Real Estate Investors: Why Your Heirs May Not Be Ready to Inherit Your Portfolio

Bruce Stein (00:00)
Basically, it’s all going to be the same. ⁓ Just like if anybody else is by your home even, you know who your lender is, you know when you got your loan, you know what the terms are. If you have insurance, you know who your insurance broker is, you know who your landscaper is, you know all those things. Are they written down?

You know, it’s like, you know, I always hear that, my husband pays all the bills, so I have no idea what’s going on.

Michelle Kesil (02:04)
Hello everybody, welcome to the Real Estate Pros podcast. I’m your host, Michelle Kesil, and today I’m joined by someone I’m looking forward to chatting with, Bruce Stein, who is a seasoned real estate wealth advisor, helping consult and guide investors in making informed decisions about their real estate portfolios. So, excited to have you here today, Bruce.

Bruce Stein (02:28)
Thank you, Michelle. Nice to be here.

Michelle Kesil (02:30)
Great, let’s dive in. First off, for those not familiar with you and your work, can you share what your main focus is?

Bruce Stein (02:37)
Yeah, so I am primarily working with real estate owners and investors and I really come in and I help them make ⁓ smarter decisions that hopefully will improve their cash flow, reduce taxes, but more importantly how to preserve the long-term family wealth. ⁓

And then also with the investors is make sure that there’s a succession plan in place and if there’s nobody to succeed with, to come in and run the portfolio, then they really need to create an exit plan and what will that look like? So I just provide strictly advisory. I do not do transactional work for my clients. I’m strictly advised.

Michelle Kesil (03:25)
Awesome. And where do you operate? Is this nationwide?

Bruce Stein (03:29)
I operate nationwide. Most of my clients ⁓ are from California, which is where I live. ⁓ They have properties around the country, but then I’m also very involved with some networking groups. I get people introduced to me from all over the country. It doesn’t matter ⁓ where the people live. Real estate still is real estate and has the same ⁓ benefits.

downsides as all others, doesn’t matter where the location is.

Michelle Kesil (04:02)
And what do you feel are some of the main keys that have allowed your business to grow and run successfully?

Bruce Stein (04:10)
You know, there is, I think, a lot of common mistakes that ⁓ the owner makes. You know, they wake up in the morning and their lives are driven by the real estate. That’s who they identify themselves as. I’m a real estate investor. This is my portfolio and it gives them meaning every day. But when they get older and…

they’re having to now maybe look at life expectancy. Are they making the right decisions? Are they really trying to go to more passive management properties where no matter what, they had a stroke. Could the family come in and start running these properties? If they’re actively managed, probably not. They don’t know that. So there’s just a lot of things that ⁓

and especially somebody in their late 70s, 80s, they can be doing to make their beneficiaries’ ⁓ life a little bit easier. But also when you’re…

⁓ improving your portfolio, growing it, you have to be looking at what type of properties, location, you want to be geographic, diverse, do you want to have different type of properties, depending upon that. So I will work with investors to make sure that their portfolio is more recession proof, so to speak, and also how they can make sure that the cash flow comes in on a monthly basis.

basis

and not have to work as hard.

Michelle Kesil (06:34)
And where do you see most investors maybe making a mistake or having some misconceptions that you help work them through?

Bruce Stein (06:46)
You know, a lot of times, you know, investors just, they buy a property, and let’s say they even do a 1031 exchange, and it’s a…

20 year lease with ⁓ a dollar general they get caught up and they just say okay the rents coming in but they never Sometimes think about Where is this property going to be in 15 years? Is it in the best location? The lease is coming up in two three years and they haven’t ⁓ Fought that long term, you know what happens if the tenant doesn’t renew another thing that they sometimes don’t do because

they did the exchange years ago, did they put it into the family trust? That’s a lot of areas that I come in and I want to make sure that, okay, if you have a family trust, make sure all your properties are in the trust. Sometimes they’re just not, they’re still in their name or it could be in an LLC, but the managing member is the individual. And is that by intent or are they really trying to, you know, have it stay in the trust so that when they’re

heirs get it, they don’t have to go through probate. I’ve seen too many instances where heirs have to go through probate to get the real estate and that’s expensive and time consuming.

Michelle Kesil (08:07)
So what is the process when an investor works with you? Is there a specific process that you walk through with them or is it different depending on each person?

Bruce Stein (08:22)
Basically, it’s all going to be the same. ⁓ Just like if anybody else is by your home even, you know who your lender is, you know when you got your loan, you know what the terms are. If you have insurance, you know who your insurance broker is, you know who your landscaper is, you know all those things. Are they written down?

You know, it’s like, you know, I always hear that, my husband pays all the bills, so I have no idea what’s going on.

So the first thing I work with my clients, regardless of how big their portfolio is, let’s make sure that property A, you’ve identified, like, when you bought the property, what you paid for it, what your basis is, what your current basis is in, who your lender is, what the terms of it matures, if there are anything unique about that.

Do you have a manager? How do you reach them? ⁓ Something as simple as where does the money come in? Do you have a special account for that? Who gets to be a signator of that? And those are sometimes the biggest challenges is that you forget that, if something happens to you…

who can go in and sign, take the money and put it into the right account. And I’ve had instances where something’s happened to the investor and nobody’s able to do anything with the real estate account. So it just sits there. So you gotta then focus on that.

I recommend if you have an insurance broker, try to find one who can do nationwide so that somebody is more knowledgeable about all of your portfolio and not just one property. So I work with them to try to figure out how to get the proper coverage and sometimes you get a little bit more coverage if you’re using a nationwide broker versus somebody who’s just, you you know down the street. So it’s making sure what I call it’s like creating

reading that treasure map, here’s where you go in the backyard, here’s where you dig, here’s where you’re going to find the money, and then more importantly, here’s who you have to know to reach out. And sometimes, know, beneficiaries don’t even know who the estate planning attorney is, they’ve got to go digging through that, and just like, you know, do they have life insurance policies? I just want to make it that you have a book.

that if something happens, your estate planning attorney, your accountant, and your beneficiaries all are on the same page. And then at least then, you know, the heirs then can say, okay, here’s what we have. But the big key is getting the investors to focus on the future and how can they build upon it. Maybe it’s the right time to sell. So I’m always looking at…

Is this the right property today? Can you sell it? What can you do to maybe maximize your cash flow by changing the type of property? You know, people are always looking at cap rates and sometimes I think cap rates, you know, aren’t the best.

decision making, know, it’s like, I can get a five and a half cap. But you’re, where are you going to get that return? Is there, and I always try to get them to look at, pick areas that you want to travel because you want to be able to visit your properties. So I know somebody who’s, you know, just did a 1031 exchange and why did you, they bought auto parts in Boise. Have you been there? No. You’re going to go there? No. Well, why did you buy it?

it was a five and a half cap. Everything else I was looking at was a five cap. But would you have gone to those properties? Probably. So I’m trying to get people to, the investors to kind of look at their life and saying, you know, what’s $5,000 or whatever in cash if you can’t enjoy even, you know, visiting your properties and having a reason to go there. So it’s like, why not use it as a business expense?

and travel to your properties and enjoy both parts of your life. Travel and go to your real estate. But I think the biggest mistake a lot of investors is they sometimes just, they know what they know. So, okay, I know apartments, so they’re gonna…

stay in one area and so I know people who they own hundreds and hundreds of units in Los Angeles. Los Angeles is not the best place now to be an apartment owner. The state is very tenant strong so I try to advise them maybe you ought to look about selling and invest it somewhere else where you don’t have to be dealing with tenant issues every day.

and decide what kind of life you want to have instead of just ⁓ having to manage and manage and manage your properties every day. So I try to get them to look at where they want to be in the next three to five years and how their portfolio will ⁓ be looked at then. And let’s make some strategic decisions.

Michelle Kesil (14:15)
Yeah, that’s important. So would you say most of your clients are earlier on in their investing journey or who is like the ideal client?

Bruce Stein (14:23)
My ideal client, just because part of my age, I would like to be able to work with people in their late 70s, early 80s. I can identify with them what the challenges are, trying to look at maybe what is a better portfolio. I’m definitely into when you’re at that age, you should enjoy life more. So I try to find out what their

Life joys are and saying you know you get up and spend eight hours a day with your real estate That’s what you love, but you maybe start thinking about gifting some of your money to your children especially they may need it

So those are discussions that I have it’s like why wouldn’t you want to if you’ve got 15 million dollars? Why would you want to give your children a couple million dollars you can put strings attached to it? what let them enjoy life a little bit and you can be there

watch them, know, enjoy some of the wealth that you’ve created. I’ve also found that I try to get them to talk with their spouse or their children more so that they can learn more about why they did what they did and, you know, what the legacy is going to be going forward.

But I do work with younger ones, so sometimes I just got introduced to three siblings. Their father died five years ago. The wife was very involved with running the real estate. She passed away, and now the three siblings inherited 11 properties.

They have no idea what they’re doing. They were never told anything about it. So now I’m working with them to strategize what properties maybe they should keep, what they should sell, and working with their accountants to make sure that we can reduce whatever taxes there may be. ⁓ it’s kind of an overall strategy of how do you just move forward with those people? So I work with younger people.

I have a client who’s trying to, he does fix and flips, but he does one-off. So we’re talking about maybe create a fund, a small fund where then he can buy maybe three homes at a time and then do the flips and not have to worry about where the next dollar comes from. So, you know, that would work. you know, I try to help people get a…

to a point in their life where what their goals are with real estate and how they can get there sooner than later and not make a lot of mistakes that I’ve seen.

Michelle Kesil (17:47)
Yeah, amazing. what is, and piece of advice that you wish you had in your investing journey that you share?

Bruce Stein (17:54)
You know, to have maybe focused a little bit more. So I was working for a family office and we did.

We were IRR driven, so it was always looking at, this property we can get a 20 % internal rate of return. This one was 18, and we really always went for the highest return sometimes. And sometimes it wasn’t 100 % in your wheelhouse, so the learning curve ⁓ is a little bit longer. You sometimes make…

poor assumptions on what maybe the income growth rate will be or how you can ⁓ minimize your expenses. Not knowing that particular type of real estate as well as you may know another one, you do tend to make mistakes in the beginning. Sometimes it’s very important, I think, to partner with somebody who has that skill set and rely on them. I always feel you can

know you can’t know everything so you know I do believe strong partnerships are really good but you need to be able to also make sure you pick the right partner.

Bruce Stein (19:09)
I think when people look at their real estate, people always say, well, it’s not broken, I don’t need it fixed.

And ⁓ the question I ask is if you wanted your home and all of you saw a crack in the foundation, would you try to fix it yourself or would you bring in a professional? How would you want to address that issue? And that’s sort of what, when people bring me in, they’re looking at what is their foundation of their portfolio? What is really holding it up?

You can have a little crack in one place, but sometimes one property can bring down a whole portfolio just because all of it’s going bad. And then what do they do? say, oh, I’m going to go borrow money to fix it. Well, where am I going to borrow it from? I’m to borrow it from this property. So the next thing you know, you’ve got really good performing real estate, but now you’ve borrowed against those to kind of build up a property that’s not doing as well. And maybe if you had

Better advice you would have cut and sell so part of you know what I try to educate Investors is there’s sometimes you got to look at and say this is the best time to sell the property There are some problems somebody else can maybe make more money off of it, but you know This is not doing you Service you know because you’re not going to be hurting your portfolio in these other areas

and you’re devoting too much time now to it. it’s like, look at your whole portfolio and see how it’s performing and not just, because people tend to focus on one property too much and that doesn’t help.

Michelle Kesil (20:52)
Yeah.

Right.

Yeah, absolutely. That makes sense. Thank you for sharing.

Well, before we wrap up here, if someone wants to reach out and learn more about what you’re up to, where can people find you?

Bruce Stein (20:57)
Probably the best place is LinkedIn. ⁓ My profile, it’s my name, Bruce Stein. It’s got pretty much my entire history, so it’s probably the best place. I used to have a website, but I took that down. It was just too much work, and you have to be always concerned about being compliant. So LinkedIn is the best place to reach out to me.

Michelle Kesil (21:07)
Perfect, well appreciate your time and your story. Thank you for being here.

Bruce Stein (21:31)
Thank you.

Michelle Kesil (21:33)
And yeah, for those tuning in, if you got value, make sure to have subscribed. We have more conversations with operators like Bruce who are building real businesses and we’ll see you on our next episode.