Real Estate Investors: Why Your Heirs May Not Be Ready to Inherit Your Portfolio
Show summary
In this episode, real estate wealth advisor Bruce Stein shares insights on building a resilient real estate portfolio, avoiding common mistakes, and planning for long-term family wealth. Discover practical strategies for passive income, portfolio diversification, and legacy planning.
Key takeaways
- Document everything about each property: purchase price, current basis, lender, loan terms and maturity date, property manager contact, and who the signatory is on the bank account. Without this, if something happens to the owner, heirs may not be able to access accounts or manage the properties at all.
- Make sure properties are actually titled inside the family trust, not left in an individual's name or in an LLC where the managing member is one person. Properties left outside the trust force heirs through probate, which Stein calls expensive and time consuming.
- Don't chase the highest cap rate without considering location and long-term viability. Stein cites an example of a client who bought an auto parts store in Boise for a 5.5% cap rate versus 5% elsewhere, despite never having visited or planning to visit the property.
- Pick markets you're willing to travel to. Stein advises using real estate ownership as a reason to visit properties you'd enjoy seeing, turning travel into a legitimate business expense rather than just collecting cash flow from a place you'll never visit.
- Watch for landlord-unfriendly markets. Stein specifically flags Los Angeles as a difficult place to own apartments now because the state is strongly tenant-protective, and recommends some owners consider selling and reinvesting elsewhere.
- Avoid borrowing against well-performing properties to prop up a struggling one in the portfolio. Instead, evaluate whether the underperforming property should simply be sold rather than dragging down the rest of the portfolio.
- For investors in their late 70s/80s with substantial net worth, consider gifting money to children while still alive to watch them enjoy it, rather than waiting until death. Stein references a hypothetical $15 million portfolio where gifting a couple million to children sooner could make sense.
- When heirs inherit a portfolio with no prior involvement (Stein describes three siblings inheriting 11 properties after both parents died), the first step is working with accountants and advisors to decide which properties to keep versus sell and to minimize taxes.
About the guest
Bruce Stein is a real estate wealth advisor who works nationwide, primarily from California, consulting real estate owners and investors on improving cash flow, reducing taxes, and preserving long-term family wealth. He provides strictly advisory services (no transactional work) and previously worked for a family office focused on IRR-driven acquisitions before shifting to advisory work on succession planning, portfolio diversification, and legacy planning.
Listen to the audio
“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.”
Bruce Stein
“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?”
Bruce Stein
“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.”
Bruce Stein
Questions answered in this episode
What documents and information should real estate investors prepare for their heirs?
Bruce Stein recommends creating a record for each property that includes purchase price, current basis, lender name, loan terms and maturity date, property manager contact info, insurance broker details, and who has signing authority on the bank account where rental income is deposited. He also says heirs should know who the estate planning attorney and accountant are and whether there are life insurance policies.
Why is it important to put rental properties into a family trust?
If properties are left in an individual's name or in an LLC with a single managing member instead of being properly placed in the family trust, heirs often have to go through probate to inherit the real estate, which Stein says is expensive and time consuming. He advises checking that all properties intended for a trust are actually titled there.
Is chasing the highest cap rate the best way to choose a property?
No. Stein argues cap rate alone isn't the best decision-making tool, using the example of a client who bought an auto parts property in Boise for a 5.5% cap versus 5% elsewhere, despite never visiting and having no plans to. He suggests picking properties in locations investors actually want to travel to.
What should investors do when one property in a portfolio starts underperforming?
Stein warns against borrowing against well-performing properties to fix or prop up a struggling one, since that spreads the problem across the portfolio. Instead, he advises evaluating whether it's the right time to sell the underperforming asset rather than letting it drag down overall performance.
How should aging investors think about transferring wealth to their children?
Stein encourages clients in their late 70s and 80s to consider gifting money to children while still alive rather than waiting, so they can watch their children enjoy and benefit from the wealth. He also recommends families talk more openly about the reasoning behind real estate decisions so the legacy and strategy are understood going forward.
What happens when heirs inherit a real estate portfolio with no prior involvement?
Stein describes a case where three siblings inherited 11 properties after their father died and later their mother (who had run the real estate) also passed, leaving the siblings with no knowledge of the business. He works with such heirs and their accountants to decide which properties to keep or sell and how to minimize taxes going forward.
Resources and links
Full transcript
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.
