This episode is brought to you by Presario Ventures, a private equity real estate firm based in the booming Austin, Texas, market. To learn how to invest in the future of Texas with Presario Ventures, visit info.presarioventures.com/bestever.
In this episode, we sit down with Ben Bauer, a seasoned real estate investor and attorney, to explore the intricacies of commercial real estate investing. With a wealth of experience in both residential and commercial properties, Ben shares valuable insights on deal structures, seller financing, and the impact of early exposure to real estate.
Key Takeaways:
- Deal Structuring Wisdom: Ben highlights the significance of sound deal structures, particularly in complex commercial real estate transactions. He emphasizes the importance of seeking legal counsel and networking within local real estate investor groups to make informed decisions.
- Seller Financing Strategies: When it comes to seller financing, Ben stresses the importance of detailed contracts. He recommends specifying all terms and attaching draft notes and mortgages as exhibits to the purchase contract. This transparency ensures all parties are on the same page, reducing potential conflicts down the line.
- Early Exposure to Real Estate: Reflecting on his own upbringing around real estate, Ben underscores the value of exposing young minds to entrepreneurial thinking. Encouraging questions and fostering an environment that promotes independent thinking can lay the foundation for a future in real estate or any entrepreneurial venture.
Ben Bauer | Real Estate Background
- Real estate investment lawyer of The Bauer Firm, LLC
- Portfolio:
- 8 units from single family rentals and small multifamily properties
- Based in: Cincinnati, Ohio
- Say hi to him at:
- thebauerfirm.com
- Best Ever Book: Snow Crash by Neal Stephenson
- Greatest Lesson: Success is all about mindset, courage, and confidence.
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Transcript
Slocomb Reed (03:48.246)
Best ever listeners. Welcome to the best real estate investing advice ever show. I'm Slocomb Reed. And today we are joined by Ben Bauer. Ben is a real estate investment lawyer. His firm is the Bauer firm LLC. He has also been a very active real estate investor, but has shifted away from that to focus on his legal practice. That said, he still owns eight units from a single family rental to small multifamilies here in Cincinnati. Ben, can you tell us a little bit more about your background and your career focus?
Ben Bauer (04:20.483)
Sure. Well, I think a lot of folks will know me through my mother, although I try not to hide in her shadow. My mother's Donna Bauer, who is a national speaker on notes. And so from early on, I mean, I remember going back to the 1980s, when my mom first got in real estate, she bought a multifamily in Cincinnati here. And I remember her and her brother who were partners on the deal. I was a little kid driving over there in the car with my brothers and, you know, it's basically mom trying to make everything happen, meet a roofer there to replace the roof and do the rehab and all this stuff. So I started really young in that sense, being around real estate and real estate investors. I heard a lot of names early on that stuck with me. Back then, I just remember my mom had these Charles Givens tapes. I don't even know who Charles Givens is these days, but back in the 80s, I think he was a big deal. So my mom was on the board of RIA.
I first got into real estate in 2001, not as an investor, but working for a title company. And that was kind of my introduction to things. And that title company was really focused on real estate investors. So at that point, I started being part of Cincinnati RIA. That's when I think I first met Vena. I don't really remember, but somewhere around then. And got to know the local folks here.
And at that time I bought my first house and it didn't last very long. We lived there for about two years and then that was my first investment property. I bought another house and just didn't sell the first one. And then it expanded on from there. I didn't stay with the title company forever. I eventually should, I've always been in real estate one way or another back, going all the way back to that point in 2001. But, um,
I ended up shifting and going into going to law school and all that kind of stuff. But there was a short period, it was right before the 08 crash, that's how I remember it so well, where I bought, so I had this one rental and my good friend of mine, a guitar buddy, we both played guitar and hung out all the time. He was a rehabber, not a rehabber in the real estate investor sense, but just he fixed up houses.
And he had this little thing he'd do where he'd...buy a house for $5,000 in Eastside of Hamilton cash. He'd live in it, he'd move into it. I mean, how he possibly lived in these houses that were so rundown, I don't know. But then he put his money into these houses, fix them up and then sell them, make 30, 40, 50 grand, go out to California and drive around like Moab in his Jeep for three or four months until he ran out of money and come back home and do it again. So he knew how to do that. And I knew how to find deals, I was just working with so many folks through RIA at that time. And we put our minds together. And that was my first real foray into real estate investing. And we bought a number of houses with the intent to fix and flip. But I ultimately ended up fixing and holding. So what what we have to remember is like around that 05 and 06 time, the market was still pretty good, but as we got in like 07, 08, not so much. And I was kind of chasing this number where like, if my ARV was 80, it dropped down to 72. And I got to a point where it was easier to refinance and hold only because I was chasing a declining market. Um, so I ended up with about, I don't know what the number was probably high teens or maybe 20, uh, rental properties around then.
Um, I wish I had stuck through that crash and I probably could have, um, you know, I was a lot younger back then, obviously as we all were right. Uh, but, uh, if I knew what I know now, I would have played that differently. I'm probably sitting on a pretty good portfolio, uh, just from that. Um, anyway, that was, that was around Oh wait. And then, uh, got back into things, uh, 15 or 16 and just started buying rental properties, bought a lot smarter that time.
Again, I focused on two specific geographic areas intentionally having learned that owning rental properties across the entire greater Cincinnati area wasn't the smartest idea, especially if you're cutting the grass yourself. Also mistake by the way. So I focused on two areas. I would still have those properties, but two, three years ago when the market really started to just go crazy in terms of being a seller's market, we sold most of them.
So I had these houses that were pretty much, you know, see or below inventory. And I honestly, I was worried at the time I was gonna get my money back out of them. The cash flowed fine, but in terms of just selling and getting my investment back. So like, for example, I had a $40,000 house in Hamilton that I think I kind of overpaid for, but then, you know, these hedge funds were buying up properties like crazy. I got almost 60 grand offered to me for that property, I'm like, that's a no-brainer. So just those opportunities kept coming, and I took them, and we sold most of the inventory. So we're down to what we are now. And honestly, I've been focusing more on the law practice for the last year, and that's where I'm at now.
Slocomb Reed (09:44.019)
Ben, there's a lot to cover in there. I've got a couple of questions that I thought I'd end up asking. For those of you listeners who didn't already catch on it, Ben and I know each other outside of this podcast. Uh, we're both members of the greater Cincinnati real estate investors association run by primarily by Vena Jones Cox that Ben referenced earlier.
Ben, for the sake of the questions that I want to ask, let me intro you the way I have intro'd you to people that I've referred to you to be a potential client. Ben as a real estate or real estate investor attorney is more of a litigator and a contracts guy than he is just like a title company or a purely transactional get you from point A to point B, get the property bought or sold kind of attorney. So if you need if, if there's a lawsuit involved or there's a complicated negotiation that you need to figure out how to get on paper, Ben's your guy. Is that fair?
Ben Bauer (10:54.251)
Yeah, I think that's fair. I'll step back a little bit and talk about my practice areas.
I think commonly you see two major areas that attorneys focus on, besides the niche areas. You have guys that are primarily litigators and they really don't do any transactional work and then vice versa. You have guys, or I don't mean to be gender specific, but people that are more transactional. So they're focusing on putting deals together, document preparation, LLC and entity formation, those kind of things in that what I do is really real estate investor oriented, not solely but primarily. So I do a little bit of both in terms of the transactional side. I don't do any title work but I do have a lot of title experience in my past and well-versed in all that. But for the transactional side I do a lot of note and mortgage preparation. I do a lot of contract preparation.
I do a lot of entity formation and that's usually a two-fold deal where I'm forming a company and then I'm helping an investor get their properties into the company. So, forming LLC, preparing the deeds, making sure all that gets recorded. So, there's some title company like functions in there, but yeah, I'm filling in the attorney gaps that the title company can't cover more than anything else on that end.
Litigation for me, really, you know, I do a handful of things with litigation. If it's normal, we're suing each other litigation. It's usually a breach of contract case. So I deal with those. I deal with some issues with contractors. I deal with, you know, the roof is leaking and you didn't tell me about it when you sold me the house kind of lawsuits, all things of that nature. And then there's a lot of things that are like litigation, but don't really fall in the we're suing you litigation. That's things like foreclosure and probate, even evictions.
So I touch a little bit in all those areas, but I don't really deep dive into any of them, if that makes sense.
Slocomb Reed (13:07.882)
It does Ben, given that experience representing investors the last several years, our listener base is primarily real estate investors, either actively or passively involved, primarily in apartment investing, but across all asset classes.
Speaking personally, I know that the legal ramifications of being an operator of rental real estate especially, often I fear that there are unknown unknowns. That I'm doing something wrong that I don't know is wrong until it's too late. And I am sure that feeling resonates with a lot of our listeners.
Question for you, the real estate investor attorney Ben, is what are the unknown unknowns that you have, that you've had investors come to you with that were actually problems? What are the things that your clients, the people who have come to you have done that they didn't realize were problematic? Are there themes there? Are there a few things that come up often?
Ben Bauer (14:24.743)
I definitely think there's some themes there. Probably one way or another will all stem back to just having good foundations in place. From the landlording side, probably lease preparation, the actual document itself is gonna be one of the big aspects that are important to get right from a foundational perspective. So what you don't wanna do is just pull a lease off of the internet. Leases are state-specific.
Ohio's going to have laws that are different than Kentucky, that are different than anywhere else. There's some uniformity, especially with the Landlord Tenant Act. There's a model act that a lot of states have adopted, but some of them adopted in full. Some of them adopted with their own little variances, and some of them don't really follow it directly at all. So you want to be careful.
And then there are things that I don't even know where they come from, but they end up in leases and they just really don't belong there. That could get you in trouble. Things like attorney's fees provisions. Well, again, Ohio, the Ohio Revised Code specifically says you're not allowed to collect attorney's fees as a landlord. So if I've got that in my lease and I'm before a magistrate and the magistrate sees that that's it.
To me, that's just a red flag to the magistrate to be on lookout for other things that are problematic. I've now got a strike against me before the magistrate. That's not necessarily wrong per se. I'm not gonna go and force that attorney's fees provision, right? But all these little things do add up. And I don't know if I've seen many that are catastrophic. There's some deals that, you know, where somebody truly did get something wrong, but it's not that they didn't know.
Well, it's always got each situation is unique, right? Nobody's trying to intentionally mess anything up, but if they get counsel early on and make sure that at least on the first couple, certainly the first deal that they do, it may cost them more to have an attorney involved or have a, or even, it doesn't have to even be attorney. I mean, like formally, I'd always recommend getting counsel, right? But even if you're, if you've got somebody else that's done this a number of times who has had their attorney look at it, you know, and you're working off some of their things, like I'm thinking of a mentorship kind of relationship where you've got a seasoned investor. Make sure you just get, you're on a good footing when you start leasing or doing whatever you're doing. I think that's 90% of it.
Slocomb Reed (17:03.714)
That makes a lot of sense. You were saying earlier that the vast majority of the litigation you do ends up resulting from breach of contracts. At least, at least the lease agreement would be an example of one of those contracts for sure. What other kinds of breach of contract issues do you, do you come across in your practice?
Ben Bauer (17:32.515)
The most common breach of contract case is a seller that decides they don't want to sign, they get seller's remorse. That's pretty common in real estate investor circles just because by nature we tend to buy distressed property and we tend to buy it under market. Why? Because that's how we make money. That's what we do. But they signed that contract for a reason.
Maybe they didn't want to deal with the property anymore. Maybe we were taking on problems that they couldn't deal with. It's not necessarily as simple as, well, why didn't you just listen on the MLS, right? But for whatever reason, usually they decide they can get more money from someone else they decide not to close. So they can either say, we want out of the contract or they can just stop answering the phone. But either way, the next thing coming for me is a demand letter saying, you gotta perform on the contract, sign the contract, you're gonna breach the contract and we're gonna sue you to enforce the contract if you don't pick up the phone and call us.
And then ultimately that'll go into litigation. Kind of going back to your last question about things that you could do, the wording of your contract becomes really important at that point. If you get to the point of litigation, you wanna have some things in your contract that position you really well, not just to win the case, but to make your case a high settlement value. To me, that's things like an attorney's fees provision. So we talked about in the lease idea, at least in Ohio, you can't have an attorney's fees provision.
But in a real estate purchase contract, you absolutely want the attorney's fees provision. And that's huge for a settlement value, because now they're going, well, wait a second. I might be willing to roll the dice to see if I win this case, but I'm not sure I'm going to. And if I lose, now not only am I going to be forced to sell the property, but I'm going to have to pay their attorney too. So now that's much more likely to result in a settlement where somebody offers money or just comes to the table. Maybe they'll even say, you know, we had a proper contract at 90, we really want 95. Now you've at least opened the door to have that conversation versus they're going to go sell somebody else. So all of that stuff plays together. I kind of got off track a little bit there, Slocum, but hopefully that answered the question.
Slocomb Reed (19:57.939)
Yes, that's very helpful. It makes a lot of sense that that's the most common breach of contract that you're litigating. Another way to ask us a similar question that I probably should have asked the first time is what, what are the mistakes that you're seeing real estate investors making outside of not having a quote unquote bulletproof lease? What other mistakes are you seeing that investors make?
Ben Bauer (20:07.447)
Yes.
Slocomb Reed (20:31.838)
and then come to you to help clean up for them.
Ben Bauer (20:36.447)
Yeah, I don't want to say that it's always a document issue, but boy, that is the most common issue. If you're dealing with anything complicated in deal structure, so not complicated is I'm just buying and I'm financing it. No problem. Or I'm selling and you're giving me money at closing for whatever it is. Complicated to me would be something involving multiple parties, maybe sandwich lease, particular sandwich lease option, anything to do with like a land installment contract where you still have a seller in the picture, even though they only have a little bit of rights with respect to the property, and then maybe you're trying to sell it to somebody else. How do you put that kind of deal together? Anything where you've got carry back financing, wrap mortgages, those kind of things. As hard for me as a real estate investor, I'm so DIY minded, and I think we all are, and that's like one of the greatest assets we have as real estate investors. But this is a situation where these aren't things that you want to DIY.
Maybe your second and third time around, but again, your first time around. So it's not just the document itself, but the actual structure and what makes sense and what works. Get good legal counsel, or again, at least be talking to other folks that have good experience. It's difficult because even with folks with experience, sometimes I see, you know, we've been doing it this way for 20 years. I'm like, you have, and you've been lucky that it didn't blow up. It's the wrong way to do it. But...
You could talk to folks, especially in your local real estate investor groups, and get a good sense of who knows what they're doing and who doesn't. And that's word of mouth too. I think that's really important, the networking aspect. In our local REIA, before the meeting there's a little period of time where we can all kind of congregate and talk. I get more out of that than anything else I do in terms of networking. I see good old good friends, good old friends, not their old, but good at them. And it's good to catch up with those guys, especially some people I haven't seen in a while. But then they'll put me in touch with other people, you know, like I'll say, I'm working on this, or I'm looking for this, or I might even have a client that needs something, and they can put me in touch with the right people. So that network is how you find those people that are the ones that know what they're doing. And believe me, your peers and your friends in the real groups know.
Slocomb Reed (24:30.486)
Ben, one thing that's been very popular among real estate investors recently, again, across asset classes and across property sizes and values has been seller finance mortgages. Do you have some recommendations, do's and don'ts on how to structure that seller financing and a purchase contract?
Ben Bauer (24:52.631)
Sure, so I take you to mean, as a real estate investor, I'm buying and the seller of the property is going to take payments for some of that money over time. I'm not thinking of in terms of my exit strategy where I'm trying to sell and I might finance to a buyer. That invokes, just as a quick hint, yeah, yeah.
Slocomb Reed (25:10.51)
Correct.
Ben Bauer (25:13.195)
That invokes some federal lending laws, Dodd-Frank and things like that, at least potentially, that are a sticky wicket. That's a whole different conversation. In terms of just buying on terms, the way I usually structure it, I call it out specifically in the purchase contract. I probably go into a lot more detail than most, maybe most attorneys, I don't know that, but definitely most contracts I just see generally. So...the contract itself, how you pay for the purchase price is going to have a few components and that they may vary from transaction to transaction. You may or may not have earnest money. In Ohio, it's not required to have earnest money. So if I don't have to pay earnest money, I'm not going to put it down. Beyond that, you're going to have money due at closing. That money due at closing could be getting a loan. That money could be seller financing. That money can be cash out of your pocket or any combination of those things. So I'm calling out specifically in that how to pay the purchase price section. So purchase price is $100,000. I'm going to call specifically out how all that's paid consisting of bullet point one, earnest money deposit in the amount of $5,000 payable within concurrently with execution of the contract, maybe within five business days, three business days, some amount of time, but more or less now. Then however I split up the next, each is going to be a separate bullet point. Then maybe bullet point two is seller carry back note and mortgage in the form attached is exhibit A. So now I'm actually putting the note and mortgage that I want into the contract as an exhibit. It's not signed when you sign a contract, it's signed at closing. But I do that because I don't want any question about, well, you said there wasn't going to be a prepayment penalty. And we agree that we're going to do 80,000 in terms over five years, you know, 5% interest rate, you can make it up whatever you want to on your terms. But even if you agree on that base set of terms, there's still a lot of things that could be left open to interpretation. I don't want any of those to be an issue after we sign the contract. That's why I'm attaching a draft note mortgage to the contract. So there's just no question. The seller can't come back two weeks later and say, well, this isn't what...this isn't the terms I agreed to on the note, because you're always going to go back to the contract and say, look, this is what we put on the exhibit. We put it there to say, these are the terms, down to every last thing. This is the actual document we're going to fill out and sign when we go to closing. So I do that. So you'll have those specific bullet points. And then at some point, if there's any money left over, and they're made or payable in cash, all that's at closing other than the earnest money.
Really, the rest of the contract, I'm not going to deal with the financing. I deal with it all in that purchase price area.
Slocomb Reed (28:17.762)
Sounds like the biggest piece of advice there is to make sure that you're upfront in writing about exactly how the terms of that seller financing will work, including going ahead and having the mortgage and note drawn up so that the seller is aware, not necessarily signing them when they sign the contract, but is aware of exactly how they read when they're signing the purchase contract to make sure that they are cognizant, comfortable confident with what those terms are at the closing table.
Ben Bauer (28:48.631)
That's exactly right. And it's not, I mean, this is a theme throughout, kind of contracts generally, whether that's a purchase contract or lease or anything else, I err on the side of granular detail. And I think I'm a little bit unique in that, certainly as a real estate investor. Again, I don't know so much as an attorney, but that's the right way to do it. Anytime...
The tough ones for me are when I get into litigation and you've got your boilerplate, ideally two or three page real estate contract, because you want it short enough for sellers to sign if you're meeting them on site, right? But invariably there's a little section toward the end, usually a few blank lines where you could write in other terms and like I might see...you know, a purchase contract used to buy or sell on say a lease option. And I'll just write in the purchase price in the main part of the contract. And then at the little part of the end, sale to be a lease option. And and without more information, you need you need a monthly payment. You need to know how much of the payments credited toward the purchase price, if any. How long is it going to be before the option can be exercised? And when does it need to be exercised by?
Who's responsible for repairs? Does that get tacked onto the price? All those things. Who pays taxes and insurance? So those little sections where you handwrite things in are good, but bear in mind that they're not, you can't change a contract using just that little miscellaneous section. And you got to be careful. You got to be real thorough if you do. Again, best practice. It's hard because if you're on site with a seller or a buyer, you know, and you want to get that contract signed right away.
I get that. Sometimes you don't want to lose a deal. But at least then come back and do a proper amendment after the fact that spells everything out. Again, that's a time to get an attorney involved if you're not sure. I'm going to call out every term that is pertinent. Anything that I can think of, I'm going to be very thorough about it every time. That would be my advice to folks.
Slocomb Reed (32:19.17)
Ben, last question before we transition the episode. I wasn't aware of your mother being a famous real estate investor or you growing up around real estate as an investing as a child. I am a full-time real estate investor with young kids though. And I'm trying to bring them up around what I'm doing professionally. And there are some values, some, some things I want them to learn from experiencing me working in real estate. What iImpact would you say now looking back on your childhood experience? What experience, what, what impact would you say that, uh, being around the real estate investing activity of your mother is having on you professionally now as an adult.
Ben Bauer (33:05.907)
That's a good question. As you were asking the question there, I was just kind of thinking back on things. I did exactly opposite of what my mother did. My mom always said, you don't want tenants, trash, or toilets to deal with. And so she always did know she didn't want to own the houses or at least that was their focus, right? And what do I do? I buy a bunch of rehabs, fix them up. I don't do any notes and then end up with a bunch of rental properties. And I think there's this aspect of, I don't want to just be in my mother's shadow, be in my parents shadow, for better or for worse. It took me a long time to realize that my mom is just really a fountain of knowledge.
I'll call her nowadays on a complicated note deal. And I just, can you just reality check me on this? And I'm not asking for legal advice. I'm just like, have you seen this before? Because I get some weird stuff, as I'm sure you can imagine. I think being a parent, you know, I've got two young kids too. I think it's about them being exposed to the ideas, entrepreneurial mindset, most importantly, whatever that is, it doesn't have to be real estate investing, just this idea that I don't need to be stuck in this rat race of a job. My entrepreneurial business right now is really the law firm, and that could be a job, but I've opened up my own firm and gone that direction, so it's very similar in that sense. I think it's important for the kids to see that. And other than that, just foster their...
Anytime they have a question, encourage the questions. They'll be excited about it on their own. Well, I would never, obviously, push it or force it or anything like that. Just encourage it. Always foster that environment. I think that's the most important part.
Slocomb Reed (34:58.934)
That makes a lot of sense. Ben, are you ready for the best ever lightning round?
Ben Bauer (35:03.135)
Let's go for it.
Slocomb Reed (35:04.354)
We're running a little long. We're going to have to keep this quick. So it's just two questions this time. What is the best ever book you recently read?
Ben Bauer (35:12.983)
Oh, Peter Zeihan, a Z-E-I-H-A-N, the end of the world is just the beginning. Great stuff about population demographics, what's really going on in the world will change how you look at things.
Slocomb Reed (35:30.73)
And what is your best ever advice?
Ben Bauer (35:35.595)
This world works not when you go after things for your own benefit, but when you look to others and ask what do they need and how can I help them. And then you will find that all the things that you want and that you need are taken care of as you meet those other people's needs.
Slocomb Reed (35:55.166)
Last question here, where can our listeners get in touch with you?
Ben Bauer (35:59.427)
I am at benatthebauerfirm.com. Bauer is with an E-B-A-U-E-R, and you can get me at 513-322-2400.
Slocomb Reed (36:08.47)
That link and that phone number are in the show notes. Ben, thank you. Best ever listeners. Thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show. Leave us a five star review and share this episode with a friend you know we can add value to through our conversation today. Thank you and have a best ever day.
