Building Wealth With Land Deals

with Tom Staub

August 18, 2022

Expert CRE Secrets Podcast

Tom oversees the underwriting of projects, financial pro formas, debt, and equity strategy, company growth, and is focused on the viability of projects, partnerships, and investor relations. Mr. Staub has more than 15 years of business experience, has owned and successfully operated four separate companies, and has been a sponsor on more than 140 deals.

His journey has taken him from bachelor’s and master’s degrees in finance to Wall Street as a broker for Morgan Stanley, to the tech startup world of Silicon Valley, and over the past seven years, the world of entrepreneurship and venture capital.

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Building Wealth With Land Deals with Tom Staub

Brett:

I’m excited about our next guest. He actually oversees the underwriting of projects, financial performance, debt and equity strategy, and company growth, and is focused on the viability of projects at Red Oak development group. He also is connected with the partnerships in Investor Relations. He has more than 15 years of business experience and has owned and successfully operated four separate companies, and he’s been a sponsor on more than 140 deals. Please welcome to the show with me from the great state of Texas, Mr. Tom Staub. om, how are you doing?

Tom:

That's right. We refer to Texas as a nation here.

Brett:

It's true. It's like the nation of Florida and Texas. It's like a whole another world. I was just in Florida over the weekend, and it's a cool spot. I've been in Texas for a while. Although I was in Dallas. Actually, two months ago, I was in Texas, saw Tony Tony Robbins at a Commercial Real Estate Event. Austin is exploding. We can talk about that here in a little bit in a minute. But before we go there, would you tell us a little bit more about your background and your current focus?

Tom:

My trade is not in real estate. In the beginning, I started off, at Morgan Stanley in Wall Street, in the consulting world, and corporate finance and tech, and in film real estate about 12, 13 years ago, as well as serial entrepreneurship, and they kind of go hand in hand, and if you look at where the markets have shifted over the last 10 years, there was a time in which you could do big flips, commercial building flip syndications on already existing buildings and make a lot of money. That time has passed. In the last two to three years, we've pivoted and focused mainly on land development where all the big margins are today. We primarily develop an Arizona outside of Flagstaff, and primarily, we're secondarily around Austin, Texas.

Brett:

Fantastic, that would be fascinating. We'll dive into all of those things, and our topic for today is basically building wealth with ln deals, and we'll be focusing on that here in a minute. But before we go there, I also want to take one more step back, I think it's kind of a cool background with Morgan Stanley, the tech background, but I want to take one other step back even before that, perhaps even when you're in high school, or early days of college. Tom, I believe we've all been given certain gifts, some people call them strengths, some people call them superpowers, I believe they're their God, given gifts they've been given to us to be a blessing and help to others. I'm curious, what are those one or two gifts that you believe you were given? How does that help how you help and bless people today?

Tom:

It's amazing, way back, I saw my mother be a phenomenal saleswoman. My dad be a relationship guy, and I knew I always had the interpersonal sales ability to do sales and probably do well at it. But I never want to be a road warrior and all that, and as you would have in real estate definitely requires networking. Some time ago, I knew I had to just pony up and use those skills and network and really form relationships that are required to do real estate deals, and I'll tell you, there's, for my experience, land development deals, even bigger real estate deals really require people to sit down over dinner handshake, break bread through drinks, and that's a skill. number one. Number two is, I come from a finance background. There's a soul Blockbuster Video of me, and I'm like five, and they asked me, Tom, what do you want to be when you get older? I don't know, but I love numbers, and that was an age five, and so numbers have always been my forte. Combining those two, I think is pretty powerful. Hybrid for these deals.

Brett:

That's really cool. Finance and the numbers background, but then also having the mom and the dad mom, more traditional sales dad relationship, and kind of combining those two, and then he cut the thing about networking, which is really neat. I had the privilege and the honor to be a part of your amazing conference that you put on recently, and I was able to speak at that, and I appreciate that opportunity. But just the high caliber of guests that you had on there. I mean, he may be shared. I kind of wanna bring that network thing to live here because it's like networking, and then there's being able to bring on and connect people on a very high level. Just share a couple of the guests that you had at your conference and maybe even plug that in for next year as well.

Tom:

We live in a nonprofit. It's called the REI Academy, which is short for Real Estate Investing Academy. We have a small YouTube Channel, but mainly we do in-person events. For no virtual events, and fourth through that network, I had the likes of Bill Danko who have written two bestsellers, 4 million copies. Michael Zuber is a best-selling author as well in real estate, kind of a big name. The CEO is of hemmerling.com, CEO Matt Owens. The real estate CPA, Brandon Hall. You were fantastic and just others. Those really are the experts in real estate investing, and I think my goal in all this nonprofit is I tell my clients as to if you work with us, you're not just getting an asset product or an asset class, you're going to get access to the tax accountants, people like yourself, and those teams, what we call the power teams is really what it takes to form the wealth, the legacy wealth, not just a million dollars, well, I'm talking multi-millions. You gotta have those teams in place, and those, this network that we have formed allows people to get that team.

Brett:

I think that's very well said that Power Team taking the networking and then actually applying it right, because it's one thing to be connected with a lot of people like, the LinkedIn days or social media days thing to take that and actually apply it practically, with education, and I like the way you put that form the legacy, power teams formed the legacy wealth because you're right, those who've helped you maybe get to the millions, maybe aren't the ones who can help you to the 10s of millions, and then 10s of millions to the billions, and I think that's very powerful. That being said, let's dive into how to build wealth with land deals. Tom, what's the number one secret to building wealth with land deals?

Tom:

I think we all know what dirt is. It's a lot more approachable than maybe like the stock market, or often trading or any of that. What land is, what a sewer line is, and water lines and all that. I think understanding what a deal looks like is a lot easier for people. But when it comes to picking the right deals, and I'll just start there, it's kind of the same as how I would look at it if you were to give your money to a rehab flipper. Want to know who the operator is. That's my team. Step one, what is your experience? How many exits have they had? How do they pick the right deals? Who is their team? What does that team experience all that stuff? I think the deal itself, and if I were an investor, I always encourage my clients to, if you're looking at other people who are doing land development deals or even syndications, ask them for their two or three-year cash flow statement, they look at p&l a lot, they look at potential returns, but they don't look at what actually matters, which is the cash flow management of that operation. Again, going back to the finance piece. I wouldn't say the operator number one, and then the project itself, but more importantly, what does that cash flow look like over the course of the project? And is that exit timely enough to secure your exits?

Brett:

By the way, you can connect with Tom Staub at RedOakVC.com That's RedOakVC.com. Understand that it's real estate. I guess in one sense, keeping it simple. It's not the stock market. It's not our history, not overthinking, and maybe that's the way to put it, and then to understand the actual deal itself, as well as the operator and asking them for, I guess, evidence or track record. Is that a fair summary so far?

Tom:

Mainly, I think what you'll find in these deals is that the numbers sort of speak to the location, and what I mean is you hear a lot about location, which is important, but it's not always the number one important factor. Yes, to your question, those are the two top ones.

Brett:

Excellent, and so let's talk about some locations too, as well. You talked about Arizona as your particular focus or niche right now. Could you tell us how you chose Arizona? What do you like about Arizona? What the future do you think holds for continued to build wealth and land deals there?

Tom:

Now it is at a very macro level. I think most of us know there's a population migration happening. That's coming from the northeast, the Midwest, even the West Coast now, as we're seeing into what is known as the Sunshine State or the Smile States. That's the study or whether pro-business anti-regulation for the most part, pro-development, that sort of mantra and when you look at who is going to be capturing most of the population growth of the United States, most people are going to tell you it's Arizona, Texas, Florida, Southeast, maybe the Carolinas up in that region. It's that smile.

We knew that real estate and land are a measure of supply and demand. It's not a complex equation. You just have to balance out supply and demand. People are moving, which creates demand. We picked Arizona for a number of reasons. One, we like pro build cities. What that means are fast approval timelines. Four to eight months to get all the permits, surveys, engineering entitlements, all that stuff. You compare that to like California, for example, and we were actually looking at Joshua Tree as a potential market more of a speculation market. But we knew that permits would be three years, and you think about today, I mean, three years from now, the mortgage rates might be 6%, who knows. You can't operate in environments that take so long to get through all those processes.

Again, pro-business pro bill, low regulation states, and Arizona, number one. Then we looked at Austin because it's kind of a brainer, I mean, we have 184 people moving here per day. If we just assume half of them require homes, you need at least 90 to work at least 45 homes to house those 90 people. I'll tell you that there are not enough homes being built in Austin to meet that demand. Conditions are very right for very strong margins in these deals, and we're seeing that as builders and developers are going out of the city core me to a point now where Dr. Horton and KB Homes they're targeting and power outside of Austin, and lands still very cheap there so us developers can capture the upside of that migration, even outside of the core city.

Brett:

You're looking at the network migration, you're looking at the Smile States pro-business, pro-development, shorter timeframes for approvals, California, where I'm located. It's like they do everything to drive the businesses out. I think it's Oracle, HP, and Tesla, Austin last year, moving all of their headquarters to Austin, Texas, in particular here saying 184 people per day, that is staggering. Then you have good states like Florida. I think Tennessee is another good one to write about Alabama, he's pretty pro-business doing really well, the Carolinas, of course, and then Arizona. That's really fast, and population migration to places that are very pro-business. Then you have, I guess, what would be the next step to now looking at. I guess, of course, it is the path of growth. It's where things are going. It's having intimate knowledge, intimate knowledge here in Austin, Texas will be the next step.

Tom:

I think, a lot of sales, but I think where we like to play, and this is where I think builders are going to the right, builders are building smaller homes with smaller lots going higher density, that's kind of the name of the game right now, and their sweet spot for the housing market work. I think it is between a quarter-million dollars for a house if you can find it to about a half-million dollars. That’s a segment that even in a recession, or downturn is still gonna have strong demand. In good times, it will have the people who rent to the low-level buyers buying in that category, too. If you think about it in, let's say, for example, like rental classes, (A) class is a luxury Grade, (B) class is kind of a standard product, (C) class is kind of the rougher parts of the city. While in bad times people from A go to B and people would B good to C. Good times C goes A, B goes to A. That B class is always in demand. It's the same sort of thing with real estate.

What we do is we find areas path of progress areas that are really targeting that quarter million, a half-million-dollar product, so that no matter what happens in three to five years, we have strong demand behind us, and in fact, I'll take it a step further in our numbers, we make sure that in crashed money, and there was a recent report. I think, from the IMF, that said, they're always measuring what potential downside could happen if all the worst-case scenarios come to fruition, and they predict in the worst-case scenario, we would see a 14% correction across really broadly across real estate. Our 20% crash scenario has to work too. Progress areas with that strong demand product and then in a crash that we still make money.

Brett:

I like how you reverse engineering that's very well said. You're starting with, what's something that no matter how the coin falls. If the economy keeps in a bull market or if it goes into a bear market, if we can focus on that 250 to 500 path of progress, Path of growth, a right segment of single-family homes and rentals or whatnot, that are typically smaller lot sizes, smaller deal sizes that are recession-resistant, because people are going from B to A and back from A to B or from C to B and it's kind of right in that sweet spot, and as long as you stick to those fundamentals, then you're pretty good shape. Is that a fair summary on that point?

Tom:

That is. Now, what's interesting is I've been too kind of a bear on the luxury market but the luxury market is doing fantastic right now so my theory could be way off. But I still don't want to be playing building $2 million homes. I mean stuck with 10 homes at that price.

Building Wealth With Land Deals: "I think understanding what a deal looks like is a lot easier for people. But when it comes to picking the right deals, and I'll just start there, it's kind of the same as how I would look at if you were to give your money to a lead to a rehab flipper”- Tom Staub

Brett:

They sit versus the home runs and sometimes it's better just like the double jump, always swinging for the fences and then making a strikeout and losing a lot. I think that's wise, and I think that's a good approach. Now let's talk about practical mounts here. $100,000 investment. No promise of future results. But like what some of your track record with Red Oak, what are you seeing there? What kind of investors? Are you looking for credit investors? What kind of gives us a little bit of feel for that offering?

Tom:

The journey of someone in my shoes gets easier over time, and mainly because the cost of capital comes down. As you grow more successful, you have more successful exits, as we've had, your people have, have confidence that you can deliver your plan. When I first started doing these deals, I had to offer 30% preferred returns, and each year, so first line profits, my debt cost was 11%. It's a very costly capital stack. Now over time, that's come down to what we're now offering 20 to 23%. preferred returns annually, and then debt cost is eight 9%, and they'll come down, more, eventually, it'll be around 18% on equity, and around six to 8% on debt, and that's kind of the standard for all the best of the best. In fact, my sponsor is part of my team now to help reduce that cost of capital. Investors long story short can expect low 20s annually if they're an equity partner. We do profit sharing on deals that we whenever we build, let's say multifamily, communities and we hold those that we offer between a 10 to 20% profit share to investors. But across the board, they're earning about a 20 to 25% return on their money each year.

Brett:

Those are interesting numbers, and of course, they're probably a lot longer deal cycles, but maybe not. Can you guys canvass the timeframe on average? $100,000? today and 20? We're recording this in October of 2021. Fast forward is 2022. What are you looking at? As far as timing? 1, 2, 3, 4 years?

Tom:

The shortest timeline is gonna be 14 to 18 months. Longest timeline is going to be 36 months? No, I tell people to think about, obviously, like it is, as an investor, that's great for you to make returns, but for me, that's an expense. I have essentially a credit card that I'm paying, that has collateralization against my assets. I'm encouraged to pay my investors off faster to reduce that high cost of capital. Basically, we backload our personal profits in the project. If it's a three-year project, I still want to hit my investor in the next few months, if it's a five-year project, the target is that three-year period of time, meaning year, because that's where I'm going.

Brett:

To clarify, it's a preferred return, but it's also equity ownership, or is it really just lending other lending the funds? Are you just paying them back? Can you clarify that?

Tom:

The important point, we kind of separate the two, so we more or less what we do, we say, think of the equity as debt more or less, you can't take the land if we don't make money for you. But if we make money, we will be able to pay you at that 23-25% rate. But you do also own an equity piece of land. If for whatever reason, we don't make money, or we have to sell it, you do get some money back from your investment.it operates in a very similar manner.

Brett:

Perfect, it makes sense, and then the profit-sharing if you were to buy a piece of land or all of a sudden, they see an opportunity to build 100 units, 300 units of apartment complex somewhere, and you make that work, then you work out a profit-sharing of 10 to 20%. On that side, is that a fair summary?

Tom:

That's just flat so that that side equity and voluntariness never combined.

Brett:

We talked about the first secret, which is, the deal itself, the operator, the path of progress, the migration patterns, and then understanding, putting yourself in a position not to lose too much. Should things switch from A, B, or C? Then it's actually now doing the deals and those are some phenomenal returns. For how long have you guys been doing it? And it seems like it is kind of a space that's a bit of a niche. It takes maybe a little more patience, a little more, let's say, understanding of the nuances between city officials movements. It's not just buying Atlanta from maybe a private person, it's working with all of that. Just explain the team that you've you've built to capture some of those challenges.

Tom:

Take about a minute or two. But the team side is really important. My team is absolutely solid. My director of operations spent 15 years at ExxonMobil, basically working with local governments to build the biggest rigs in the entire nation, so when it comes to losing politicians or smoothing local officials, He's the guy on the ground. He's a very likable man. He walks into the room and everyone described gravitating towards him. That's the kind of guy you want. That's him, and then my engineering team is they have 27 people on staff, very seasoned. Again back from the oil days, but they traditionally were in residential, very complex products developed fast, they lead over-engineering work.

My sponsor who is thinking of it as the advisor on our projects is the biggest developer in Hawaii. He has worked with Steve Wynn, the guy in Las Vegas to build those themes casinos he's one of the masterminds behind that he's also one of the biggest developers in Southern California you know doing multiplex theaters and century mark theaters hotels I mean, this guy just got back from Bulgaria building two casinos like it's next level so he comes to the table as the gray-haired man in the room to make sure that we have the experience that we need and I tell you just we're looking at a certain project housing and I five-minute call with him save me $5 million on the design. I mean, no one has a sense of right and so just those three parties alone offer enough experience to more or less Be sure that the deal goes to fruition.

Brett:

That's fantastic. A dream team. Which you can't be overstated. having that experience, having that connection with the city, having a person who's gone through all of the blood, sweat and tears to, to be at the other side of this will keep going you're going to say another point that

Tom:

I'm not forced to assume that I know everything, these people keep me honest and keep things aligned in our projects. I even have a my, my project manager was one of my first hires ever in my my life, and she was like an admin back in the day CPA by trade, absolutely meticulous on it, her sole job in our company is to manage all the project timelines and basically smack a whip and I wanted to be on the timeline. We have a dedicated resource just for that. But I think you have a question about Arizona as to why we're what our ideal was there.

Brett:

Just Arizona, you had mentioned the beginning. What do you like about talking about the migration coming in? It's not a smile, status, or pro-business. But anything else to add any other nuance to Arizona that could be helpful for investors.

Tom:

We got started in Arizona. That was the first state, and our first project was, it would have been damn near impossible to fail the project.it was our first one too. We knew we would get into lead development, and we took a chance it was our guinea pig project. We learned a ton, and I only had one outside investor and the project did not want to expose my clients to that risk. A lot of it was my own personal money, and those two, three years we learned a large amount. This is an industry that you learn a lot very quickly, and once we proved or proved the concept out there, we expanded it in Arizona now it's very dialed in.

That's why once we have those operations down and we took those learnings and we brought it back to Austin, which, surprisingly is easier to work in than Arizona. substantially easier. It's been a dream to work here in Austin, the cities are absolutely fantastic. Just today I had a meeting in Lockhart, which is the barbecue capital of Texas, and just a great community of people that really are behind you on your visions, and that's hard to find a lot of states are you think about politics and regulations, you think about hurdles in my red tape, and these are cities and councils that really want to see it come to life, so long as you got a dog park over here or you don't pollute something over there. It's been great.

Brett:

Tom, thanks for sharing that, and we're gonna shift a little bit here to our segment on focusing on Capital Gains Tax Deferral, and the background is being Commercial Real Estate Group in the business and then market, spellcheck brokerage and an eXp Commercial for brokerage and then, of course, have capital gains tax solutions, and, the story is essential that people got trapped, a lot of them did, they felt trapped, and they owe five or six or seven markets overpaid for the property, and a lot of them got hurt when that kind of the music stopped, and so we pivoted, we learned about something that's an alternative called a Deferred Sales Trust. But I'm curious, what's your biggest frustration that you found when it comes to the 1031 Exchange? And or, Capital Gains Tax Deferral as it pertains to your clients or your assets when you're selling?

Tom:

I'll be working with Brett here very shortly on our own strategy to do this Deferred Sales Trust, as I do believe in the instrument itself. But going back to 1031, I think the limitations around the light for light could be a big problem, especially in an environment where you want an oversupplied market with easy to find deals and now you're in a situation where you can't find a deal with the cash flows. That light for white parameters the short timeline to execute on a basically a bad deal right now. It's kind of bad timing 31 exchanges. I would say there's that piece and oftentimes you don't have an advisor to kind of help you through the process as you do with your product. You have a team behind the operation that can guide your clients through the process. If you go to a 1031 exchange person, they're just coordinators, they don't do anything. I think, the advisory, the timing of the market, I think just more of the nimbleness of your product is a lot better than the 1031 exchange.

Brett:

I really appreciate that, we call it the shotgun wedding. You got 45 days to get engaged in 100 days to get married, and we've all had friends or family that got married in a short period of time, and it doesn't always be a great outcome, and so you want to make sure you're finding the deal and you make the intrinsic value of it makes sense. You're buying it on the cash flow and the ability for you know, more land to be developed, and then it's also equal or greater value, which typically means equal or greater debt and all of these little parameters make it kind of like a blockbuster way of doing things can be very challenging, and so the Deferred Sales Trust is the answer if you wanna learn more about that you go to CapitalGainsTaxSolutions.com where you can eliminate the need for the 1031 Exchange.

Again, it works for cryptocurrency or for primary homes, businesses, and it's a unique way to sell high and then you can partner with the trust and buy low. In fact, you can buy land, you can develop land, and we'd have a client at Alabama and his biggest thing he was selling about 2.6 million he didn't have the light kind, but second, he's building 70 multifamily units in Tennessee and so the timing of it is broken up into certain segments at the accesses the funds during different time periods in the meantime, it's earning interest while it's waiting on the sidelines right stocks bonds, mutual funds, hard money lending so very flexible again so CapitalGainsTaxSolutions.com. That being said, Tom, we're out of time to do you want are you ready for the lightning round?

Tom:

Yup.

Brett:

All right, knowing what you know now if you go back to your 25-year-old self was the one Golden Nugget Make sure to tell yourself to do.

Tom:

Absolutely nothing, just network a lot more, get out there and surround me around, bright, wealthy, strategic people that are also high integrity.

Brett:

Beautiful. Number one book you've recommended the most in the past year.

Tom:

What's the one by Victor E. Frankl? Man's Search for Meaning.

Brett:

Excellent, and number one habit that you use to delegate.

Tom:

There's a book that Brandon Hall actually sent me but it's called Who Doesn't help. We often get stuck in the weeds about how to do things but like an out when we start thinking about who can do it for us. That's been very helpful. I also think about anything that is repetitive in nature and your life can probably be outsourced or some system or person.

Brett:

Excellent, very well said. This is part of the Rich Dad knew part of the series here we're doing is the Rich Dad Poor Dad series, where we're talking about the number one concept that you try to establish in your real estate investing based on the Rich Dad Poor Dad strategy. Any thoughts that come to mind there?

Tom:

I don't leave it in the first book. But the cashflow quadrant is really important to understand and, trading time for money, money for money. I think, if you value time, which you should, you probably want to be the year the I that quadrant, not complex, but a really powerful message behind that.

Brett:

Very well said, a second to the last question, what do you most care about right now?

Tom:

I am dying to know I'm saying so, in my world, I'm looking at commodity prices all day long. Where do I think prices will go, I think the ever grande and real estate debacle in China, thank God, we're not connected to that very glad didn't let our banks into the country. But those commodity prices are going to plummet, copper, cement PVC, and that's all good for builders and developers like myself, I mean, these prices are potentially gonna drop in half. You think about the profits there. We're looking forward to seeing where the commodities end up here in the next six to nine months.

Brett:

The last question is is Tom, after all your success, helping the people that you help build real estate doing over 140 deals? And helping a lot of people create and preserve more wealth with real estate? How do you stay centered in your values? How do you stay encouraged to charge forward to reach new heights?

Tom:

Now what a question, for me, I'm part of the 5 am Club. routine is good, personal, physical health, mental health, so not overworking yourself, and it's tough. I also have been centered mainly around business for most of my life, and I'm actually at a point where I'm beginning to shift now some of my time towards more of the relationship side of life. It's both of them bringing happiness, but keeping that balance is really important, too.

Brett:

Fantastic, and for listeners who want to connect with you, Tom, would you remind him one last time what's the best place for them to find you?

Tom:

Go to our website. All right, we have some current projects their RedOakVC like Venture Capital, RedOakVC.com

Brett:

Tom Staub, I want to thank you for being on the show. I want to thank you for sharing your wisdom about how to build wealth with land deals, and I want to encourage you to keep using the gifts that you've been given of being really good with numbers and finance and also networking, connecting with people, and bringing that into a way to add value to people's lives when it comes to creating preserving and more wealth with Commercial Real Estate Investing in land deals, and also want to thank our listeners for listening to another episode of the Capital Gains Tax Solutions Podcast also stream on eXpertCRESecrets.com where we believe most high net worth individuals and those who helped them they struggle with clarifying their Capital Gains tax deferral options now have a clear plan is the enemy and using a proven tax deferral show such as the Deferred Sales Trust is the best way for you to defer capital gains taxes and grow your wealth and getting with people like Tom stop and investing in land that's developing in the Smile States Arizona Texas perhaps even a Florida or other North Carolina where you're looking at pro business right pro wealth pro pro pro building right so pro growth is a good name for it thanks Tom. To connect with Tom and if I can help you at all as well the first one capital gains tax or look at some real estate deals in California feel free to reach out to me CapitalGainsTaxSolutions.com and thank you so much, everyone, for listening and Please Rate, Review, & Subscribe. We're also on YouTube if you're listening to this on iTunes, or we have a ton of content so get rid of CapitalGainsTaxSolutions.com and or search YouTube with Capital Gains Tax Solutions. Thanks, everybody. Take care now.