Robert Steele is the author of 300 Ways to Buy, Sell or Exchange Real Estate, he has decades of experience buying, selling and exchanging real estate for himself and his clients.
Tell us a little bit about you.
I got into the real estate business years ago, and when the 1031 tax deferred exchange came into the market, I found one man that was teaching exchanging. I thought that would be the future of real estate. So I phoned him and went to one of his six days classes and I was infatuated by the concept that people were more important than the real estate. So I studied his class six days in tenure. Somebody told me that retention was only 20 percent. So I took his class five times. Six days, I took it five times. The last he wanted to give it to me free and I said, no, I want to pay for it. I would take the class, go work for six months in the field, come back and take it again. And eventually I said I could probably teach his class. And years later, I did. So I learned it from a master, and I learned the nuts and bolts and every little facet of it. And then I started to expand it myself. I started living in different countries during international exchanging.
I just found that it was such an easy way to do it because you were always trying to solve a problem or a situation for people. Real estate is inanimate, the people are not. And so, as my instructor used to say, you can dance with a ranch or you can take apartment house to lunch. It’s the people that count. Everything in the book relates to people and solving something for them, using real estate as a vehicle to accomplish it.
In today’s market it’s really important to be creative. And I am so happy that I came across your book, which is, by the way, priced at $235 which is really affordable, in my opinion. If you can buy one piece of property with one of your strategies, it pays off thousands of times. It’s really generous of you to share all of these 300 different strategies to buying real estate, in today’s market especially. And also it’s very useful in the downturn. Why don’t we go over the first two strategies of your book, which you mentioned are in the most important formulas to get for the entire book.
The first one is called “Unpriced”. I want to elucidate that just a little bit. I’m not talking about the residential house market as such, that represents a huge part of real estate, probably 50, 60, 70, 80 percent of the real estate brokers deal in the residential market. It’s not one that you ever get it into the Unpriced category, that is always priced because of multiple listing services and they have been continually changing over. But in the rest of the market, the commercial investment, the businesses, those are all people oriented where the people come into play.
When I say unpriced, it reminds me of a day that I was coming back across the desert with a client one night from Blythe, California to Los Angeles. We were the middle of the desert and we were running low on gas. So in order to explain price to him, I said, what’s a gallon of gas worth now? So there’s a difference. You have to preset your price based upon people.
That old story or the adage of does a tree make a noise when it falls in a forest? It only makes a noise if there’s a person with eardrums to hear it. So with a price, this means absolutely nothing unless there’s a person that relates to the price. If you’re extremely wealthy, one hundred thousand dollars doesn’t mean very much, but it means a lot to some people. So the pricing is only in the eyes of the beholder. When we list a property, I encourage people to list their property unpriced – any price agreeable to the seller. Now they can give a range. It’s $1,000,000 to $1,250,000 or $750,000 to $1,500,000. It’s a range, perhaps, but the basic thing is unpriced. The person owning the real estate is trying to accomplish something. Now, if it’s cashflow, you want a return of some sort, how much do you want? What is the target that you need to accomplish? Now, when they get into numbers, they get into cap rate sheets and things like that. In a pure exchanging, the cap rates go away. And it’s what the person is trying to accomplish.
If you’re trying to pyramid or something, I’ll take you to number two in the book, which is called Creation of Wealth. You have a home, you have equity, and you’d like to buy another house, let’s say, to rent it. So you have choices that you either have the cash in the bank or you could refinance your house or you could borrow a second on your house. The second would give you cash and you could go buy another house with it, or a duplex. By the same token, you could create a second on the house. That’s the creation of wealth. Very simply, you could put a note in a trust deed, or computer and type out a note for fifty thousand dollars secured by a trust deed on your house in which you would trade that trust deed to somebody else that had another house that would take your trust deed so you could use a trust deed that you created without using any cash. Simply it’s a piece of paper secured by the equity in your home. It’s recorded against your title. It’s a piece of paper and the piece of paper says I’ll make certain payments on it at a certain interest rate. That’s called the creation of wealth, what you’re doing is you’re using part of your equity in order to buy another property, which you’re not going through a bank, you’re creating it yourself.
So now take that into the future. This is one that’s extremely viable. You have an income coming in the future. This strategy is called the Futures Contract for Agricultural Products. Here’s an example of one that we did. There was a big retail building, it was roughly two million dollars. We exchanged $400,000 worth of tomatoes, a future crop for the large tomato grower. We traded a futures of $400,000 worth of his crops next year for the down payment into the two million dollar building. And then every year for four more years, he traded another $400,000 worth of tomatoes.
In essence, we traded in the future, we created wealth. The crops weren’t grown yet. It was like the futures in the stock market, we simply traded those tomatoes $400,000 worth a year as the payment into the real estate. It was all done on paper. The tomatoes were delivered to the wholesaler who paid cash. The money was paid to the building owner. So we transferred to that man.
So in this example, if the price of the tomatoes went up on years 2, 3 or 4. Who gets to keep the additional increase?
That’s a great question. And it’s so neat because that shows you the flexibility of this. Those are negotiable items. You can say that it’s a fixed quantity, so many bushels or whatever they handle the deal. The deal we used was a fixed price. You had to deliver a fixed price of tomatoes regardless of what the quantity was. As long as that $400,000 was delivered in the form of cash from the wholesaler. So in that instance, it was a fixed amount. If the price of tomatoes went up, the farmer was the beneficiary. If it went down, the owner of the building was the beneficiary. But that is a negotiable between people. Again, it’s the people that count, not the real estate.
And how would we get to the owner? Because in today’s market, we are mainly dealing with the real estate agent and multiple offers. Do you have a recommendation of how to get to the owner so we could see what is important to them when buying a commercial property?
The brokers are easy enough to find. There’s a group called the Society of Exchange Counselors SEC. There’s the National Council of Exchangors, NCE. And if you type in exchange groups, you’ll find exchange groups all across the country. And therefore you can find the brokers. The clients are the individuals that are looking for the service and many times not familiar with how this business is operated. So that’s one of the benefits of the book. The book is 400 pages and it has one strategy on each page. And then some additional ones in there.
If you’re a broker, the easiest way to do that is get involved, get into an exchange group where you’re dealing with other brokers that have a clientele that already in there. You and the other one is to find anybody with problems. Everybody has a problem. There are thousand and thousands of parcels of real estate that have been on the market 5, 10 and 15 years. There’s all kinds of land. And they have a problem even though they don’t know that they have a problem, holding a piece of property and trying to sell it, and it’s not productive.
Let’s say it’s vacant land and it’s not producing. It’s losing money rapidly because of the inflation of the dollar. If I had something I was trying to market for a million dollars worth of vacant land, then it’s approximately six thousand dollars a month that they’re losing in the purchasing value of the dollar dropping. So people don’t understand that just sitting on a piece of property is not the answer, because by the time you get your money, the dollar’s devaluated and you’ve lost a tremendous amount of your equity. The same thing is true geographically where a lot of people want things close to them so they can touch them. Most of my clients don’t want anything within 500 miles of them so that they don’t have the problems that go with management and so forth with real estate. They want the real estate for the benefits, but they don’t want the disadvantages. So if you have property in another state or another country, those are difficult for the local broker to take them. But for somebody that is in the exchange world or like myself, that’s lived in other countries and so forth, we’re not afraid of that situation.
And that becomes an advantage to you because to you that property is worth so much, and to the person trying to get rid of it, it’s not really worth that much. So there’s a difference in people and how you see something.
In this economy, what are some of the strategies that you recommend us keeping in mind for?
I’d keep in mind the crypto currency that’s coming down the pike. In the last 10 years, bitcoin started, I think at one cent and is now seven or eight thousand dollars. We have a new book cover in the cryptocurrency. But let’s take a look at the cryptocurrency market for just a moment.
There’s about 150 exchanges in the world. One exchange, Coinbase, which is the biggest in the United States, has about 2,000 coins on it, a little over that now and about five hundred of them are liquid. And those liquid coins, ethereum, Bitcoin and some of those at the top. If you bought bitcoin at fifteen cents, and you bought $100,000 worth or $1,000 dollars worth. You could be what’s termed a whale. You could have a tremendous amount of wealth tied up in that cryptocurrency. Now if you go out of that crypto currency, you’re going to be taxed. But if you deal with people in the exchange field that are knowledgeable in exchange rules, they can help you because they can take a million dollars worth of your cryptocurrency and then you don’t go out of title. You keep it because that’s the goose laying the golden eggs. You want to keep that. You can use that as security to buy some real estate.
A knowledgeable broker could say, we’ll take a million dollars worth of your cryptocurrency, use it as security and wrap it in what’s called a blanket mortgage over the crypto currency and the real estate. So you’re able to use it as though it’s a million dollar down payment without going out of title. Now, the person on the other side has the security of that million dollars. You have to perform on your payments and your obligations, or you would lose it. The currency could be used as the source of security for your down payment into to three or four million dollars worth of real estate without going out of title. So that’s an example. There are actually thousands and thousands and thousands of people that want to get into real estate, that have cryptocurrency, that don’t know how to do it. It’s a huge potential market.
Is there anything else that you think our audience should keep in mind?
I would think that if you want to have some fun out of life, too, look around the world and see some of the things that are happening where you could make your investments. Take the country of Panama, which has just completed the largest project in history, the widening and the deepening of the Panama Canal. That country is going to be built from coast to coast, from the Pacific to the Caribbean, and it’s going to be solid. It’s a wonderful kind of a place to make an investment in real estate. It’s just enormous what’s going to happen there.
If you look at the real estate market and take your blinders off about having something close enough that you can touch, and look into the futures of the world, the market is just unending. And at the same time, with the political things that are happening in the world, some people feel that perhaps socialism won’t be good for real estate and so forth. You can hedge your bet by being invested in other parts of the world.
How do you ensure that your property in that country is really secure, especially in third world countries where the government may not be super stable?
I think it was Rockefeller who said that you want to buy when there’s blood in the streets. That’s very, very true. I don’t think I necessarily want to be in some of the areas, but some people find it very rewarding to get into Venezuela. Or one of the areas where they’re having problems and buying at the time, you have some of those situations right here in this country with the Detroit situation. There are a lot of those where there’s difficulty. But most of the countries where you have an established law, there’s always good attorneys and real estate attorneys that can show you the ropes. And more and more, they’re getting title insurance and so forth. So I’ve dealt all the time with attorneys and so forth in different countries and we buy and sell and trade real estate. The toughest one that I handled was Greece. I won’t do that one again. The majority of the time, you don’t have a problem. It’s that we think we have a problem. I’m not afraid of it at all.