Pierce:

Our next guest is the founder of Totem Capital Group in Texas. He started this company in 2014 and they are a real estate syndicator they have invested in over $50 million of single-family, multifamily and they have over 600 doors. He also has another company that he started called San Antonio Real Property LLC, which is a single-family home acquisitions company. He graduated from the University of Incarnate Word with a Bachelor of Science in Business Administration and spent over 12 years in IT leadership roles. Most recently he served as an executive for several Software as a Service (SaaS) companies where he was able to successfully grow and exit a company. He lives with his wife and children in the San Antonio metro area. Please welcome to the show with me, Ruben Dominguez. Ruben, how are you?

Ruben:

I’m good.

Pierce:

I’m doing really well. I’m super excited to have you on the show. Thanks for taking your time. Go ahead and tell the listeners a little bit more about you and your story?

Ruben:

Sure. So my name is Ruben Dominguez. I am from San Antonio. Actually, I’m not from San Antonio. I’ve been here since about 2003. I’ll give you a quick story. I was a corporate guy who worked for corporate IT for a long time. I was middle management, we ran some support organizations for some large IT companies here based out of here in Texas. I had a very stressful job the whole time, I was looking for a way to get out of the corporate world and have a little bit more time. I had little kids at the time they were growing up, I was missing a lot of things that they were doing, I get home, my wife would tell me all these cool things they did. I said, wow, I wish I could be there for that. So, I really started looking for a vehicle to accelerate my retirement. So, I found real estate, we started doing single-family rentals, probably back in 2009. We did a whole bunch of those. There’s something called the BRRRR Strategy. I won’t go into what that is. But I found that trick on single-family and I started doing it over and over and over again. In about 2014, I looked back and said, wow, we did a lot of work, I probably work. It was like working two jobs getting all these single families done. We did some flips and some other single planning strategies and real estate investing. I was not that much closer to my goal of freeing up my time and being able to quit my daytime job. So I started looking for another way to do that. It was really multifamily. So commercial real estate and so a couple of years later, we decided to start investing in multifamily commercial real estate. I invested passively for a long time, which means I just put my money into other people’s projects and let them do all the hard work. Then we started going active in about 2017. Since then, about 18 months after going active in multifamily investing, I was able to quit my W two jobs and at that point, we had exited a few companies and I had made my way to like real upper-level management so my time was very limited and so multifamily is a great way for me to leverage my time because I didn’t have to go out and do all the work. But when I got active it was like Okay, it’s time to quit because being active in multifamily As it’s a full-time job going out and buying these big buildings. So since then, we’ve acquired about, we’re in about 600 multifamily units. We’ve got a couple of other acquisitions coming down the pipe right now. We have some pretty lofty goals for 2022 in the multifamily syndication world. We’re excited about what we’re going to be able to do this next couple of years.

Pierce:

Well, that’s awesome. You mentioned something that I’ve been hearing time and time and time again, and that is that mainly a lot of with the people who decide to go from single-family to multifamily is like they realize that it’s hard to scale. Even if you do the BRRRR method, it’s a lot of work. At the end of it, you’re not that much closer so you’re definitely not the first person to tell me that is, and that’s why I moved to multifamily. That’s interesting that you’ve also experienced that. I want to take you back a little bit, before we kind of get into everything. You mentioned a few kinds of key things here. But I believe that everyone is given a set of special gifts, some call them strengths or blessings or spiritual gifts. they help them kind of get to that point to achieve their competitive advantage. So, what are your special gifts or spiritual gifts that you’ve had that have helped you get to where you are?

Ruben:

I am very good at finding people that do things better than I do. I’m not really that great at one thing. But I’m really good at finding, my strengths are really operational. I’m a spreadsheet guy, I like to look at spreadsheets, and I like to analyze things, I like numbers. I’m not great at some of the other things like my communication. I’ll give you an example, my communications right now, with my investors we send out an update every month, we send out a quarterly update. I have found that my style of communication is very blunt and very dry and that’s not really something somebody wants to see every month. They want to know the good things. I want to know some of the challenges we’ve had on some of the properties, but they really like, I’m not great at it. So, I actually found someone that is really good at that. I say Hey, can you just do this for me? Even in my corporate career, I found that surrounding myself with people that are better than me, and finding really great people, for our staff is a key to our success. I think that’s really one of my gifts is. I know when somebody is going to be really great at a job and I can find them and say hey, I think you’re going to be great at this job. It’s your skill, it’s your strength, and then we bring them on the team and they end up doing really well. That was the same in the corporate world. So that led to all of my success so far.

Pierce:

It’s delegating without letting the ego kind of get in the way of I’m the boss or whatever. You give people autonomy and trust them. Leadership is one of your greatest skills, which is amazing. Good leaders, everything rises and falls on leadership.

Ruben:

It’s hard sometimes to let go of, I want control over that. It may not be the way that I would do it. But the way that I do it, it’s probably not as good as the way that they would do it, even though it’s not my way. Let them do their thing because they’re good at it. As long as we get 80% of what I’m looking for, I’m good with that. So we call it the 80% rule. Get it’s 80%, then we’re good like shipping.

Pierce:

Definitely. Well, that’s good. So it sounds like you’ve actually studied a lot of leadership, or was this something that’s just been innate? it’s just been the gift. Have you cultivated this gift at all?

Ruben:

A little bit of both. One thing, my corporate career they provide a lot of training, a lot of leadership training. It was already kind of something I just had an A and like a skill. But because of that training, I was able to make it even better, and I got some tips along the way. We took some training, I had a lot of teams at my corporate job. I made a lot of mistakes too. It wasn’t that I was great all the time. I made a lot of mistakes and you learn a lot from making those mistakes. So I think it’s a little bit of both.

Pierce:

Definitely. So before the show, we were talking about some tax strategies and where you’re at and how you were wanting people to kind of get in, and you were having some issues. So if we know now that you are a phenomenal operator, you know what you’re doing? You’ve got 600 doors. Let’s dive into this capital gains tax problem and how is it hindering your guys’ growth? Then you mentioned that you don’t actually pay tax on any of your oil for a very minimal amount. So I’d like to dive into that a little bit. So first of all, what is the biggest frustration that you’re finding with the capital gains tax? How is it affecting your guys’ business?

Ruben:

So it’s really not the buildings that we’re buying? It’s really we have, so we raise money from investors. We’ll bring on additional investors and a lot of times when we have a live project, we’ll get people that contact us and say, Hey, I’ve got $300,000, and I’m selling some single-family and I want to tax for 1031 that into your project. They’ve already got the 1031 going. I would love to be able to say hey, yes, a new investor come on our projects, you can 1031 and I think the challenge that we have is, there’s a lot of paperwork that comes now we can do it. It’s definitely possible. I know there are some people that do it, I do that just say no, never, no 1031s into our deals we can do it’s called a tenant common agreement. it’s just a lot of legal work. It’s gonna add some money to the legal bill, it’s gonna add some complexity, it’s gonna maybe some of our other investors might question like, Hey, what’s this other thing I see on the paperwork, like, who’s this other owner? So that’s the challenge we’ve had. So right now, unless somebody is coming to the project with a million dollars, plus, we won’t even look at 1031 money into our projects. So that’s been one of the challenges we have had.

Pierce:

So it’s really just the extra complicated legal tax work. If it’s not a million, it’s not worth your time.

Ruben:

Not really worth it. So for 100k, it’d be tough for us to go to the attorney and say, hey, we need a tenant common agreement. I think more than that is, our other investors that don’t know what that is, they’ll see this tenant, we have to disclose that, obviously, on our documents, and I don’t want them to be confused. Then we have a philosophy at our company that we got to make this as simple and easy to understand for anyone. Because if it gets too complex, a lot of people are like, I don’t know if I want to invest in that. So that’s the lifeblood of our company and won’t keep it easy for investors. A tenant and common agreement kind of add that complexity. They might question it, like, what’s this? how does that work? Then we have to go back and explain it. So I think it’s more of that. Then the legal fees, although there are some pretty significant legal fees that go with that as well.

Pierce:

It’s the complexity that it creates in the deal. At a certain point, it’s just not worth it. But if it’s big enough, you’ll kind of suck it up, because it’s a good enough chunk.

Ruben:

If we can get a big investor in there, and it’s a win for them, it’s a win for us. But if it’s just 100k 200k, something like that, the legal fees alone might just not be worth it. Then the add to the complexity one we have, we have a waiting list. Usually, for a project, we could just say, it’s $100,000. I got another guy over here that can put $100,000 and he’s on the backup list. Usually, we’re just saying no to those at this time.

Pierce:

So you’re turning away business.

Ruben:

I know you’re supposed to tell me the solution to that. I would love to hear a little bit more about that for sure.

Pierce:

Yeah, so what we propose is a strategy called the Deferred Sales Trust. it’s a totally different tax code. It’s tax code, IRC 453, which is essentially a seller carry-back and the quick version is before you guys close on a deal. Then you interjected an unrelated third-party trustee. So let’s say, you bought a building for a million bucks, you’re gonna turn on sell for five. So, after closing costs, and all that kind of stuff, depending upon how much you’ve depreciated, I mean, you would pay probably close to a million bucks, maybe a little bit more in capital gains tax, so that’s not great. That’s 37% to 40%. We do need people to pay a tax of course. So if there’s a big initiative out there right now that needs a lot of tax dollars. So if you want to be a part of that it’s possible that’s fine. We don’t want to pay that. I don’t want to pay that. So I don’t either. So what we do is instead, we interject this unrelated third party trustee, which is Capital Gains Tax Solutions, that’s the role of the company. They buy the asset for 5 million and then they turn around they sell it to the buyer for 5 million. So they’ve got no game. So they bought for five and they sold for five so no game for that. If the buyer then funds the trust, however, they’re going to fund it, whether it’s gas or financing, or whatever the case may be. Then the trust turns around and they write the seller a note for 5 million. Before they’ve structured everything they set up, like what’s your wealth plan? How much do you want to invest? What’s your preferred rate of return? Then they’re able to invest it into different asset classes. So you can invest in stocks or bonds, or mutual funds or real estate when you want, you can invest it into cryptocurrency, and you’re not limited to like-kind assets, you’re also not limited to the 45 days to identify 180 days to close the shotgun wedding. Like you don’t have to, you don’t have to find something immediately get engaged and then get married 180 days later, you can time the market. So there’s a bunch of benefits, it gives you liquidity diversification, it gives you cash flow, you can dip into principal when you want it gives you tax flow, you can control when and when you want to receive funds when you don’t. So it’s like a water spigot you can turn it off, you can turn it on, but you can go back into real estate when you want. the cool thing is you get a new depreciation schedule. So those guys that have that $100,000, or whatever, just could JV partner with their trust, and just invest in your deal. They don’t have to go through all that other stuff. So, it would open up a lot of different possibilities for your clients who are like wants to invest in the deal. But we’ve only got 45 days to figure out how we’re going to get this huge legal issue going on with this tenant in common and explain to all of my other people what’s going on? it’s just a, it’s just a better strategy. There are no time constraints, there’s no lifetime, there’s no replacing debt, there’s no depreciation schedule travel. So even if you did a fat cost segue study at the beginning of the first couple of years, recaptured a bunch of that depreciation, you don’t have to worry about that. So it’s a phenomenal solution for all of these different types of deals. The other thing is, I’m sure you’ve run into this, but some of your clients probably have partnerships or syndications where they don’t necessarily want to move together. Because they don’t like each other anymore, or whatever the case may be. It happens all the time. They’re done with Timmy and John, you’re done with each other, There’s no way to move. Unless they move together, they got to move as one. With the DST, you don’t have to, one person can do 1031. One person can do a DST, one doesn’t have to do anything, they just pay the tax. So it gives you flexibility in breaking up those syndications. Then you can just kind of sit and park your money and wait for the timing and whatnot. So it gives you a lot of flexibility and control.

Ruben:

I’m definitely going to be sending you some business.

Pierce:

We’ll have to send out a webinar because I’ll say the one caveat with this strategy is that it’s a little bit complicated. Each individual is unique. So it requires education. Kind of Fisher, which people are skeptical about. They’re like, how do I know you’re not gonna take off and run to Mexico? I know it’s legal. How do I know if it’s, and I’m answering the same questions over and over and over again everyone? It’s like it’s new to them. When we have a phenomenal track record of over 3000 closes, 12 random audits from the IRS, no change, no findings on all of them to formal audits from the IRS, no change. No finding audit by FINRA, no change no findings. So phenomenal track record comes with lifetime audit defense. It was just protected because the guys who created it are proprietary, and they didn’t they wanted to build a track record. They wanted to pave the road without getting arrows stuck in their back. So they kept it very kind of secretive in the house till they built it. Then they proved it. Now we’re taking it to the masses.