened investors, what a delight it has been to be back with you again today. I look forward to being with you on our next episode.

Thank you, Dr. Allen. Thank you so much.

Thank you, Ruben.

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