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Succession Planning

In a world that’s becoming increasingly specialized, who can help you step back and see the big picture? Ross Rubin and Peter May join us to discuss how they help their clients do just that, and explain how a Delaware Statutory Trust can be an excellent vehicle for real estate investors who no longer want to be a landlord.




Full Episode



Ross (00:00):

This just in, not all information that's on the internet is completely the complete truth.

Adam (00:06):

But if it's at the top of the search results, it's got to be right. Right?

Ross (00:09):

That's right.

Adam (00:18):

Welcome to episode 10 of Keeping It Real. I'm host Adam Tabaka today, we'll be discussing succession planning with Peter May and Ross Rubin. A native of Houston, peter studied accounting at St. Louis university. His 20 years of experience as an investment advisor with DST Sherpa, serving clients nationwide with their real estate planning and succession needs. Peter is a tennis lover, art aficionado, an avid proponent of paying it forward. A native of Media, Pennsylvania, Ross studied finance at the university of Florida and earned his MBA at UNC Chapel Hill. He has 17 years of experience as an investment advisor, serving clients nationwide and has grown his business each and every year. Ross is a husband, a father of two daughters and enjoy spending his weekends at his daughter's soccer tournaments. It's my honor to introduce to you, Peter May and Ross Rubin. Guys thanks for joining us today.

Ross (01:11):

Thanks Adam. Glad to be here.

Adam (01:12):

So tell us real quickly, each of you how'd you guys get into this line of work. What drew you into becoming investment advisers.

Ross (01:22):

Well, for me, I'll lead off. I was, as they say, Army volunteered. I actually took over my father's practice back in 2004 under unfortunate circumstances. He suddenly and unexpectedly passed away back then. So I was living down in Atlanta and then came back up here to the Philadelphia area to take over his practice. Speaking of succession planning, which we're going to get into that was a big issue and glad that I was able to carry on that legacy from him.

Adam (02:01):

Got it

Peter (02:03):

For myself, Adam, I got into the business at an earlier age of doing the normal route of accounting CPA back to law school, the tax bug bit me. And from there worked with a family office and a couple of other high net worth situations where it was always fun to figure out and determine what people's success plans and succession plans are. Because at the end of the day, you're either selling it to Uncle Sam, your employees, your kids, or a key employee, take your choice and helping people figure that out is my pay it forward approach. Because I've been blessed with knowledge and to be able to share it and help somebody with their family, with their legacy to me is a gift and a privilege.

Adam (02:55):

Good stuff. Good stuff. Now, what do you guys think is the biggest misconception about what you do?

Ross (03:07):

I think from my perspective is with the advent of these quote unquote robo advisors, that everything is cookie cutter, one size fits all. And it's quite quite opposite. In fact, 180 degrees different, everyone's fact pattern is unique and their, as we say, their current reality is unique and their ideal, what they're trying to achieve is unique. So our approach is really to treat that as it is due to the uniqueness of everyone's fact pattern. And that is what I see out there as a big misconception. And I appreciate the question, Adam.

Adam (03:51):


Peter (03:53):

I would tell you that I will build upon what Ross has said, is and I've looked at a number of robo advisors and easy plans and I've yet to find one that answers the dilemma that fair isn't equal and equal isn't fair. And it doesn't also ask the probing question of who took whose truck when they were four years old and that emotional trauma has been following that family forever in its private business, caring for grandma, whose sister liked whose, whose brother liked whose. And I feel that I am a little bit of an expert because I'm the seventh of nine children in a good old fashioned Irish Catholic family. So I understand politic. I understand the union involvement in sibling rivalry.

Adam (04:47):

Very nice. Those are key things to understand when you're dealing with your clients, for sure. Now, for each of you, what do you think is the most underappreciated aspect of what you do for your clients?

Ross (05:04):

The fact that quite frankly, Peter and I, we strive really to get a, it's a hack needed expression, but a holistic approach and understanding of the clients. It's not about a number it's not about having x millions of net worth by a certain age. It's really quite frankly, about helping the client achieve their ideal, which goes far beyond what their net worth level is. It's about the legacy they want to leave, whether it's to their offspring or grandchildren, et cetera, or philanthropic tendencies or what mark do they want to leave in this world for future generations.

Peter (05:59):

And I would just add onto that, that as people become successful and move here to there up the ladder or whatever, probably a misconception is this takes time it's probing. And it will dig deep into is some of the stuff that you've been hiding Adam in your closet, but you didn't know you were hiding it in your closet. And you have the ability if you take certain steps, kind of like you're doing right now, we're recording this so we can share this with others. So hopefully we will change somebody's mind or help them grow their mindset in a way that allows them, seems profound, but change the world one person at a time.

Adam (06:51):

You got very ambitious there. I like it. I like it. Now, when you guys are working with clients, you use a four quadrant approach to serve them, to help them determine their needs and the best strategies to achieve their goals. Tell us very briefly a bit about that four quadrant approach, what it entails.

Ross (07:14):

Yeah. Yeah. And so the four quadrant approach is really our striving to look at someone's situation from a non-siloed approach and the four quadrant approach. The four quadrants quite frankly are tax planning, cash flow, investment positioning, and estate preservation. And we believe that anything that can impact anyone's world in any way comma financially will flow up into one of those four quadrants and be interdependent and collaborate across those quadrants. So that we're looking at all four aspects. Because quite frankly, that's where we've we found the gap is people have experts and expertise in those pockets within those four quadrants, but really who's taken the 50 or a 100,000 view foot viewpoint to help make sure all of that is coordinated in that type of a fashion. So that's at a high level what the four quadrant approach is. And Peter, do you want to drill down on that a little bit?

Peter (08:34):

I think, I think that hits each of the quadrants and the components very succinctly. The question that we will pose is okay, Adam, who's specializing in being your generalist. My wife's in healthcare. So the part I would drill into is to say, you may have eyes, have you go to a dentist, but then who's your generalist. Who's your internist, the person who's looking at the big picture of your body, your mindset, your general zen. And that's what we do because the world is very much go here for this, go here for this. And it's not that they're avoiding each other. It's just there isn't anybody marshaling to make them talk to each other.

Adam (09:28):

So do you guys actually have that, like if somebody's working with a tax planner and with somebody on the estate planning side, are you actually coordinating between the advisors or are you kind of giving your clients, here's what you should do to connect them? How does it functionally work by working with them.

Ross (09:50):

Yeah, no, that's a great question, Adam. It really varies and depends on like I said in the beginning each client's situation is different and their relationship with their advisors may vary. So we can be that intermediary or we can be the one whispering in the client's ear to help them communicate more effectively with their existing advisers and along the lines, giving our input and expertise on around how those four areas coordinate with each other.

Peter (10:29):

Which segues into the, if you're starting with the four quadrants, what we end up producing for the client is a blue print. And the blueprint, if Adam wants to spend the time because he knows his attorney and his CPA and you're do-it-yourselfer let's say, you're a go-getter, you're an entrepreneur. But you want somebody to write up the GC, the general contractor bid that says, here's what you need. We're happy to help you with different pieces of it. At the same time, you may prefer to do it yourself or to be involved. So it depends, we're helping you rebuild, expand and improve your house. You tell me how much you do or don't want to be involved. Do you want to hand the keys, move out of the house for six months and come back to home improvements, residential division or whatever, where you're seeing all these things. Or would you rather be active in every step of the way. Your choice, because it is your life and we're not trying to change you. We're trying to help you.

Adam (11:43):

You're not trying to change me. Huh? Okay. Well that's good.

Peter (11:46):

But we start out that way. If if over time we have to slowly adapt you, that's a little different. But no, there isn't subliminal messages. We try to be very upfront and sometimes the conversations are a little bit in your face.

Adam (12:01):


Peter (12:01):

Then here's what has to happen. And you know, it would be kind of as you age, you may start getting a little gray here. Well, to, depending on whether you like it, gray or dark or whatever, we're certainly not going to have you color your beard. So it's jet black, if it's never been that way before. So that's the do it yourself approach to help you help yourself.

Adam (12:27):

Got it. No, that makes complete sense. And I mean, I think the service that you guys offer and provide is critically needed in today's world. Because as everything becomes more complex and more highly specialized. Yeah, like you're saying, nobody's talking to one another and you know, A's telling you this and B's telling you that. And yeah, I think this is a phenomenal service that you offer to your clients.

Ross (12:56):

And that and the fact with the proliferation of what's go, you know, Google, thanks to go... You know, you type in a search-

Peter (13:05):

I know everything, I've got a phone.

Adam (13:06):


Ross (13:06):

If you type in a search term and you get five billion answers and what happens is a lot of times people get analysis paralysis. And there's obviously not. This just in, not all information that's on the internet is completely the complete truth. So I know that comes as a shock to you, Adam, to hear that. But that's part of the problem with what we're dealing with in today's world.

Adam (13:36):

Well, but if it's at the top of the search results, it's got to be right. Right?

Ross (13:39):

That's right, yeah. Because they're paying to be there. Absolutely. Yeah. They're paid extra.

Adam (13:45):

Well. So drilling down on the real estate end of things, that you guys do. Many investors accumulate multiple properties over their lifetime and from whether it's investing or just inheriting whatever. And many individuals who have multiple properties, don't have a succession plan for the investments that they've built up. And so talk to us a little bit about where you come in and what you guys can do to help folks like that.

Ross (14:16):

Peter, go ahead. You take this one and I'll follow up.

Peter (14:18):

Okay. So as you're acquiring, as you're building up and going from one property to two to three to four, you're building your wealth. At some point, as Charles Barkley says "file their time as still undefeated." You're not going to live forever. Your property and your investments can live forever, but what's your succession plan? What are you going to do? And many people haven't thought through that. And one of the areas that we work within is the world of 1031 like kind exchanges, which is supported by a technique called a DST or a Delaware Statutory Trust.

            So it allows the individual to exchange and I'll use a quick example. You've got 10 properties, four are phenomenal, four are doing good and you've got two dogs. They've gone up in value, but the cashflow hasn't, what do you do with those? Well, you can sell and replace via the 1031 exchange technique. But what if you can't find a replacement property, the DST, Delaware Statutory Trust is a product that qualifies for 1031 protection that most people just are not aware of. They've heard about it. You may have studied the 1031 in your real estate license course, but you're not completely familiar with how it works and what the advantages are.

Adam (15:58):

So what are the advantages-

Ross (15:59):

Yeah. That's good. Hey, great question, Adam. Let me also add on to what Peter was saying on the DSTs and 1031. The DST is a form of a 1031 exchange. One of the advantages, quote unquote advantages is it allows the investor to go from active management to passive management, meaning there's institutional real estate. Okay. That's number one, that we are able to give access to accredited investors to institutional level real estate, such as an Amazon warehouse, such as medical office building, net lease retail, self storage facilities, those types of things that are usually packaged in the 50 to a hundred plus million dollar range. And the investors become fractional owners of that DST of that a hundred million dollar property. Their million, let's say is lumped with 99 other investor's million dollars.

            And I'll just use million as an example. The entry point into DSTs is a 100,000. So it's pretty reasonable, especially in this market. So they're able to get access into this institutional real estate. Our role is really to help them figure out from a fiduciary perspective is a DST even right for them? Is that in their best interest? Okay, so we are not product DST salespeople, we're fiduciary advisor. So first and foremost, we help the client determine whether a DST is in their best interest. And once we do that, then we're able to help them with the advantages of the passive ownership of still maintaining monthly cash flow from the investment and helping them put together a portfolio. Like I said, a $100,000 entry point per DST. Even if you had $300,000 that you were 1031-ing into a DST means you can do up to three different DSTs. Which gives you a nice broad diversification, both geographically and also potentially by property type. So it combines what we help do and highlights what some of the advantages are to the real estate investor.

Adam (18:52):

Thanks Ross. Now kind of a follow up question on this and Ross, both you and Peter, you both touched on kind of the fact that everybody's situation is different, but painting with broad brushstrokes here. What does the ideal client for whom the DST would be right? Who is it that a DST is typically going to be right for?

Peter (19:21):

I would say first place that would be right for is a person whose in later years in retiring 65, 70 years old, they have a property. It's a rental, it's a million dollars. They bought it for a 100,000 because they've owned it forever and they want to sell because they don't want to actively manage, but they also don't want to pay 300,000 plus to Uncle Sam. So that would be check the box number one. Number two, even a younger person. They sell a property for a million and they went to Adam and found that perfect replacement property. But Adam, the perfect replacement is only 800,000 because we know they're not going to pay extra cash because people invest in real estate hate paying cash out of their pocket. So you sold for a million, you repurchased for 800,000. What do you do with that 200,000 a boot?

            Well, Adam can shag around trying to find that extra amount or find the property matches up or you could just lay off the 200,000 into a DST. So that would be the second component which we call table scraps. And then the third area of a person that would be a candidate would be anybody and I say anybody and everybody that's doing a 1031 transaction because it's a great backstop. You don't know when these are going to fail, meaning you sold a property, but you're trying to find a replacement property.

            And it's a great educational tool for people who are thinking of so selling properties. I'm not going to sell Adam because I don't want to pay the taxes. And I don't mind getting 20,000 a year, a 2% return on my million dollar fair market value. I'd rather keep that and cut a check for 300 grand. Here's a great tool to educate because the person selling the property may only want to roll 750 into the DST because 250,000 was NOLs, net operating loss, carrying it forward and you've seen those before. So retirees, active owners and every anybody else. Those are the three places where it applies.

Ross (21:53):

And I'll add an asterisk to that anybody else or any of those three categories. And I mentioned this earlier, but I wanted to reiterate the investor for DST needs to be accredited, needs to be an accredited investor. And for those who are not familiar with it, it really is either you have a million dollars net worth excluding your home residence or you have income of $200,000 if you're single or if you're married, that income requirement is $300,000. So that is what an accredited investor is. I just wanted to put that in. And the reason is DSTs are securitized real estate.

            They're reg D offerings under the SEC. And those are the requirements that the SEC bestows upon us. And again, and that's another reason why DSTs you need to work through a financial professional investment professional like Peter and myself in order to transact in DSTs i.e., You can't call up a DST provider and say, "Hey, put me down for a million, please" they'll refer you over to an investment advisor like Peter or me to help facilitate that. Again, that's just what the SEC, how the game is played. So I wanted to make sure that people were aware of that.

Adam (23:21):

Oh, it's an excellent, excellent point. And then when we're looking at these and I'm sure each investment vehicle is a little bit different within DST. What are kind of the cap rates or the returns that we're looking at? What's kind of the range of returns that we're seeing typically.

Ross (23:40):

Yeah. That's the million dollar question these days, right? I mean, generally now we're looking around 5% monthly and 5% annual return for cashflow. And that gets paid out monthly. You look back a couple years ago that was a little bit higher seven or 8%. However, that 5% potentially a portion of that could be shielded from income taxes. Because of the there's non-recourse debt on these DSTs, which triggers depreciate, which triggers potential shielding from income taxes. So in other words, that 5% maybe on a tax adjusted basis, seven or 8%, and that really just depends on each individual DST. And that's something that we help counsel and coach our investors on.

Adam (24:48):

Good stuff. Peter, any final parting thoughts here?

Peter (24:54):

I guess the parting thoughts on this are the more you learn and the more you know you don't know, and that's a constant cycle. And so where we try to reach out is to educate through channels like this, and we appreciate the opportunity to pay it forward educationally. So that the realtor, the CPA, the attorney knows how these opportunities work, because what is it, 10,000 people a day are turning 65. The demo graphics and we're in a retirement world, well, of that 10,000, how many of those own real estate? And one of the reasons in closing that we do this is it weaponizes and makes the advisor, the Adams of the world more value added. So when you're having conversations with your clients, your prospects, your family members, you can ask those questions of, so what are you going to do with this when you're 70 years old, 75 years old? Are you really happy with chasing your property that's in California while you're living in Florida? Because remember you moved to that state to not pay taxes. That's my little dig in there. And education never is a bad thing. That's my close.

Adam (26:18):

Never. Ross final thoughts.

Ross (26:22):

Yeah. Look, the DST opportunity is provides a very interesting solution, exit strategy. Look, it's not for everyone, but it for the right investor, it can be a lifesaver and a huge cash saver, taxer deferment saver. So if anyone's on the fence or know anybody who might be on the fence, they're sitting on a pretty big gain on their investment real estate and have been hesitant. You know, this is time to think about it. So that, that would be my final thought for your audience today, Adam.

Adam (27:08):

Excellent. Well, Ross, Peter, thank you both so much for joining me today. Everybody out there, if you've got questions, we're going to post their contact information on the following slide, go ahead, reach out to them. They know exactly what they're doing these guys are great guys. Thank you both so much for joining me today. Appreciate it.

Ross (27:27):

Thanks Adam.

Peter (27:28):

Thanks Adam.

Adam (27:28):

My pleasure.


Adam Tabaka

Long & Foster Old Town Alexandria, VA - Realty
400 King Street
Alexandria, VA 22314
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