3 Degrees of Freedom

Ep 174 - Becoming a Truly Hands-off Investor in Real Estate with Brian Burke

• Derek Clifford • Season 3 • Episode 174

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Today we are joined by veteran real estate investor Brian Burke, who over his 30-year career has acquired over $800 million in assets without losing investor principal. Brian shares the secrets behind this remarkable track record, from his conservative approach to leverage and focus on boosting net operating income, to the proprietary software he built to streamline underwriting and asset management. He offers sage advice for those looking to get into passive real estate syndications, underscoring the importance of sponsor selection, deal evaluation, and understanding fundamental commercial real estate concepts. Given today’s shifting market, Brian advocates a “watch, wait, and build” approach focused on risk management over aggressive returns. Tune in to hear his outlook on where real estate is headed and how investors large and small can position themselves to profit when the time is right. It all adds up to indispensable insight on becoming a truly hands-off investor.

Connect with Brian thru the social links below and learn more about his business:
Facebook: https://www.facebook.com/praxcap/
Instagram: https://www.instagram.com/praxcap/
LinkedIn: www.linkedin.com/company/praxcap
Website: www.PraxCap.com

Unlock 3+1 degrees of freedom (time, location, financial + health) with our 5-Point Blueprint! https://elevateequity.org/podcastgift

If you really enjoyed this content and are looking for more, you can continue to learn more about us in several different places for free!

If you'd like to have a FREE copy of our 7 Ways Commercial Real Estate Syndications Protect and Build Wealth, simply click the link below. We are here and vested in your long-term success! elevateequity.org/7waysEbook

Welcome to the three degrees of freedom podcast, where we explore lifestyle engineering with our expert guests to bring you in alignment with your own three degrees of freedom, location, time, and financial independence.

Derek:

Hello, everyone. Welcome back to the show today. We are fortunate to be joined by Mr. Brian Burke, a long time veteran in the real estate landscape. If you don't know about Brian, I don't know what rock you've been hiding under, but he's had a remarkable 30 year career. He's acquired over 800 million in real estate assets, including over 4, 000 multifamily units and over 700 single family homes and utilizing prop proprietary software that he personally has developed subdividing land to home construction, to investing in passive real estate syndications. And his superpower is not losing an investor's principle, not a single dollar over 20 years of investing through various market cycles, including 2008. If I'm doing my math, right. His wealth of knowledge and skills align with our core themes in the three degrees of freedom, which means binding location, time, and financial independence within the space of real estate investment as a vehicle to achieve them. Quite an introduction, Brian. So thanks for bearing with me through that. How are you today?

Brian:

I'm doing good. I'm just going to try to live up to all of that.

Derek:

It's okay. It's very hard to live up to some chat GPT assisted introductions here, but I just wanted to give the audience also a little bit more of a background, why this is a special podcast for me. Brian is one of the very few people that I very much looked up to and, still do. But especially back when I was getting started, he was podcast episode number three for the very famous podcast, bigger pockets. And he's since has been on three more times after that. And I'm sure there's going to be more appearances as well. And he and a few other syndicators and a handful of elite bunch of folks, are ones that I have very much looked up to and wanted to emulate. And these days, I can't say that I'm at Brian's level, but he has definitely helped pave a path for me. And so Brian, I just want to take a minute to thank you for all your contributions to the space and being so open, and helping to set the culture for commercial real estate and for real estate in general. To be such an open landscape for people to learn from and grow their own personal finances.

Brian:

Man, if that's helped you get to where you are, then that's a huge win for me. So that's awesome.

Derek:

Congrats. Yeah. Thank you so much. So let's start out where I like to start out with all of my guests on this podcast, which is which of the three degrees of freedom, location, time or financial, do you feel the strongest in right now? And which one do you feel like you want to develop

Brian:

further? Oh man, you know, I think, I think I've done pretty well at all three of them, although I would probably say. You know, I don't know, maybe my best one is, my location freedom, just because, you know, I, I have a second home in Maui, Hawaii, and I spend a lot of time there and, I very frequently will work day after day from out on the beach with my toes about. Through six feet from the waves that are coming in on kind of poly beach and no one knows I'm there. You know, I, I, they, they all might think I'm in the office because. The same phone will ring the same emails will go out. And I can do almost anything from out there that I can do from right here in the office with 3 computer screens and all that that I'm looking at right here. I think location freedom definitely, I would say, has, been an incredible enhancement. to my lifestyle. Financial freedom comes from all this hard work. I'm finally in this spot where I, I literally don't have to do another thing and I can live just fine for the rest of my life. So I feel really good about that. The time freedom thing, that would be the one I'd have to work on. I think, the most, cause I tend to be one of those. I've got to do it myself kind of people. You know, it's funny how I can't tell you how many times somebody has asked me, did you really write the hands off investor or did you have a ghost writer? And I'm like, no, literally I would get home from the office at 6 PM and I would write until almost midnight. And I did that every day for nine months. I'm like, so I tend to really like to do a lot of stuff myself rather than delegate. I'm not the best delegator. So that'd probably be the one thing I should spend some time focusing on.

Derek:

So I think it's worth spending a little bit of time here on this before I move on, because I feel like folks who are real go getters run into this conundrum also. You have some location freedom, you've got some, you know, financial freedom for yourself, but it's this time thing. In order for you to keep up with all your commitments, because as you grow as a bigger person, you start taking on more commitments. And usually that means bringing on other investors as capital, which means at least, I'm not sure how you treat this, but for me, that is top priority. It's goes way beyond my own personal needs. And so that changes your relationship with how you do things, which means you want to clamp down and control even more. So. I wanted to ask you, Brian, what things, if you had to start working on time freedom for yourself right now, what do you think you need in order to buy some of that time back for yourself? And to give you some hints, I use virtual assistants, obviously. I'm sure you have a few or have thought about it. Also AI and project management systems for internal tracking of items. What types of things do you think would be useful for you to expand on to get some more of that time freedom?

Brian:

Well, see all that hocus pocus stuff is for you, young cats, you know, us, us old guys, you know, we're out here. I still have a typewriter, I swear to God, I still have a typewriter. Stuck on a shelf in the back storage room of the office hasn't been used in about 15 years, but I still have the darn thing. You know, it's like, I don't know. I don't really, I don't use that AI stuff. I don't even know how, you know, there's, it's interesting when I read articles about all this stuff you can do with the AI. I'm like, whatever. I mean, we do use it. For like, rental price management and, you know, in our property management side, but, you know, on the, on the capital side, I just don't use it. So I've tried to think about this myself to, like, you know, how could I improve, you know, my time management and, you know, I just have a difficult time. That's probably why I need to work on it more. I don't have any VA's never have, I had like 1 or 2, like. Kind of doing little things here and there, but that's pretty much it. I got, I've got a great staff. I have employees that work at a desk in an office. If that's not as old school as it gets, it's like people are like, what? You still do that? Yeah. And it works. So, yeah, you know, I, that's a really, really good question you pose and probably one that I need some young cats in the office to help me figure out how to work all that. That

Derek:

sounds awesome. Well, I think it's something to explore because I will tell you right now. It is possible to do it because you can travel the world as long as you have some boots on the ground partners in some of these markets you can do your position as managing the asset or managing the, the property management relationship and sending notes to investors and fielding calls and then getting more investors and all of that stuff can be done remotely. You know that there's a way to systematize a lot of this so that you can take out some of the guesswork and put a system into substitute for yourself. Because if you can systemize some of the decision making, it's very possible for you to be able to buy back some of that time freedom. So maybe, you know, we could talk about a little bit more, after the show is over if you'd like, maybe to give you some ideas so that you can set some goals for 2024 in that role, I'm already taking notes. That sounds good. All right. So one of the things that I was super impressed with in reading your bio and getting to know you a little bit more before the show, and prepping for it, is that you've had many, many market cycles that you've went through without losing investor capital nowadays. Like if you were able to achieve that just through this cycle alone, that would be an accomplishment. So can you walk us through a little bit about what you're thinking about when you're looking at an investment while keeping that perspective in mind, going through multiple market cycles?

Brian:

Well, I think the success or failure of most investments is written into stone at the time the investment is made. And it, you know, how you set that thing up has a lot to do with how difficult it's going to be to survive an adverse cycle. Case in point is, over the last, Couple years, maybe last 345 years. It's been very common to use, bridge debt with short maturities, to finance multifamily and commercial real estate acquisitions. And, the problem with that is, is that. Three years when that loan matures is the blink of an eye. I mean, it seems like forever. I remember being in high school, three years seemed like an eternity, but as soon as you take out a 20 million loan, three years is like dinner time. It's already been three years. So, you know, if how you set up your capital structure in the very beginning will have a lot to do with, how likely you are to sleep at night. When adverse markets rear their ugly head. And so, you know, we've I've always been a little bit conservative about how we finance deals. I taken a little bit of aggressive stance on taking interest rate risk, meaning that I use floating rate debt over fixed because of yield maintenance. I trade interest rate risk for yield maintenance risk, which has paid off 100 percent of the time until maybe right now, this might be the one situation where Take care. Fixed probably would it maybe would have been a better decision. It's still hard to tell yet. I won't know for a couple more years. But, I, I like to have low leverage points kind of in that 60, 65 percent loan to value ratio space. So that way when something. Adverse happens. You can survive and get through the other side. Also, very important is having a lot of cash on hand. We tend to raise a lot of capital reserves to have on hand for times like this. So, yes, I've survived multiple market cycles, including the deepest one of. 0809 and got through without losing a dime of investor principle. Here we are again in another adverse cycle. I plan to do exactly the same thing. Obviously I can't claim it until after we get through the other side of this cycle. But from where I'm sitting today, I, I don't see, that we're going to change our record.

Derek:

So can you talk a little bit also about, I mean, I hear you loud and clear on the debt and capital being cash rich. can you also talk a little bit about when you're putting these deals together or these investment opportunities for folks, whether it's for yourself or for people that follow you, what are you looking for on the NOI side? Like, are you looking for specific trends on the acquisition? Again, I hear you on the debt, right. And you know, being able to go in with 60 percent leverage, means that. You can exit through a refinance if things go really bad, right? You have plenty of room to figure stuff out without much equity in cash. Um, but what are you looking for performance wise over the pro forma for, you know, uh, a five year, uh, period? And in this market cycle, what do you recommend that LPs start looking for to get a truly hands off investment? Well, a lot of it

Brian:

depends upon the type of investment you're making and what your risk profile looks like as well as your time horizon. So, you know, to make a blanket statement would be somewhat inaccurate. I mean, however, you know, generally we look for some ability to improve the income stream through some kind of physical or management enhancements, whether that's remodeling units, painting the exterior, just firing the manager and getting a new person there, whatever it might be that I think is a problem we can fix. We want to fix it and we would hope that fix would improve the income of the property. That's the biggest one. I don't focus. A whole lot on expenses because there's only so much you can save, you know, generally it costs what it costs and you should be efficient in the way you spend money on your expenses. But you know, when you come in there and go like, Oh, we're going to totally clean house and we're going to cut expenses by 50%. And it's like, yeah, no, you're not. but you can increase income infinitely. So I focus more on the income side about what can we do to enhance the. Appeal of this property so that as units turn over and we rent them out to new prospects, those new prospects are willing to pay a lot more because the property is better than it was when we rented it to the current prospects and over time, the income will shift. That gives us a little bit more insulation, you know, against, downturns, but it also contributes to, growth in the value of the property. And obviously that's the end result that we're looking for, right? Is several years from now to be able to sell that property to profit. But I can't say like, Oh, we look for X percent. Lift or anything like that, because it just depends, you know, if you're buying a class a stabilized property doesn't need a lot of work, that percentage of increase might be lower and the risk might be lower too, because you have a really high quality tenant profile versus a lower quality tenant profile where you're really looking for a really large bump because the property is so underperforming and yet there's elevated risk because you have substandard, resident profile and just all those kinds of things. So it really is very deal dependent.

Derek:

Right. Now, would you, how would you consider, if you were an LP right now, and I'm pretty sure that you are actually an LP in, in different, many different syndications out there. How would you approach a conversation with a syndicator who, has promised the world, right? Well, first of all, maybe you don't put yourself in that situation already. Yeah, I don't. I just pass. Yeah, exactly. But, but I wanted to ask you, like, how can, you know, smart investors who want to put their capital to work in this day and age, which is smart right now, because a lot of distress is coming down the pipeline, at least that's what I'm starting to see. There will be more, we'll see more and more of it as like some of these banks start to lose their flexibility to extend out loans. And, you know, some of these three year terms that you're talking about are now starting to expire when they bought them at sky high prices. What would you recommend for LPs to look for? If they want to deploy capital nowadays, is there anything specific, from their point of view that or any advice that you can offer them? And maybe you can take some advice from your book, the hands off investor. Yeah.

Brian:

Sponsor selection is critical. So if you run into a sponsor that's promising the world flat out right then and there, you know that they're, they've lost touch with the reality. It's not just. Not the right group to invest with. There's no sense in even trying to talk sense into and just move on and invest somewhere else. But outside of that scenario, what you're what you're looking for is you're looking for somebody. That brings a wealth of experience and, and you want somebody that brings experience in that product type in that market, full cycle experience, meaning they've actually bought and sold, not just bought, and never sold, you know, you want to know they can land the plane, not just take off. And and also market cycle experience. You know, you want, you want somebody that's been around long enough to have had their rookie mistake phase of their career on someone else's dime, and has learned enough to make really wise decisions and how they manage the asset that you funded. So it really is it. It all comes down to sponsor selection. Once you've really nailed down, you know, a list of sponsors that you feel very comfortable with that, your research and due diligence has indicated they're very competent and, more likely to have a successful outcome than not, you know, then it's just a matter of. looking at the deal that they're presenting you and determining whether or not that deal meets your risk profile, your time horizons, your various suitability requirements on, you know, is it the type of thing you want to invest in? Is it, you know, is it a 10 year deal and you're trying to use three year money? You know, that might not work, you know, they're just that type of stuff and trying to make sure that you find a really good fit. Because the one thing about A passive investment is indication is it's a long term relationship, and you need to make sure that you're getting into one that you can live with for a while.

Derek:

So there are some sponsors out there, that I've looked at their opportunities and what I've seen is absolutely stellar returns. Like. On paper, it's super easy for you to compress that cap rate at the end. I think, you know, most savvy, I think, you know, what I'm talking about, people who are not, who are just starting out probably don't know what I'm talking about with cap compression on the exit, but basically it means you're inflating the value of the property when you sell it. Because normally value of the building is based on the net operating income and then the fair market rate for whatever the properties go , for that amount of profit in that market. And if you start throttling that profit upwards towards the end, it artificially inflates like the projections of what you're expected to receive when you go, when you exit the property. And what I want to underscore here, Brian, and get your opinion on is that there are operators out there. Who will intentionally say, look, this is a 14 percent IRR, which is on the lower end, and the return is going to be in seven years. And then when they actually go through the operations, they consistently do over 20 percent returns and rich and give back capital or go full cycle in five years. Those are operators that you want to be working with, the ones that understate versus the ones that overstate, which is saying, Oh, you know, we're going to, we're going to go in there and in year one and two and three, we're going to go, you know, 7 percent rental increases, and we're going to compress the cap rate because it's going to be, and we're going to refinance in year three and everything's going to go perfect. And here's what our exit is, right? And so I wanted to get your thoughts on trying to identify those, you know, the former. of those types of sponsors rather than the latter? How can you, like, what are some tips and indications? Maybe you've already talked about it in your, in, in, in what you talked about just before this, but, do you agree with that or do you have any opinions on what, what I was just explaining there? Well,

Brian:

you've nailed it. That happens all the time. And generally one of the easiest ways to spot it is just by how long they've been in business. If they've been in business for. You know, a couple of years, two, one, two, three, four or five years, they haven't had a chance yet to prove that this pie in the sky underwriting is going to translate to actual dollars, right? And actual returns. Everything is based on projections and, you know, to their defense, it's not like a lot of these guys are lying to you, they may truly believe. That cap rates are going to compress and they're going to be able to get, they're going to be able to bump the rents 500 across the board day one, because they've never actually tried to do that and seeing that, you know, Hey, Lisa's role at various times throughout the year. And it really takes like 2 years to get, you know, your, your rents up. Right. It doesn't happen overnight. You just can't do that. You can't go in day one and increase everybody 500 bucks. You're gonna have empty property and a bunch of lawsuits. So, you know, they just might not know. So to me, when you hear those kinds of promises, it, it tells me one thing straight off the bat, they're either brand new and don't have any idea what they're doing. Two, they're just a total fraud, which is a lesser, that's probably lesser times the case or three, they just haven't been doing this long enough to really understand, where the numbers are. And so, you know, looking at how long they've been in business and then asking them, well, show us the results of some of your full cycle deals now. But here's the problem if they've been in business for less than. seven or eight, maybe 10 years, they've only done business in an upmarket. And so their pie in the sky projections may have actually even come true because that rising tide lifted all boats. But today you're not seeing that same thing happen. So, how people perform on deals that they sell. Three or four years from now that they bought two or three years ago on those rosy projections is really going to show you, who was way out of line.

Derek:

Yeah. And also who is dedicated to hold through the storm, right? Because. You know, we all know the old adage that real estate just goes up in value over time. You just have to hold on. I've always found that to be true. And maybe, you know, you have to really try to actually make a mistake over the long period, over a 15, 20 year period. Right. So perhaps like one way to look at it is that the staying power of the operator or the willingness to stick with the investment, no matter what it takes. That could also be, you know, one, one measuring stick that you can look at. Is there anything else to consider for LPs to when they're, when they're just entering the market now, especially if they're newer?

Brian:

Yeah, there, there's a lot of things to consider. In fact, there's 350 pages of things to think about that I wrote about in the hands off investor. That's why that book is as thick as it is because there's alligators in the pond all over the place and you got to try to hop over their backs and not end up in their mouth. Okay. You know, I think the big one is sponsor selection. The next big one is how the deals are being financed. You know, you really want to look at the capital stack and determine what your position is. Are you common equity behind, first Bridge loan followed by a mezzanine loan, followed by preferred equity, followed by yourself in common equity. Or are you first in line right behind, say, 10 year maturity agency debt? Those are two completely different risk profiles. So given the same projected return, you know, you know which one I would pick. You know, I would definitely pick the one that has a lower risk profile. Yeah.

Derek:

Very good. I wanted to underscore here too, for those who again, have been living under a rock or just don't know, or you're new to investing the hands off real estate, the hands off investor, is a fantastic book that you've got to pick up from Brian. It's being, it's published at bigger pockets, correct?

Brian:

It is. Yeah. You can get it at biggerpockets. com forward slash syndication book.

Derek:

Absolutely. An essential read for anyone who wants to diversify their portfolio into real estate or any related field. Is there anything else, Brian, from the book that you want to underscore that maybe can help people that are listening today?

Brian:

Well, I'll just kind of dovetail back onto something you said earlier about people over promising. One of the reasons why Some sponsors over promise or even just have high projected returns is because they're trying to entice people to make that investment, right? It's like their performance and track record might not be enough to attract enough people to invest in their deal. So instead. They'll use pie in the sky projections to get people to invest in their deal. So, yeah, I think it just comes back to being really careful about looking at the numbers. You've got to look at the underwriting. You know, I preach in the book a lot about understanding the concepts of real estate, and I spend a lot of time in there showing people how to underwrite. Income producing real estate and how to look at the projections and determine whether they're any good or not. And the reason that I did that is that a lot of people invest in these things without having a fundamental knowledge of, you know, the principles of commercial property and underwriting income producing real estate. And it's not like. You know, I kind of equate it to this, like, you don't have to know how to build a house to be a building inspector, but you do need to know the principles of construction to determine whether or not the building that you're inspecting is in conformance to the code. And this is kind of the same thing for an LP. You don't have to know how to go out and buy multifamily real estate, but How to underwrite it, how to operate it, how to manage it. That's why you're investing passively. You're investing in somebody else doing that, but you do have to know the fundamental concepts so that you can look over what they're showing you and make a determination of your own, whether or not it meets your, smell test and whether it meets your risk tolerance and your suitability requirements.

Derek:

This is gold for people, out there who are just getting started. As you just heard Ryan speak, there's nothing I can, I can say, to that, that, that hasn't been said. And it's brilliant. and I think that understanding the fundamentals, the other thing I was going to add, just as a small little minor tweak is, If you think about the operator who is just getting started and who's hungry for a deal and is just raising a deal to close it, which I've seen a lot of operators do, especially back in the fervor of, you know, 2021 and 2022, when money was super, super cheap,

Brian:

like when I was selling everything.

Derek:

Exactly. When you were selling everything. That's another thing to point out is remember that these operators, when you pick up Brian's book. You can see it. There's a thing called an acquisition fee and the asset management fee and all of these fees that some of these operators make some are incentivized simply to close the deal. Now, I don't want to accuse any of my fellow operators of being, you know, of being, being out of integrity here with this, but there are operators that are swayed away from their criteria of what would normally be within their buy box if they're looking at a very large potential payday. at the acquisition once the acquisition fee takes place. So please, you know, wherever you're talking to, as an LP, I would triangulate with other limited partners who have potentially invested with someone that you're looking at investing with or someone that you don't know, right? And talk with other LPs to see about whether or not the investment turned out okay. And keep in mind, if you were the operator, Are you willing as the operator to also put money into that same opportunity alongside you as the investor? And where are the incentives at, right? Is the incentives long term or is it short term? If it's short term, you got to start thinking differently about how to approach the investment. Yeah.

Brian:

And I would also add onto that, that, you know, some, syndicators have built this big engine, right? This big machine that has a, is a mouth to feed, right? They've got a huge staff, a lot of overhead and they have to transact. To, to keep the lights on and pay the bills and, you know, that's a slippery slope. Whereas, you know, somebody that doesn't have to do anything if they don't want to is in a better position because they're not forced to acquire. And I think that's really important that you don't want to, encounter anybody who's forced to acquire because you're basically just, you know, kind of funding their business operation and your returns are secondary. So that. Actually does happen a lot now. I'm not bagging on fees in any way at all. Fees are a legitimate, piece of the LPGP relationship and it's part of the business model. Sponsors have to have fee income in order to, to be able to pay quality people to do the work that's required to be done. But there are those who can be incentivizing, you know, the fees, the structure of fees in themselves can be incentivizing some of the wrong things. And so how they approach the business relative to that, the way those incentives are built is really super important because some people it's all about, Hey, how can I bag the next fee? Versus, you know, how can I outperform for my investors so that I can keep doing deals for the rest of my life and get a lot more fees in the long run? A hundred

Derek:

percent. I think looking at. Operators who get a ton of retail investors, I guess when I mean retail, I mean, first time investors, right? If their focus is just acquiring new first time investors in there, that tells you that maybe their approach is slanted towards what you were just talking about, Brian. Like they have a machine to feed, they're looking just to close deals so they can get some of those juicy returns to either pay themselves or pay some of their expenses or whatever, right? The way that works. But if you find someone who has a ton of repeat business and you can't even get into it because they're like, their stack is already full. Their capital stack is already allocated by the time they get into their next one. That is an awesome indication that's a great operator, right? Because you have repeat business, people that have done, that have worked with them before and like the way they work. Those are the guys that you want to try to find. And so sometimes You have to take a risk on someone that hasn't done an investment before. It was just getting started through one market cycle. And then the goal would be to build as many of those relationships as you can, Brian, at least from my perspective with those operators who have been through a cycle or two and are just like, they're, they need a little bit more capital, right? And then they think of you because you've built that relationship and they let you in. And then now all of a sudden you have the 1031 opportunities. You have all those great things that can come out of that, that relationship.

Brian:

Yeah, that's a question you can ask as a prospective investor in a passive offering is, you know, generally, you know, what percentage of your capital that you're raising is coming from repeat investors. And if the answer is like none or 10%, you know, that might not be a great sign, but if it's, you know, a third to 50 percent or even more than 50 percent coming from repeat investors, you know, that's a really good sign, right? I mean, we've noticed, you know, we've. gone back and kind of studied our investor roster and found a very high percentage of our investors, repeat, invest, and some investors actually invest in every single offering that we put out. And, you know, that tells you at least that you're doing something right. And you don't have to always be recruiting new faces who, you know, by the time they figure out you're no good, that you already have their money. And then all you gotta do is figure out more people that don't know you're no good. So, you know, it's, repeat investor, count is a very interesting measurement to use for sure. I

Derek:

love it. Very good insight. Let's, let's shift gears here slightly. And maybe we can talk a little bit about the systems that you put in place, for operating some of these investments. And you talked about a proprietary software for your. Investment portfolio. Can you talk a little bit about that? I'm sure maybe it's described a little bit more in your book, but I just want an extra insight here about what that is and why you built it.

Brian:

Yeah, you know, I don't even know if I talk about it in the book, actually. Yeah, I can't remember. Yeah, I probably didn't. Years and years ago, when I first started in this business in 1989, before like the internet was just becoming a thing, you know, there was like, there was no like, Real ways to keep track of, you know, investments and that sort of stuff, especially I was buying houses on the courthouse steps at foreclosure auctions from, you know, like clipping the notices out of the newspaper. I mean, that's how archaic it was and just trying to keep track of everything. So I developed a software platform that I could use to track and bid on, the foreclosure sales that we were attending. And actually we still use it to this day. So when I got into multifamily, I realized that I needed a way. To do two things. One was track. Our investments. So like, you know, all the properties that we have, where are they, all the kind of like key pieces of information about them. So they have that at a moment's notice, but also to underwrite those assets and determine whether or not, we'd want to buy it. So doing a full financial analysis, there's commercially available stuff out there that you can buy. But to a lesser degree when I got started and none of it really. Fit the exact criteria that I was putting in kind of the way that I underwrite stuff. So I'm like, well, I'll do what I did last time. I'll just build my own. So I built my own platform for analyzing, the financials on multifamily. And that's given us, I think a tremendous competitive advantage because when I, you know, I've shown. Our financial analysis, not the software itself, but the actual outputs to some really heavy hitters in the industry, like large publicly traded private equity shops, guys who like literally spend their entire day doing nothing, but looking at deals. And they've I've heard, I can't tell you how many times I've heard that this is the best stuff we've ever seen. And, you know, that's when you kind of know you're doing something, right? It really, what you have to do is. You have to set how you approach looking at stuff and then create something that works the way you work rather than you having to work the way the software works. I thought that was really important for us to do.

Derek:

Yeah. And also having that validation from some of the higher private equity firms, right. That, that's great stuff to have. It means that you're definitely on the right track. And I think that's a hallmark of someone's dedicated to your craft. Is willing to invest that time and energy into a system and build something that can serve you and your investors. So I think thousands

Brian:

of hours, literally thousands of hours. I mean, that's the kind of stuff you got, you know, if you're really dedicated to this business, you're going to put in that kind of time now that I've done it. I'm getting that time back, you know, back to your one of your third degrees of freedom of time freedom right now. It takes me a lot less time to underwrite a potential acquisition because we have this whole framework in place systems in place. people in place to input what needs to be input, people to analyze those inputs and put in additional market study information. By the time it gets to me, all I have to do is look at it and make the final decision versus doing all those other steps. And so I invested the time upfront so that now I don't have to.

Derek:

Yeah. Amazing. On that point right now is a very interesting time in the real estate market and in the economy as a whole, the global economy and the U S economy, European economy, Asian economy, everywhere, right? What do you recommend for an active investor or a passive investor? In this market, and, you know, I wanted to also get your opinion as a secondary or corollary to the question, do you recommend repositioning assets at this time, or what are you looking for personally if you're looking to deploy capital in

Brian:

this market? Well I'll begin by saying that, you mentioned before I was on bigger pockets podcast, number three, that came out, I don't know, like 15 years ago. I don't even know how long ago, many years ago. And I still get people calling saying, Hey, I just heard you on this podcast. So because I know the life cycle of these things, I'll begin by saying it's December of 2023, as we're recording this, because literally. Three weeks from now, things could be completely different and any advice I give may be totally useless, but where I sit here in the middle of December 2023. I'm not buying anything. I haven't bought anything in two years. In 2021 and the first half of 22, I sold three quarters of my portfolio, meaning I sold over 3000 multifamily units and have bought nothing since, because I saw what was going to happen in the market and decided I didn't want to participate in that to a great degree. So I got out and I'm now waiting to get back in. So while it's difficult for me to say to other people who may be in a different position what they should do right now. I will say that what I am doing is working on my golf game, spending more time on the beach, you know, reading a lot of articles about what's happening, studying data. Investing in some stocks. I mean, just other stuff, that isn't directly real estate related, still underwriting real estate to stay in touch with the market, but I'm just not seeing today's current conditions as a real buying opportunity yet. So if I'm thinking, I really want to be a buyer of real estate or even an operator, that's going to raise money from others. What I'm doing right now is I'm like putting together my systems. I'm putting together my business plan. I'm getting my cultivating my list of investors and like putting myself out there to get to know people who might be able to fund what I want to do when the time is right so that when it's go time, you can pounce because what tends to happen is this business is a little bit feast or famine where. When everything is going really, you know, really hot, you're working a hundred miles an hour with your hair on fire constantly, and there's no time for all that biz dev stuff. So this is your time for business development. Cause you have the time to do it. There's nothing out there to buy right now. That's what I would be doing. You know, I wouldn't really be thinking that I don't think we're at the bottom. You know, if you're a buy and hold forever person, by all means go for it. You know, if that's the resource level you have, knock yourself out. But if you're like, look, I'm raising money from. from other people. Therefore, time value of money is important. I need to maximize their returns. Maximizing returns is done by profits and narrowing and compressing that time window. So it's not time yet. You know, you got to wait until that window is a little shorter than it is right now. My personal opinion. Now, what we could find is I'm totally wrong. People who are buying right now are going to kill it and I'm going to be standing there going, crap, I missed it. But so far I haven't missed a cycle. So I'm knock on wood and maybe I won't miss this one either. So I'm in watch, wait, and build mode right now.

Derek:

You know, Brian, um, I'll put, I'd put my money with you because the thing is over the last year, you know, generally, we. My partners and I, we bought a whole bunch of property in 2021 and 2022. The difference between me and a lot of the operators out there who put themselves through in a hard position right now is they bought with floating rate debt and we bought with fixed. So we're sitting at like. Sub 4 percent on some of our loans. Now I know it's a mixed bag because when we go to exit, we gotta push up the NOI. Right. Assuming the cap rate stays the same. We got to really operate on the NOI to get the returns that we want to get. But the good news is we're not facing any immediate pressure and have time to let the economy kind of re, you know, rediscover itself to push up the NOI. So I'm very fortunate in that case. And I am exactly where you are right now at this point in time. I feel like right now is not the best time to buy. And when people come to me that say, Hey, do you have a property to invest in? I tell them, look, To be truthful with you right now, I wouldn't put my money into an opportunity without putting my own in there alongside you. And if I'm being truthful right now, I don't think in December 2023, I mirror your opinion, it's just not the right time to buy. So I have been focusing on systems. And processes and delegation and other things that I've always wanted to explore while we take this little brief, like, you know, I don't want to call it a siesta, but maybe a little, a hiatus, right. A little bit of a sabbatical from active real estate investing. And just like you, I'm always underwriting and talking with brokers and trying to keep my pulse on, or my finger on the pulse of what's happening with rates and cap rates and, you know, where people are moving to and creative deal structures, like, you know. Taking over a loan, for instance, that's a low rate. Like all those things are really cool stuff. But in general, I pick up 100 percent of what you're saying right now. And I can, I can't agree more. On a related note, history may not necessarily repeat exactly the way that it has before in the past, but it certainly rhymes. And since I have you on, I want to extract a little bit of wisdom of where you think this is headed. I know there's a big disclosure here, right? Cause no one has a crystal ball, but I wanted to hear from you, like where you think this all is gonna. end up and like if you had to, you know, stake money on yourself five years from now, what would you be doing now? And, maybe talk a little bit about what you think may happen based on the patterns you've seen in the past. Again, big disclaimer, no pressure here that, you know, I'm not telling people to go and invest on your advice, but I'm just curious, like what, what you think

Brian:

is happening. Yeah, you know, every one of these cycles has a different face, right? You know, it's like, the dot com burst of 2000 almost didn't even really impact real estate. The great financial collapse in 08 annihilated real estate. COVID boosted real estate. I mean, you know, you never really know how it's all going to play out. But you know, I, A year and a half ago, what I saw was I think real estate values are going to come down. I'm like, that's what we're, I wasn't even really thinking so much interest rate wise as I was about. I think real estate values are going to come down. Things are getting very overvalued, very overbought. There's a lot of risk. Let's sell it. If everybody wants to buy. Let's sell. So now what I'm kind of watching for is when does everybody want to sell or better said, when does everybody have to sell, you know, because that's when some real great buying opportunities are going to come. Now, in order for them to get into that position, a couple of things need to happen. They need to get pushed up against the wall, meaning they're running out of money. They run out of time. There's no refinance, you know, exit for them. They have to sell. There's going to be some deals to be had, and that's going to be a good time to get in. But in order for that to happen. Prices are going to have to come down probably another, 15 to 20 percent from where they are right now, which is 15 to 20 percent off of where they were in 2021. So, you know, I see, you know, values may be coming down a little bit more. And I also think interest rates are going to moderate to a degree, and that's going to help, to prevent values from falling even further than that. But I think 2024 is going to be kind of another waste. I don't think there's really going to be much to do in 24. We can watch rates come down a little. We can watch sellers kind of build a little bit of hope that maybe they'll be able to get out from under these things that have been dogging them, before they realize that, you know, they might not be able to. I think 2024 Five might be a time when we maybe start to bottom out. The problem is, is the further out you go, the less clarity you have in that crystal ball that none of us really have. Right. And so I can't quite see that far ahead yet to say what I think is going to happen. I can see far enough ahead into 24 that I think we're not going to be very active. And if I've got capital. I'm parking capital and income investments that have a low risk and decent income. So, you know, like we started a debt fund a year ago and our investors are going into a debt fund where we're buying real estate debt because debt has. somebody else's equity and first lost position. I'm trying to protect our downside, while getting, you know, a moderate return, right? And so it's not about trying to shoot for those twenties and, you know, it's about trying to get moderate single digit returns so that you can wait to deploy that capital when opportunities come. Because right now I think risk management takes priority over. You know, aggressive returns. And so we're just kind of waiting that out to see, and, you know, in a year or so, you know, you can have me back on and we'll have a followup discussion and figure out, you know, where we're going into the next year.

Derek:

Yeah. And, you know, this is also considering that there's no black Swan events, right? Like this is just leaving the market on its own, but man, there's so much geopolitical instability right now. Like you've got. Ukraine, you have stuff going on in Israel. You've got an election coming up. We have technology, we have AI that's coming. Like all of these factors have potential of being a Black Swan event, and they may actually be multiple Black Swan events and who knows what will happen. Then we have our national debt. So the strength of the U S dollar, tons and tons of things, you know, that are out there that I think your approach of just kind of. Being a student of the game, watching the economy, letting things happen, and just thinking how to cut risk down by keeping the returns reasonable,

Brian:

Is the Well, have you ever seen a cat watching a bird, right? I mean, it's like, they'll sit there and they'll watch them, and watch them, and watch their every move, you know, and then they'll start thinking about pouncing, and they'll inch a little closer, and then they'll watch some more. You know, it's not like there's, Oh, there's a bird. I'm going to go eat it. You know, that's not how it works. Right. I mean, you gotta kind of just sit on the sidelines. I mean, I like to tell people like, you know, Hey, I'm watching this real estate game from the grandstands right now. I don't want to be a player on the field. But soon enough that day will come. It

Derek:

will, it will. And that's why we gotta be students always. So I love it. All right, Brian, I know that we could be talking for hours because I'm just, I love your take on it. We're aligned on so many things and there's so much to unpack here with so much. Com complexity in this market. But what I'd like to do is head into the final segment of our show, which is the rapid round. It's five questions that we ask every one of our guests and they're meant to be answered in about 30 seconds each. So if you're ready, we're just going to have, we're going to rapidly ask them to you and

Brian:

be ready. Does this mean we get to find something to disagree on? And then they'll be like, we get to have like some excitement and throw some, like, you know, a big fight into this discussion or what's going

Derek:

to happen. I would love to do that, but I would struggle to even find that. I have a feeling,

Brian:

No controversy here. All right, go for it. Number

Derek:

one, name, any resource that was, or is essential in your journey to pursuing freedom.

Brian:

Gosh, you have hard questions. Oh, there's going to be easy. You know, I, I think one of the just the various, the various sources of news that I get online are extraordinarily helpful to me, and that news comes in a lot of different forms. It could be stuff like, you know, globe Street and Daily emails of, of news articles and things that are happening. And it, it also ranges all the way over to like paid services, like, you know, Axiometrics and CoStar that have market study data. All of this kind of like what's going on in the world stuff is really what helps to formulate, um, you know, how we approach investing and I think it's enormously, important.

Derek:

Well said. I second that for sure. Let's move on to number two. If you woke up and your business was gone, and you had 500, a laptop, a place to live, and some food, what do you think you would do first to rebuild to where you are today?

Brian:

Did I lose my reputation?

Derek:

I wouldn't say that, no.

Brian:

Okay, then I would go out and I'd immediately leverage my reputation by sending out an email to all the investors in my list, to say like, Hey, I'm rebuilding this thing from scratch. It worked out great last time until I got struck by lightning. Let's do this again. I'm going right back into real estate, as soon as I can find something to buy.

Derek:

So you would probably take your laptop and start reaching out to your connections for opportunities and, you know, places where you can make that Delta for you and your investors, right?

Brian:

I would. Yes. Business is based on relationships, right? It's relationships with investors. It's relationships with brokers. If I didn't lose my relationships, then I can rebuild this business. Well

Derek:

said. I think that's well worth the wisdom in that question alone. All right, number three, what does your self reflection and goal setting practice look like if you have it? What do you do to prime yourself for where you want

Brian:

to be? Yeah, I don't have, I've never been good at that. You know, there's people that say, write down your goals and this and that and the other stuff. I've never been very good at that. I always will say something like, Oh, you know, like a few years ago, I'm like, you know, our, our goal is to get, you know, build a portfolio at 10, 000 units. It was never really like a goal to get to 10, 000. It would be nice to get there, but it's like, if the market isn't there to do it, we're not going to do it. You know, it's like, I'm not going to stretch myself to accomplish this. We go and check off a box and say, I got 10, 000 units and I lose them on foreclosure or their crap or, you know, whatever. It's like, Hey, if they're there, great. If they're not. I don't care. You know, it's like no big deal. And the problem with this business, you know, is that you never really know where you're headed, you know, cause you get these adverse market sales cycles, pop up COVID pops up weird stuff happens. And rather than trying to set a goal, I've always just kind of lived it more of like, what do I got to do next to not only survive, but thrive. And as long as I'm doing that, I guess I've accomplished everything I wanted to.

Derek:

I would say asking yourself that question would be a good self reflection practice. Maybe it's so ingrained into what you do that you just do it, right? And, I think that there's wisdom in not knowing what, you know, what, because whatever the market gives you, you're not going to go in the middle of winter and go to an almond tree. And say, give me almonds. Right. It's not, it's just not going to be there. Right. You that's unwise. Like you can try like, you know, flying down to Mexico to get some almond trees or whatever, but the effort is just not worth. And so I just love the presence and wisdom in the fact that you're just like, you know, things will come in their season, essentially.

Brian:

I'm a boat on the ocean, right? The current is going to take you wherever it is. And if there's a, if there's swells and waves, you're going to bob and weave and tilt. And, you know, you just got to be able to ride that out, right? It's like, you don't, you don't have the power to overcome the forces of nature in this business. So, you know, you can have all the goals you want, but you really have to be. nimble, flexible, and willing to accept what the market is handing you, read those signals, then take action. That's more of my position on it.

Derek:

Great. Number four, what are the key personality traits or core work habits that you have? That you can say helped build your success over the years.

Brian:

I just think integrity is the biggest one, you know, it's like people want to invest with people that they trust and really this whole business comes down to trust. People think it's about real estate or it's about. Returns and all this other stuff. It really has nothing to do with that. It's really all about trust. If I'm a passive investor, I'm not investing in your deal. If I don't trust you and I don't trust the deal and I don't trust the asset class, you know, I have to trust all of those things in order to make that investment. So for me, having, you know, a high degree of integrity, follow through, do what I say I'm going to do. And all that stuff has been what has allowed, you know, has kind of given me the gift of trust from a lot of people. And I couldn't have gotten where I am without it. You

Derek:

know, a lot of people get into this business thinking that they're looking for returns, but really it's the relationships. Because I would not take on partners that I don't want to be in a long term relationship with that I could build a friendship with. Because you know, you can pick, you should be able to pick your pain in life, right? And if I bring on an investor out of desperation, who I know is going to be for no other, for lack of a better word, a pain in the ass and someone who's just very hard to work with and lots of questions and like has kind of this, this mentality that the world owes them something. I'm going to choose to not invest with that person in the future or never do it in the first place. It goes two ways, right? It's really about the relationship. And I think that my, my ideal future, and I'm curious your take on this, but my ideal future would be. Me being able to enjoy like in a mountain house, like in the mountains of Colorado, all of my friends and investor friends that are with me. And we're just having an awesome time getting to know each other in one small community, just enjoying each other's company and living that life, like building relationships, learning from each other and making money together all at the same time. That's really what I think for me is the vision for building a real estate business

Brian:

this way. Yeah. And you're on a, you're on a great track there. And this is, this discussion hasn't been more relevant than it is today in at least over a decade is that. People that are especially newer people in this business on the sponsor side, right, who are looking to raise money from investors, they and investors place a lot of emphasis on this to incorrectly is that they focus on return, right? Oh, look at look at our track record of how much return we've made. Here's our return. Here's our projected return. Here's our actual returns. Here's this and that. And the other thing on returns and they build their entire returns. Platform based upon performance, and there's another kind of performance in this business that has nothing to do with return. Return is a measurable performance, and that's why people like it so much. But what happens in times like now, when the market moves against you, is everybody takes it in the shorts. I mean, every deal out there is having some kind of malaise, right? You know, even your fixed rate deals can suffer from, you know, an adverse market where occupancy drops and that drops income completely beyond your control. And so when things go not according to plan outside of your control, if your whole business is based upon performance as measured by return, you've now just killed your whole business and you had nothing to do with it. It was something you couldn't even prevent it. So the other kind of performance is. How well do you communicate with your investors? How good of, you know, opportunities do you source? How do you manage those? How do you perform when things aren't going well? How honest are you with people about things that go wrong? You know, all of those different things are an operational performance. They're very difficult to quantify by a measurement, but they go way further in building. Investor loyalty and longevity, because even in a down market, you can actually excel at that level of performance in a down market or what you can do in an up market because you're communicating, you're honest, you're telling people the real story. That's what people want to invest in that kind of performance, even though psychologically, they oftentimes want to equate it towards the measurable performance of return.

Derek:

Man, such gold here and a light bulb just went off for me because I know like right now you're right every deal like we have, um, you know, seven or eight active deals right now are active investments and, I'm spending most of my time instead of trying to attract capital, I'm doing my best to boost NOI because that's what I can do. That's what I have to do right now and the way that we're communicating with any stress or any types of issues that come up. Investors appreciate that. And so I never thought of that as an actual selling point for an up market is what happens in this down market. So thank you for saying that really appreciate it. nuMber five seconds. The last question I'm gonna ask you today, and I'll let you go on with the rest of your day in beautiful Hawaii. What tool or process has become your most important time, money, or energy saving ninja magic tricks that you use every day?

Brian:

Yeah, you know, I, I don't know. I don't really, I, I don't know. I guess I don't consider ninja magic tricks anymore. It's just kind of normal, like day to day stuff now. You know, I, I think just, you know, all the processes that we set up and put in place on how we analyze opportunity, How we, manage assets, how we control information flow, how we integrate all of the financial reporting from multiple sites into one centralized place, all that business intelligence. All that stuff helps us drive decision making and really, I think, you know, kind of the superpower in this business is decision making, right? I mean, to make a decision in 2021, when everybody's buying like, Hey, let's sell everything, you know, that's not something a lot of people were talking about back then. And we were actually freaking doing it. And that I think is kind of the, the, you know, that, that superpower of like. Make good decisions based on all this information that you have, and you know, that can help you produce some interesting results.

Derek:

Yeah, love it. Love it. Underscore that three times for sure. Um, have you met Jeremy roll by any chance? I have. Okay. Excellent. Because what you just said there about the long term decision making rings back so much like it, it's ringing my ears. Jeremy is sneaking into my eardrum as, as you've mentioned that, and he says the exact same thing. And so I think you guys are doing. The absolute best thing for yourselves and your investors, and really being great stewards of capital this way. So anyway, Brian, it was awesome having you on the show. I want to respect your time as well and make sure, you know, that you can enjoy the rest of your day in Hawaii. But before we end the show, can you talk a little bit about how people can reach out to you or find you, or maybe how they can find your book and, you know, we'll put all those links in the show notes as well. So people can easily find it, but just giving you an open floor right now to speak to the audiences.

Brian:

Yeah, you know, the best way is through our company website for Praxis Capital. The website is praxcap. com. It's P R A X C A P. com. You can also find me from time to time out on biggerpockets. com, answering questions in the forums, you know, on podcasts like this, or you could check out the book again at, biggerpockets. com forward slash. Syndication book. It's also available on Amazon and all that, but if you order it from Bigger Pockets, you get some bonus content, which I think is pretty cool. One of the pieces of bonus content is an interview that I did with Jeremy Roll. So it's funny that you, that you mentioned that name. So if you want to check that out, you'd get a copy of that video. If you order the book from the publisher. Excellent.

Derek:

Please everyone go out there and do yourself a favor. Go buy that book. It is going to be one of the most important assets that you can do for your financial future. One of the most important things you can do. So please do that. And so Brian, man, I've had such a blast. I wish we had more time here, but, we've already been talking for an hour and I've just loved every minute. It just flew by

Brian:

for me. Yeah, man. It's amazing how time flies. We could definitely do this all day. Your listeners would really get sick of hearing me talk. So I'm glad you're going to let them go too, but it's pleasure being here. Thanks for the invitation. Yeah. No,

Derek:

I was going to say, if they're sick of hearing you, how much do you think they're sick of hearing me? All of these episodes, 70 plus

Brian:

episodes, but nice. Congrats.

Derek:

For all of those listeners, you guys, thank you so much for listening all the way to this point in the podcast, please, wherever you are listening or watching it. We want to hear from you, please like subscribe, hit that bell or leave a comment wherever you're listening or watching it. We want to hear from you because as we do that, we appease the algorithm gods and they reward us with more viewers. So people like you can listen to the messages that we're providing. And it also tracks amazing people like Brian Burke to come on the show and add value as well. So Brian, once again, thank you so much for coming on the show. Have a great one, everyone. We'll talk with you soon. Mhm. Mhm.