BiggerPockets Podcast 378: A $500M Syndicator’s View on Today’s Market and How to Succeed as a “Hands-Off Investor” with Brian Burke

BiggerPockets Podcast 378: A $500M Syndicator’s View on Today’s Market and How to Succeed as a “Hands-Off Investor” with Brian Burke

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With a recession already underway, we’re turning to an investor with 30 years of experience, 3,000-plus multifamily units acquired, and one of the sharpest minds in real estate.

Brian Burke is back today, and he sits down with Brandon and David to offer his interpretation of current events and to guide our audience through how to invest passively without violating Warren Buffett’s No. 1 rule: “Never Lose Money!”

Brian explains how his firm Praxis Capital is navigating COVID-19 and shares a few tips everyday investors can use to fortify their portfolios. We also discuss leverage, how lending practices are changing, and techniques you can use today to safeguard your investments against vacancy and drops in valuation.

In the second half of the show, Brian speaks to those interested in becoming “hands-off” investors—whether you want to focus on making money in your day job or just don’t want to deal with being a landlord. After all, BiggerPockets has 10-plus books on how to actively get deals done… but none (until now) on how to evaluate passive investment opportunities.

We go over how to meet syndicators, what red flags to look for, how to diversify your investments… and the absolute No. 1 quality to look for in a passive investment (hint: it’s NOT the deal itself).

This episode is packed with deep insights into the current market shift, but it’s also a timeless lesson in evaluating syndication opportunities.

For more info, check out Brian’s new book, The Hands-Off Investor: An Insider’s Guide to Investing in Passive Real Estate Syndications, and all the great bonus content, too.

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Brandon:
This is the Bigger Pockets podcast, show 378.

Brian:
The most important, most critical factor in evaluating a syndicator to invest with is their moral character, and that’s also the hardest thing to quantify. I mean, it’s really easy to see how many deals have they done or how many units they own, but it’s really difficult to quantify someone’s character. But that really is what the whole thing comes down to.

Speaker 1:
You’re listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you’re here looking to learn about real estate investing without all the hype, you’re in the right place. Stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com, your home for real estate investing online.

Brandon:
What’s going on, everyone? This is Brandon Turner, host of the Bigger Pockets Podcast with my cohost, Mr. David drinking-soda-while-trying-to-talk Green. What’s up, man?

David:
Not soda. That’s a zero calorie energy drink. Those are still bad. I’m going to get so much hate about, I should [crosstalk 00:01:06].

Brandon:
Zero calorie, yeah.

David:
… called it out

Brandon:
Terrible for you. Why don’t you get the sparkling water? Those are zero calorie and no nothing in it.

David:
Because I don’t think they have caffeine in them. And I’m so dedicated to giving a good performance on the podcast that I need to be caffeinated to be at my best.

Brandon:
You could do it. Most people do it and drink coffee, just saying.

David:
But coffee just tastes disgusting, man. I can’t get that bitter coffee taste. I’m the only cop I ever met that didn’t like coffee.

Brandon:
Yeah. I had to wean myself onto it. I didn’t like it, but I forced myself for social reasons to like it. I was like, people like to go for coffee, I want to be able to go to coffee with people, so I’m going to learn to like it. So what I would do is I would get a cup of coffee, empty half of it out, fill the other half with milk and sugar, just tons of it. So it was like coffee flavored milk and sugar. And then over the course of a month or so, maybe a couple months, I just slowly dropped the sugar and the milk down, until now, I just do a little bit of cream and coffee, and now I like it. So I was very intentional about my desire to be a coffee drinker.

David:
As you are with everything else.

Brandon:
As I am with pretty much everything else in life. Speaking of intentionality, I have no idea how that transition is going to work, but I’m going to say it anyway, I want you guys to be intentional about today’s quick…

David:
Quick tip.

Brandon:
He did not know that was coming. I tossed that on you like a bucket of cold water. So today’s quick tip-

David:
Well, there’s a backstory to this.

Brandon:
Is there?

David:
Can we tell people why you did that? Do you mind?

Brandon:
Go ahead.

David:
Because I basically just mimicked Brandon’s entire intro and now he’s trying to prove to me that he’s not predictable. So he changed the quick tip without telling me to make me look stupid in a passive aggressive way to get me back. And frankly, I think that was genius. Well done, Brandon.

Brandon:
I did not even think of it at all.

David:
You embarrassed me in front of all of our guests.

David:
Oh, I’m sure you did.

Brandon:
No even a thought.

David:
That’s how good you are. You don’t have to think about it.

Brandon:
No, David, you’re giving me credit.

Brandon:
All right. So today’s quick tip is to go out and pick up a copy of the new book from Brian Burke, who’s our guest today. He’s got a new book that came out today called The Hands Off Investor: An Insider’s Guide to Invest in Passive Real Estate Syndications.

Brandon:
And here’s the deal. We’re going to talk a lot about this later in the show. The first half of the show is really about the economy and the market and the meltdown that we’re seeing and have been seeing for a little while now. We’ve talked a lot about that with Brian. He’s one of the smartest people I know. When it comes to advice about the world of real estate, he’s the guy I go to, which is why we wanted him on. But also, he wrote this book, and so the second half of the show, we talk more about the specifics of putting your money into other syndication deals.

Brandon:
And this is the thing though, even if you don’t want to invest money into a syndication, this is still a super valuable conversation because if you ever plan to raise money, you’re going to want to listen to this. If you ever plan to invest in somebody else’s deal passively, you want to listen to this. If you just care about avoiding losing money and you want to diversify your investments, this is a valuable podcast today. So for all those reasons, do that. But the quick tip is pick up a copy of the book at biggerpockets.com/syndicationbook. Again, biggerpockets.com/syndicationbook.

Brandon:
I think that’s all we’ve got. This is a long show, so I want to get right into it. Anything you want to say before we jump in with our interview with Brian Burke?

David:
Yeah. Just when we recorded this, we were a couple of weeks into the COVID crisis and we wanted to give people something to listen to that isn’t just corona, corona, corona. The news is starting to look like a bar in Mexico, just a lot of Corona. But when it’s released, we don’t know what the current environment is going to be like. So if there’s been a real big breaking change in the last couple of days and you’re listening to this and we’re not addressing it, please don’t think we’re trying to be insensitive, please don’t think we’re not aware of what’s going on. The time we recorded this, that probably hadn’t happened yet, and we wanted to give people something else to think about.

David:
This is a really good show. This is one that if you’re someone who likes meat and potato stuff, you just want knowledge about how real estate works, how real estate cycles work, how syndications work, how to protect your investments, you’re going to get a ton out of this. Brian did a great job.

Brandon:
Very, very true. Very true. So with that, let’s get to the show. This is our interview with Mr. Brian Burke.

Brandon:
Mr. Brian Burke, welcome back to the Bigger Pockets Podcast. So good to have you here.

Brian:
So good to be back. Thanks for having me again.

Brandon:
Yeah. Though I’ve got to say, for months now, since I heard you were coming back on the show and I heard you were going to do it live in my C shed, and we were going to be sitting across from each other, drinking coffee, laughing and having a good time. And then I hear that you decided to abandon me and, because of this whole social distancing thing, stay in California. So I’m a little offended right now, but I’ll get over it.

Brian:
Yeah. It was a bummer. I was hoping to be there, but they closed all the restaurants, so that would have meant I would have to eat dinner at your house every night for two weeks, brother.

Brandon:
And that would be not fun. We play a lot of games though around dinner time. I could teach you some games. I’d get you to eat anything. I’m really good at that now with my three year old. So no matter what it was, you would eat it.

Brian:
It would have been candy land.

Brandon:
It would have been. Amazing.

Brandon:
All right. So let’s talk about real estate investing. The elephant in the room of course is everything just changed. We’re still in the middle of it. We don’t know what’s going to come out of this thing. We don’t know where things are headed. So first of all, before we get into that, let’s get even before that, for those who haven’t heard any of the other episodes of the podcast that you were on, can you explain who you are, what you do, and a little bit about your background?

Brian:
Yeah, I’d be happy to. So I started investing in real estate in 1989, so I’ve been through, I don’t even know how many these odd market cycles, and we’re in another market cycle right now with this coronavirus issue that has just recently come up. So it’s history repeating itself in some ways. But yeah, 30 years in real estate. I started out as a single family house flipper. I had no money, no connections, no knowledge, absolutely nothing. I was working in a grocery store, making $12 an hour and I bought my first property and it was a rental, and I didn’t even own my own house.

Brian:
From there, I just grew a business into one where now I’ve bought, I think 730 properties, a lot of them single family homes, and about 3000 multifamily units. So I just crossed a milestone actually last year, a half a billion dollars in real estate. And I look back on my old grocery store self and think, I never could have imagined I would ever say that.

Brandon:
Yeah.

David:
That’s awesome.

Brandon:
That’s crazy. Half a billion dollars. It’s not a small amount. I had somebody the other day, I made a video and I said I currently own or control 500 units, and somebody said, “That’s just unfair. Nobody should own that many units in America because there’s not enough to go around,” or something like that. And I was like-

David:
Interesting.

Brandon:
… that sounds interesting. I was like, “Well, I’ve got partners and well over a hundred investors and it’s not just me.” But it was just a weird statement like, “You’ve got enough. Stop.”

Brian:
It’s a group effort though, right?

Brandon:
Yeah. I think it is, yeah.

Brian:
It’s not just you. If you divided up into all of your investors, how many units does each of everybody have, if you divided them up? It’s not a big number then.

Brandon:
Exactly, yeah.

Brian:
It’s a team sport, so it may seem like a lot, but when you really break it down, it’s not.

David:
Brandon, did you offer to let that person take over some of the responsibility for the payments right now, that wanted some of your units?

Brandon:
I did not offer that, but I thought about it. I was going to argue, “Well, Walmart has a lot of toilet paper right now. They have too much. They shouldn’t have so much, so we should probably get…” They have a lot of everything, right? Walmart shouldn’t have out much stuff. Let’s give that back.

Brandon:
Anyway, not to go there. But you’ve been doing real estate for a while, you’ve seen a lot of cycles, a lot of ups and downs. What does this look like for you right now? In the economy today and the world today, what are you seeing from… Some people might be listening to this two years in the future, some people may listen to it the week it comes out, so what are you seeing right now?

Brian:
Yeah, so what I’m seeing right now, and this is end of March, 2020, so things will look a lot different. I think if somebody listening to this six months from now, it’ll probably look a lot different than it does today. What I’m seeing today reminds me a lot of what I went through after Hurricane Harvey in Houston. So we had a property, 276 units in Houston, Texas, Hurricane Harvey hit. At the time, we were 93% occupied and most of the tenants were paying, and things were going pretty well. And then all of a sudden, instantly the whole city shuts down. Their infrastructure is damaged, people were losing jobs. People who didn’t lose their jobs lost hours, the court house was damaged so they couldn’t perform any evictions.

Brian:
And now you look at today and here we are, where people have lost jobs, people have lost hours, there’s eviction moratoriums. It was very similar, except this is just a much, much larger scale. So it reminds me a lot of that. And it took about 18 months to recover from that. And we saw occupancies fall, we struggled to stay in the mid 80 percentile on occupancy. We were giving away all sorts of concessions, a month free a month and a half free, just to get people lured in to move in. It was tough to collect. Our bad debt went up to between five and 10%, which is enormously high in multifamily real estate, where you really want to stay below 1%.

Brian:
So we saw a lot of that stuff happen and it took quite a while for it to bounce back. And still, even after that, for the following two years, we didn’t have any rent growth whatsoever. So, I expect that’s a lot what things are going to look like in our near future, where we’re going to have falling occupancy, we’re going to have increasing bad debt, we’re going to see a lot less rent growth than we did before. And eventually, it’ll work its way out. But that’s the way these things seem to go down. I think this won’t look much different than that.

Brandon:
Yeah, that makes a lot of sense. So what does that look like as a syndicator? As somebody who invests other people’s money, what does that look like for you? Are you pulling back from buying more stuff right now? Are you contacting your investors saying, “Hey guys, it’s going to be rocky…” What does that even look like? What are you doing?

Brian:
Yeah. One of the key things about being a syndication sponsor is we’re responsible for other people’s money. And that’s a tremendous responsibility. David knows this story pretty well, but when I was first getting started in this business, after my grocery store job, I went into law enforcement. And in that industry, character is everything. You have to pass background checks and all kinds of stuff. And when I left, I set up an investment syndicate with a bunch of guys I worked with at the department. So I used that money to go out and buy real estate. So all of my investors were carrying guns. They were all cops, and I knew if I lose these guys’ money, I am a dead man, and they’ll get away with it too.

Brian:
So, it was ingrained in me from the very early start that capital preservation is key. And this is a time where that’s really important to remember. Because my first job, and I tell people this all the time, my first job is to not lose your money, my second job is to make you money. And so here we are in the throes of a COVID-19, the coronavirus, and all the things that are going on in the world right now. So we’re highly focused right now on not losing people’s money. If we make them money, that’s a plus, but we just don’t want to lose people’s money. So we’re really focused on operations, collections. We’re a lot less focused on acquisitions. I think there’s going to be opportunity here in the near future, but right now, there’s a little bit too much uncertainty and financing is all over the place, where it’s not the time I’d want to be buying. And it pains me to say that because as a real estate investor, we always want to be buying stuff, but sometimes you just have to sit back and wait.

Brandon:
That makes sense. All right. So let’s go back a little bit because a lot of our investors today are nervous. They’re saying, “What should I do? I’ve got all these properties that I wanted to buy.” Do you think even a new investor right now, would you advise people wait a little while? What should people be doing right now if they’re just getting started in this game?

Brian:
How many times have you seen a post on Bigger Pockets, where somebody says, “I’m waiting for the next downturn. I’ve got all my cash ready, I’m waiting for the next downturn, and then I’m jumping in.” Well, let me tell you, if you don’t jump in right now, then we know that all of that that you’ve been saying, you’re just full of it because this is the time. If you’re really waiting for a downturn, this is the time to do it. But I think people are going to be pretty disappointed that the downturn isn’t going to be what they think. This isn’t going to look like 2008 where values fall 50 or 60%. We’re just going to see some minor glitches in the market in the short term, and that’s going to be different than what it looked like back then.

David:
That’s a really good point. I like that you mentioned just the fact that not all downturns are the same. The human brain finds comfort in familiarity, and so I’ve heard a lot of people talking about, “The next downturn will look like the last downturn, and there are deals everywhere, so I’ll just go grab one,” because it was kind of like that. If you had cash and you could get a loan, at least where I lived, you could just drive down the street, every three or four houses had a for sale sign, you could just call, offer 25% what was already really low and eventually you’d probably get one. But I wouldn’t assume that it’s going to look the same way. Different things cause different downturns.

David:
You’ve been through a lot of real estate cycles, Brian, and you’ve invested a lot of different kinds of real estate at every part of the cycle. Can you share a little bit about what causes different downturns and how to position yourself to succeed in different types, different environments?

Brian:
Yeah. It’s funny you say that, David. And one thing that I hear a lot, and I’ve heard a lot over the years is people will say, “Multifamily is recession resistant,” or, “Class B and C properties are recession resistant.” You hear all kinds of stuff like that. And I’ve said it all along that it’s absolutely not recession resistant. Multifamily real estate will suffer just like anything else in a downturn.

Brian:
So let’s back up and look at 2008 for example. In 2008, real estate caused the downturn. It was bad financing that was available out there, what they call the liar loans and the Ninja loans, no income, no job, no assets, and you still get a loan. They had all that stuff and people were way over leveraged, and as a result, it all came collapsing down. And when it collapsed, real estate brought the whole economy down with it.

Brian:
This one is different because here, it’s an outside factor that’s bringing the economy down and the decline in the economy is what’s going to bring real estate down. So real estate wasn’t fundamentally broken, which was different than in 08. But remember back in 2000, the.com collapse? In that downturn, I had rentals and I was buying and selling, and doing flips and my flips were selling, my rentals were full, tenants were paying. So I barely felt the 2000 recession. The 2008 one hurt like hell. This one, again, it looks different than all those others. So everyone has a little bit of a different character to it and it all really comes down to what caused it.

David:
Yeah.

Brandon:
Yeah. I don’t think anybody expected a virus to cause this one. And who know? Maybe we won’t see a recession. I don’t know. Maybe six months in the future, we’ll look back and be like, “Yeah, we just had a bad quarter because of the recession, but we recovered just fine.” Or maybe it’s going to do something horrible. I don’t know.

David:
I don’t know that the virus even caused it. I think it was our response to the virus that caused it. And that’s something I keep pointing out to people. This isn’t something that happened to us like, “Oh, who could have seen this coming, this crash?”

David:
This was something we did to ourselves and that doesn’t mean we should be punished for it or something. We knew, as in the government, that in doing this shelter in place to stop the spread of the virus would impact our economy. So when I hear people talking, like the conspiracy theories or, “Oh my God, we’re going into a recession. We’re never going to come back.” You’ve got to remember that we did this to ourselves. We can lift that shelter in place. People can go back to work. Will there be an impact? Of course, absolutely. But if we’re talking about are we heading into a depression, like what we were staring down the barrel of in 2008? This is very different.

David:
Brian, obviously no one has a crystal ball, so no one’s going to hold you accountable if what your opinion is doesn’t come to place in fact. Just for the listeners, this is something that Brandon and I and whoever we’re talking to, we always worry, because we can tell you what we think and you all want to know what we think, but there’s no way any of us can ever know what’s going to happen. So it’s very easy to skirt the issue when people ask questions of what do you expect? But I’m curious, Brian, what are some ways you see playing out, as far as what we can expect over the next couple months, and then maybe longterm?

Brian:
Yeah. A lot of it depends on how long this goes on. And you’re absolutely right, David. It wasn’t the virus that created this, it was the response to the virus. There’s no question. And that doesn’t mean that response is incorrect. I think that as a society we’re doing what we think is the right thing to prevent people from dying. And I think that’s the right call. Having said that, it’s going to cause some damage. Having said that, the government recognizes that too. And they don’t want that damage to be any deeper than it has to be, especially in an election year. So, they’re doing everything they can to try to stem or to reduce the damage, which I think is also the right call.

Brian:
So what happens? Well, let’s assume a base case, where it’s relatively short lived and this goes on for a few weeks, and maybe around May 1st or so we start to ease our way back into a normal functioning society, then I think we’re going to recover just fine. There’s a lot of backstops in place. There’s going to be a lot of people that are going to be really hurt by this. There’s no question about it. But in a macro scale, I think we’re going to come out of it fine. It’ll take six months maybe, before we start to see growth again, but we’ll see that growth.

Brian:
Now, if this continues on for three or four or five months, on the other hand, the damage is going to be far more severe, and then it’s going to depend upon how much more stimulus is introduced and to what extent and how long that stimulus goes on. So my prediction, and that’s all this is and I may turn out to be completely wrong, is that this will probably be with us for 30 to 45 days and then we’ll get back to business. It’s going to take time to ramp back up. Most real estate sectors will recover in six to 12 months. I think hotels, entertainment, sporting venues and those places have a longer road to recovery. But us in the multifamily or call it maybe the office market, are probably going to have a little bit less longterm impact.

David:
As a realtor, one of the things that I’m seeing, because what I’m eventually going to ask you is what do you say to the person who says, “Should I buy or should I wait?” But I want to preface it with most people’s understanding of how real estate works is as simple as supply and demand of the houses. If everybody else doesn’t want to buy a house, then a seller has to sell it to me for really cheap. If everybody else does want to buy a house, then the seller will sell it to me for a lot of money. And that is absolutely a foundational piece of how real estate prices are determined. But nobody’s buying houses with cash. Almost everybody has to use a loan of some sort. So now you’ve got a whole bunch of new variables that get introduced into it. If interest rates are lower, people can afford to pay more for the same house. If banks are going to lend on higher loan to value ratios, then people can afford to borrow more so they can buy real estate without having to save up as much money.

David:
One thing that I’ve seen is that liquidity in the mortgage market is changing quite a bit. It’s up and down all the time. And I’m curious to get your take on it because I know that you have a lending company, I believe you guys probably do hard money loans. If there’s more, let us know. But can you explain how this is impacting the lending industry and how that then indirectly impacts the actual real estate market?

Brian:
Yeah. Availability of capital is a critical component of real estate prices, and this dovetails back to our conversation from a little bit ago where I said a lot of people say that when there’s a downturn, they’re going to run in and go buy all this real estate. And the part that they forget is when things become uncertain, and that’s usually what happens in a downturn is there’s a lot of uncertain macro level factors, capital becomes constrained and lenders will pull back or they might lower loan to value ratios, they might increase interest rates to make their investment return more attractive, they might stop lending all together. There’s a lot of things that happen on the debt side. As an apartment syndicator, we raise money from high net worth individuals and family offices to fund purchases. And so when things are uncertain, investors also don’t want to put money out.

Brian:
So when the economy goes down, availability of capital across the whole spectrum, both equity and debt becomes constrained. So it’s really easy to say, “I’m going to go buy up stuff.” If you have the cash, then knock yourself out. But if you’re relying on cash from anyone else, whether that’s a lender or an equity partner, it becomes infinitely more difficult. And that’s why real estate prices can become constrained.

Brian:
So you’re absolutely right, David. When there’s less availability of capital or that capital is more expensive, it’s going to have an impact on home prices.

David:
Can you share a little bit about what you’ve seen as far as how it’s being impacted right now, both in the short term and then what you might expect to see if it continues, where people aren’t going to work, and maybe how the forbearance part of the stimulus package that had everybody excited could actually be bad in some ways for buying real estate?

Brian:
Yeah. So you have this issue right now where when a crisis like this first happens, nobody really knows what’s going on, so they all kind of panic. And when the crisis first happened, you saw people out, panic buying toilet paper and weird stuff like that. Well lenders are doing the same thing. They’re panicking and they’re saying, “Gosh, what interest rate do we have to charge and be able to sell our loan on a secondary market?” Or, “What other kinds of factors do we need to consider?” And they don’t know the answer, so they take a guess. And sometimes they overshoot.

Brian:
And these things are like a pendulum, where the pendulum always swings too far in both directions. And right now, when this first happens, things shift outside of the range where they should really be. So it’s difficult in that first couple of weeks. So you’ll have people who are in an escrow and they’re about to close on a property, whether it’s a single family home or an apartment complex, it doesn’t matter. The lenders all of a sudden, just before closing are starting to get nervous and they might be changing people’s loan terms or maybe denying the loan altogether. And that’s going to impact-

Brian:
… terms or maybe denying the loan altogether, and that’s going to impact a lot of those escrows. Now if everybody just calmed down for a minute and waited for a while, you’ll probably find you can get through to the other side and the loan terms are going to be a lot more predictable and that’s going to make it easy. So to the second part of your question about how the stimulus might negatively impact real estate, I think probably the biggest thing is that when you have all this introduction of new capital coming in.

Brian:
Again, the lenders don’t know what to make of it, is that going to create an inflationary environment, and inflation mean that we now have to increase our interest rates because we won’t be able to sell on the secondary market and get a worthwhile return or how does that really work? So it does introduce a little bit of uncertainty in that respect, but the flip side is that it introduces a lot of liquidity and a little bit more surety that maybe loans or mortgages might get paid. So there’s always a plus side and a minus side to everything like that.

David:
That’s a really good thing to point out, is that you shouldn’t be in this mindset of well this is the way it’s supposed to work, interest rates are always supposed to go down, I should be able to buy a house with 2% down. This is just the way it should be, prices should always go up, and the minute we have a deviation from that, people feel like somehow they were slighted or they didn’t get what they deserve. It’s normal for this type of stuff to happen, for prices to go up and down. And one of the things I think that helps me to keep a more clear head than others, is I noticed from our law enforcement career, as a police officer, you are frequently dispatched to a call where you are told details about a scenario that would lead you to believe it’s a certain type of a call, okay? There’s a person with abdominal pains who is in a crowded area and they’re asking for medical help.

David:
And you go there thinking, “Okay, this is a person with a stomach ache or maybe some kind of pre preexisting medical condition.” And then you get there, and there’s a whole lot of people that are really worked up and everybody’s looking in the same direction, and that abdominal pain turns into a stab wound in somebody’s stomach. And there’s somebody with a knife running around and you’re like, “Oh, okay. Now I’m looking for an attempted homicide suspect, and I’m trying to set up a perimeter and I’m trying to get a description and I’m trying to let the medical guys know you can’t come in yet I have to get this clear.” And then in the middle of that you realize that it was a self-defense move and your suspect is actually the real victim and the guy you have is your…

David:
That happens all the time, and one of the things I noticed with the majority of police officers was that every time there was a change in information you were given, the status quo changed, your first response was usually to freeze. Let me stop, let me reevaluate this new information because I don’t want to make a mistake, I don’t want to do the wrong thing. It takes a lot of experience before you get comfortable quickly analyzing the new information and establishing a new course of action. It is human nature, the point I’m making, to freeze when something changes.

David:
And that’s what we see every single time the stock market drops or the president says, this is what we’re going to do, or the news says some new piece of information, or the numbers of unemployment come out or the mortgage market changes, everybody’s initial response is freeze and don’t move, they don’t want to put their money into the market, now we don’t know how much money is going to be available. They don’t want to put their house on the market, that changes supply, maybe they don’t want to close the escrow. It’s normal for everything to change, so when people keep asking, “What’s going to come, what’s going to come?” You almost never get to the answer of that because every time something changes, everybody freezes, and you got to be comfortable existing in that kind of an environment. Do you want to comment on that concept?

Brian:
Yeah, I think that’s exactly right, David, that’s a great analogy to exactly what happens on a lot of police calls and stuff. And having been there, I’ve lived through that too, the difference is that whole sequence of events unfolds, the one you described, that whole sequence of events unfolds in the course of maybe 15 seconds, maybe 30 seconds, maybe 90 seconds, maybe two or three or five minutes. An economic calamity is kind of similar, except instead of 15 seconds, it might be 15 days or it might be 15 weeks or it might be 15 months that it takes to regroup and kind of figure out what’s going on. But once you know what you have, it’s a lot easier to make a decision, when you don’t know what you have, in a case of your scenario, you don’t know who to arrest or you don’t know who to contain or who to put into in handcuffs and detain so they are no longer a threat. Once you figure out where the threat is, then you can kind of calm down and everything is a lot more predictable from that point forward.

Brian:
We’re in that same exact scenario now where they identified the viral threat, but we haven’t identified the economic threat yet. And so therefore everybody’s kind of trying to figure out who to detain and who to contain, right? Once we figure it all out, then things are going to move ahead just like normal, the call will complete, everybody will clear, and it’s onto the next one, you know? And that’s how it’s going to be there.

David:
And while we’re looking for where’s the threat, who’s the threat, people tend to just bunker down where they are. You don’t like moving when you don’t know, right?

Brian:
As they should.

David:
Yep. So it’s normal, that’s what we’re getting at.

Brian:
Yeah, whoever pops up is the most at risk, right? If there is an assailant on the loose, whoever pops up is probably the next victim, and everybody realized that. And same thing with real estate, if you jump in too fast, you might be the next victim. Although, you might also be the one that got the one that got away.

David:
That’s what I was getting at, you could be the hero that ends up catching the threat.

Brian:
That’s exactly right, you could be. And right now that’s a risk, and law enforcement officers take that risk because they’re paid to, they also wear a bulletproof vest. Most investors don’t have a bulletproof vest to protect them, if they make that bold move and they shouldn’t have.

David:
So I’m going to let Brandon jump in here, but what he’s done, I want to ask you, what are some things that investors can do that will function as a bulletproof vest with their [crosstalk 00:05:55]. But Brandon before we do, what do you think about?

Brandon:
Yeah, I was wondering what are some things that investors can do with that would serve as a bulletproof vest, Brian?

Brian:
It’s a good question, you should get a speechwriter, like maybe somebody to write your script for you.

Brandon:
I might have to do that.

Brian:
Yeah, I might do that.

David:
Sometimes it’s like we’re sharing the same mind.

Brian:
Well you know what’d be great as if David would kind of hint what the answer is supposed to be, then I’ll take the next [crosstalk 00:30:22].

Brandon:
That would be good. Hey David, what are some bulletproof vests that investors can be wearing today?

Brian:
So here’s probably my most sure-fire bulletproof vest. You remember some bulletproof vests have a steel plate in the chest too, so they also protect you from stab wounds. So I’ll give you that one, because that’s the most versatile, you can get shot or stabbed and you might live. And that is don’t over leverage, that is the big killer that took everybody out in 2008, you wonder why there were properties in foreclosure, to be picked up at pennies on the dollar back in that last recession. It was because those owners, the vast majority of them, were over leveraged. So if you don’t over leverage, you’ll have a good chance of surviving, even if things continue to go in the wrong direction for a while, you can survive to get to the other side.

Brian:
And this is really important in apartments indications or any syndicated real estate offering too, and people are investing in those, you’ve got to look at what kind of leverage is the sponsor proposing to use, what loan to value ratio, what interest rate, when’s the maturity, all of that sort of stuff. So, that’s probably the big one, is not getting too much leverage.

David:
How would you define over leveraged?

Brian:
How would I define over leveraged?

David:
Yeah, like is it a loan to value that you’re looking at? Is it enough in reserves?

Brian:
Yeah, it’s both. The loan to value ratio is the big one, there’s another ratio that I use called the default ratio, and the default ratio is where you take your effective gross income, and let me see if I can remember the formula off the top of my head because you caught me off guard. You take the effective gross income and you divide it by the debt service, the effective gross income, you divide it by the debt… Effective gross income… Now I’ve got to go look at my formulas. I’m going to look this up and we’re going to put it in the show.

David:
Well usually we have that stuff saved into a spreadsheet, so you don’t have to know it. But can you describe what the formula’s helping you calculate?

Brian:
Yeah, exactly. So I do, I have it saved in a spreadsheet. So I wrote the formula, but then I never have to think about it again, that’s why I love spreadsheets. So what the default ratio tells me, is it tells me how far can income fall below my projection before I reach a one-to-one debt coverage ratio, which means, in other words, I’m bringing in just as much money as I have to pay out for my loan payment. So if I have a default ratio of 75%, it means my income can fall 25% before I’m going to get to a break even point.

Brian:
So that one is a really good one, loan to value ratio is another good one, you don’t want to be too high. On a single family home, totally different idea, right? If you’re buying a house to live in, the loan to value ratio that’s appropriate for you is whatever down payment you can afford. But if you’re buying investment property or rental property, you want to make sure that you’re not getting too high. I like to stay at 70 to 75%, if I can do 65 and still deliver a good return, I like to be there, it just makes me feel really good.

David:
And now that’s for multifamily real estate, correct?

Brian:
Yeah.

David:
Okay, and what’s the benefit of having a lower loan to value when it comes to multifamily, particularly and specifically in a syndication?

Brian:
Two things, one is with a lower loan to value ratio, generally that means you’re going to have more cashflow, it’s going to mean your default ratio is a lower number. So you’re going to have more of a safety cushion, your income can fall more before you get into trouble. The second thing is, is that if you had to sell, you can sell, one of the things that really hurt a lot of people when the market started going down is you had owners that were in negative equity, their property fell in value by 20% and they had an 85% loan to value before they started, they’re at a 110% loan to value at the new value and so they can’t even sell and get out. At least if you’re a loan to value is low enough, if you had to sell, you could sell and not have to come up with cash out of pocket just to do that.

David:
And I’m making the distinction because Brandon and I, and I’m going to ask him about this in a minute, we get criticized about how the BRRRR Method is often over leveraging, and we don’t think it is, more believe or agree with that assessment. But I do believe that over leveraging is bad, what you pointed out was that leverage is not always just how much debt you have on a property versus what it sells for, there’s other things you can do like keeping your cash flow lower because you borrowed more money so you could go buy new stuff, or have plans to put a huge rehab together on a property so you can jack up the rent later but that’s still a bit of a gamble. And in a syndication specifically, because you’re using other people’s money, you’re going to have to sell that property or at minimum refinance it to be able to pay them back at a certain period of time that’s usually spelled out on paper.

David:
It’s not the same as the person who wants to buy a single family house and house hack. and they don’t ever have to sell it, as long as they can make their payment, they can hold it forever. So it’s important that we point out the distinction with these models. But the reason we have guys like you on the show, Brian, is that you prepare for situations like this. You do your underwriting with worst case scenarios in mind, it’s kind of the aspect of just being a cop, that we’re always looking at what could go wrong. Cops never sit down and talk about the awesome day that we’re going to have and how we’re going to prepare for an awesome shift full of fun and jokes, we’re always like, “Well, what’s going to happen if that building catches on fire, falls into the river, pollutes the river, people get sick, turn into zombies, how are we going to contain that scenario?” That’s one of the reasons that you became a mentor to mine, is I really liked that you’re always preparing for the worst case.

Brian:
I think that’s right, and preparing for the worst case, in part, is watching your leverage. But there’s also another part, and that’s having adequate reserves and not getting in over your skis. Have some cash set aside for emergencies and things that could go wrong because you might find you need it, and I’ve been criticized before for raising too much money in some apartment syndication deals because I like to have a large cash cushion. And people sometimes wonder, well, isn’t raising so much cash going to lower the return, and well, yeah it is, but this isn’t a race to see who gets the highest return, this is a race to see who survives. And you can’t deliver any return at all if you don’t survive whatever adversary materializes that gets in your way.

Brian:
So at first got to survive and then the rest will kind of sort it’s way out. So I came up to using the BRRRR Method before it was even called that. I think Brandon was probably still in middle school when I started this stuff, hadn’t invented the word BRRRR, it didn’t even exist. But that’s what I was doing, I was buying something and renting it out and refinancing it and buying something else. And when you’re first getting started in this business, that’s what you have to do, if you don’t have your own resources, you do what you have to do.

Brian:
And that’s what I did. And yeah, it’s risky and it’s riskier and an adverse economic event might wipe you out, but that’s part of the risk that you take. And when you’ve been doing this for 30 years, and you’ve already been there and done that and bought a half a billion dollars in real estate, it’s not my goal to see how much more I can buy, it’s my goal to make sure that I’m still here tomorrow and next week and the month after, and it’s so are my investors. So our priorities have to shift and change a little bit, but again, you have to do what you have to do sometimes, right?

Brandon:
Yeah. Well Brian, so that brings us to one of the things I want to make sure we cover today, is you have a book coming out at BiggerPockets, I believe it’s actually today it comes out. It’s a book on investing in syndications, like putting your money to work. And I know a lot of our investors right now are people who are sitting at home going, “Well, I’ve got some extra cash right now, or I have a ton of equity in my property, I’m thinking about putting into something.” So I’m wondering if we can talk about that just for a little bit, this idea of investing with people like you, like me, like David. David, are you going to do with syndication eventually?

David:
Oh, I’m sure I will, yeah, when the time is right.

Brandon:
All right, so people like me and you and Brian and there’s tons of syndicators out there. So I’m wondering, in writing this book, I mean you looked at a lot of [inaudible 00:38:39] syndicators, I’m sure what was working, what doesn’t. Are there things you can specify, that you can help people, I guess, weed out what maybe a good syndicator from a bad syndicator would be like? Are there telltale signs of that’s a red flag, I wouldn’t put my money with that person?

Brian:
Yeah, and one thing you’re always been really good at, Brandon, is breaking things down and making it really simple. Unfortunately, when you’re looking at syndication sponsors, that’s really difficult to do. Because the most important, most critical factor in evaluating a syndicator to invest with, is their moral character, and that’s also the hardest thing to quantify. I mean it’s really easy to see how many deals have they done or how many units they own or how many markets they’re in or how long they’ve been doing it, but it’s really difficult to quantify someone’s character. But that really is what the whole thing comes down to, and I spent a lot of time in the book talking about things to look for in a syndication sponsor and in a syndication offering, so that people can, at the end of the day they can make an opinion about that person’s character, that’s what you’re really trying to get at.

Brian:
So we’re looking at things like the obvious, how long you’ve been in business, how many deals you’ve done, what kind of results you’ve produced. But also, the not so obvious about how do you issue your reports and what do you say in your reports, and how does that compare to what you promised you were going to do, and what kind of a brand do you have to protect, and how many investors do you have and what do they have to say about you? There’s just so many different factors that go into forming an opinion, it’s very subjective, but there’s always this age old question of what’s more important, the deal or the deal sponsor. I’ve always said, and I will always say, the most important factor is who you’re investing with, because let’s face it, what a syndication is, is we’ve all heard about the concept of investing with other people’s money.

Brian:
And in a syndication investment, when you’re investing in a syndication deal, what you are is you’re now that other person. So if you think about all the people that are out there that have said I want to invest with other people’s money, or you should invest other people’s money, or late night TV with guys on boats surrounded by women in bikinis going like, “Hey, this is investing and this is what it’s all about.” If that’s what you think that it is, it’s really not, but it’s always talking about investing, using other people’s money. What I’m aiming to do is to show the other people, the people who have the money, what to look for and what are warning signs when you’re making that investment in somebody else that’s looking for other people’s money.

Brandon:
Yeah, that makes a lot of sense. The character thing is so important, and I’ve said this before in the podcast and I’ll say it again now in case you haven’t heard it, I have a lot of friends who want to invest in syndications, and they will get the PPM or the executive summary or whatever, all about the deal. I’m sure you’ve seen this as well, and they’ll go line by line, by line through every piece and ask 100 questions, like, “Ah, you know what? I see you have a bid here for painting for 18,000. That seems a little light to me, I think it’d be more like 19,000.” And they criticized every single point of this thing, and then at the end of the day, when I’ve talked to those people, I’m always like, “Look you didn’t go to Betty Johnson’s house at 814B, or her apartment, and knock on her door and ask her how much rent is, did you?”

Brandon:
And they’re like, “No.” So you’re trusting the syndicator at least that far, because they could have just made up the entire rent number, like either you trust them or you don’t trust them. And if they say it’s 18,000 for painting and you think it’s 20, I’m going to go with the syndicator who’s there, who’s got the bids, who’s been to the project, not the armchair quarterback who’s like, “Ah, I don’t think that’s quite right.” So anyway, to me, it’s all character and it’s got to match what I want to do it with. If I’m going to put money with somebody, it’s got to match my investment philosophy, I guess, but I’m going to do it or not do it based on character.

David:
There’s two ways that I would support what you just said, and Brian, that was brilliant to say, and this is coming from the guy who’s smarter than almost everybody who’s listening to this. Brian is super smart, he knows the line items and the details better than most people do that I’ve come across. And he’s saying, “Even though I’m really good at this, I’m still telling you it’s better to go by a character.” The first is what Brandon said, is you can look at a deal and have no idea if the information that you’re being provided is actually legit, and no one ever does back it up. I’ve heard arguments about people saying this is a 14% IRR, this one’s 19%, you should go with the 19% one, and I’m looking at like, “You guys are arguing over something that you neither of you can never prove. How do you know?”

David:
And the second part I would want to point out is, I’m going to leave out the name, but I know a person who was doing basically a syndication but rather than buying real estate, they were raising money for a company that they were starting. And the idea behind the company was really, really good, it was in an industry that was prime to explode when marijuana was legalized, it was tied to that. From the outside looking in, this deal looked really, really good, and probably would have been really, really good. What ended up happening was through a series of unfortunate events, the sponsor who raised the money was outmaneuvered by his business partner, kicked out of or made irrelevant as far as his decision making goes.

David:
The business partner then basically went on a spending spree with all the investor money, didn’t put into the company. The sponsor that I knew wasn’t allowed to do hardly anything to save the company, so all the knowledge and connections and everything they had became useless, and everybody who put their money into that deal lost pretty much all of it. And there was no way you could have seen it coming, if you looked at the private placement memorandum and everything else, it would have looked really, really good, if you did your due diligence, it would’ve looked really, really good. You could not, from the outside looking in, have seen that happening.

David:
Now the problem was, this sponsor then went on to invest in a bunch of other businesses and post repeatedly about how much money they were making and how successful they were in those other businesses, but all people that invested in that first one got nothing. There’s a lot of unhappy people that feel like, “Hey, if you’re doing so great, why don’t you pay us back our money since you’re the one that lost it?” And that’s the perfect example of the personal character, not the business skills, not the deal itself, not everything that can be measured is what blew this thing up. Had that sponsor had a different mindset where they felt responsible to pay everybody back, they would have got their capital, but the character wasn’t there. And what we’re trying to get at here is, you cannot account for that, you can’t see that coming, that’s why character so important.

Brian:
Character is really all you have. That really is all you have. So tell you a story about one of the reasons why I wanted to write this book. I have a friend of mine that I worked with in the grocery store, way back when I was 16 years old, and she owned a couple of fourplexes. And I looked up to that, I thinking like, “Wow, that’s pretty cool, you know you’re a grocery checker and you’ve actually bought some fourplexes. That’s really amazing that you were able to do that.” And over the years they went up in value quite a bit, and she sold them and she invested in a syndication. She took the money, it was a 1031 exchange, and she invested in what was called a TIC syndication, which is a method of syndicating where you can use 1031 exchange money. It’s kind of a dead concept now, but it used to be pretty popular.

Brian:
She invested the whole thing in this TIC syndication in a senior housing project that fundamentally was actually quite good, I’m sure that the concept made a lot of sense, senior housing, you think there’s an expanding senior population, it’s assisted living, there’s going to be a need for it. This company had been in business for a while and had been doing a number of these and at that point in time was really active. So she invested in it, her entire life savings, and as it turned out, the guy that was responsible for the whole company, their CEO, was a crook. He literally was a convicted felon that had previous charges for wire fraud and who knows what, and he literally stole all the money.

Brian:
And all the properties went into foreclosure, the whole thing turned into this huge mass, there was multiple lawsuits. Every investor lost 100% of their investment, and including my friend, lost her entire life savings. Now she’s in her 70’s and she drives for a ride sharing service just to put food on her table, and she was set for life if she didn’t lose her life savings. So really it all came down to the character of the sponsor, it wasn’t the real estate, it was just the character of the sponsor.

Brian:
And there’s another thing that I hear a lot where people say, “I’m looking for an alignment of interest, right?” This is probably the most common misconception out there is, if the syndicator is investing money in the deal, that means that if the good enough for them, it’s good enough for me and they have a vested interest in the outcome and they’re going to want to make sure that I make money because that means they make money. And what people forget, and David, having exposure to some of the criminal element, you’ll know exactly what I’m talking about here, if someone has a character flaw-

Brian:
… about here, if someone has a character flaw that says, “I’m going to skip out on this deal,” they probably also have a character flaw that says, “I’m in control of the bank account. I’m going to skim out of the bank account all the money I invested in this deal so that I don’t lose a penny, and then I’m skipping.” And this whole concept of investing money in a deal to create alignment of interest is all just a hoax. It really means nothing. What really means something is how long they’ve been in business, what their moral character is, what their results have been, and if it’s a partnership, how long have the partners been working together?

Brian:
Because to your point about the other story, when guys haven’t been working together for very long, partnerships break up all the time, and where does that leave you as an investor? It leaves you holding an empty bag. So, I mean, there’s so many of those little nuance style factors that you have to keep in mind that there’s no bright line test. You can’t just say, “Oh, you got money in the deal,” check the box. You have to be able to really dig down to what the moral character is of that operator to know if you’re at more or less risk.

Brandon:
And do you have any tips on getting to know somebody character? I mean, how do you build that relationship with somebody?

Brian:
You build it over time. I have a funny story about a guy that he actually heard me on one of my early BP podcasts. I’ve been on three times now, show three, show 76, and show 152, and I don’t remember which show he heard me on, but he heard me on one of the BP podcasts. He calls me and he said, “Hey, I really like what you had to say about what you’re doing in real estate.” He’s like, “I’m interested in investing with you,” and things and stuff. We ended up chatting for like an hour, and finally at the end, I’m like, “Well, tell me about what you do. I want to learn more about you.” And he says, “Well, I manage the finances for basically a fortune 100 family in the country, and we’re interested in making some investments.” He said, “So, why don’t you put me on the list because what I want to do is I want to see your next offering.” He’s like, “I’m going to watch your offerings and I’m going to watch you for a couple of years, and then we’ll decide if we want to invest with you.”

Brian:
It was so funny because I’m like, “A couple of years?” I just want to underscore what he said there, a couple of years. I mean, he was going to just sit back and watch for a couple of years to see what is the product, what does the written documentation that we put out look like, and then you can reflect on how those investments did and if we’re still around in a couple of years. It’s like dating, you know? You’re not going to go, “Oh, hey, nice to meet you. I want to get married.” It’s more like you’re going to get to know each other over time and maybe you’ll correspond back and forth a little bit, you’ll kind of watch and observe and just take your time. There’s no reason to rush into anything. Just wait it out and you’ll learn someone’s character over time because they’ll show you.

David:
It’s so hard to not show your true character. We had Robert Green on the podcast, and man, he was so good. He talked about this concept of micro expressions and how people would give away how they really feel in a moment, like when you, you tell a joke and you want to see what they laugh at, or you make a political statement or you hear someone else. Probably a better example would be someone else makes a political statement, and I immediately look at everybody’s face in the room, and I can tell from a frown or a joke or a very slight head nod where that person stands before they realize, “Oh, God, people might see me,” and then they get rid of it. It’s a very, very quick flash. And as cops, we just learn to read that all the time because everybody lied to us all the time. Right? The minute the word warrant would come up during an attention, I’d look at all the suspect’s spaces, and if some of them were like… their eyebrows went up, I’m like, “Okay, that’s the one I’m paying more attention to it.” Right?

Brian:
Yeah, you got a warrant.

David:
There you go. And so learning to read that behavior taught us a lot about human psychology, and the reality is, anybody can pretend to be a certain way for a short period of time. Right? And usually the people who either don’t know what they’re doing or know they have dishonorable intentions will try to overcompensate by that by overselling the deal, making the return look better than it normally could be. But if you just wait, like that guy’s smart, he knows, my job is to not lose this family’s money, like what you said. It’s not just to make them money, it’s to manage their fortune and not lose it. So, he’s going to make you wait for three years. What I thought about when you were saying is what if everybody got married using that same method of, “I’m going to know this person really good for two to three years before I ever even say, “Okay, let’s go do this.” What percentage of those relationships don’t work out because the person wasn’t what you thought?

David:
I would bet you. It’s almost always the people that dated for a month or two and just assumed it would be fine and jumped in the situation, and what you’re saying is absolutely right. When you’re choosing your syndicator, has the person done it for 15, 20 years, 10 years, even? If they have been, that tells you a lot about their character. If they’ve done it for two years, they could be great, but how could you ever know?

Brian:
Yeah, how could you? And it is really difficult to know, but they always leave breadcrumbs behind, right? I mean, you can always find somebody that has ill will or ill intentions there. There’s always some kind of a signal that’s left behind. Really that’s what this is all about. I mean, you’re just looking for somebody that you can trust, and I think trust is one of the biggest things. Sometimes you can tell just by looking in their written materials, right? Because people, one of the first things you’ll do is you’ll ask, “Well, send me a slide deck on the deal that you have,” and then you look at the slide deck and you see all this just ridiculous. I mean, first you’ll see spelling and grammatical errors, you know? It’s like, so they don’t even take the time or the care to make sure that what they’re putting out looks good.

Brian:
Then you start seeing a lack of information. There’s very little financial exhibits, so you can’t really trace the money from the rent payment all the way to the investor distribution because the chain of cash is broken. You know? They’re only showing you part of it. They’re showing you huge returns that just aren’t achievable. One of the things I look for, I can tell it the mindset of a syndicator usually in about 30 seconds. All I have to do is open up their offering and look at their first year projected income and compare that to the last year projected income. If you see a huge jump, you know they either don’t know what they’re doing or they’re just flat out lying to you because you’re not going to get that huge jump in reality. There’s just no way that happens. So, that’s another thing that you look for.

Brian:
I mean, one of the things I do in this book is I break down forensically an income statement to show these are the things you need to be looking for, and you’ll find clues along the way that tell you that this person isn’t really exercising due care. What they’re trying to do is they’re trying to show you that they have the highest returns that you’ll invest with them, and that’s not really what you should be looking for. You’re not looking to invest with the one that offers the highest return. You’re looking for the one that offers a return that makes sense, that’s underwritten on assumptions that make sense and has a good risk adjusted return, not just the biggest number.

David:
Was it Warren Buffet that said the first rule of building wealth is don’t lose capital or something like that?

Brian:
I don’t know who said it, but it’s a true statement.

Brandon:
I think that’s the first rule of fight club is you don’t talk about losing capital.

David:
Don’t talk about fight club. I’m pretty sure it said how to build wealth, rule number one, don’t lose capital. Rule number two, see rule number one, or something like that. Right? And it’s very easy. Brandon and I have been saying for years now, when the tide is rising to get really greedy and not think about risk. I mean, I can’t remember the last time vacancy was even an issue in my entire portfolio. You don’t have it. The tenant moves out, there’s another one to be coming in. Rents went up every single year. The tenant ruining the property was my biggest concern. Well, now you get this little brief flash of fear and all of a sudden you’re looking really smart, Brian.

David:
Whereas you might’ve been looking like, people say, “Why are you raising so much money? Why do you need so much in reserves? We could get a better return if you would reinvest that money or you would leverage it harder.” And Brandon, I’m curious with open door capital, are you guys set up a more on the aggressive side or are you set up more on the conservative side, or is your asset class alone kind of so conservative that it protects your investors more than other ones would?

Brandon:
Yeah, I mean, our entire model is different than a syndication. I mean, in two ways it’s different than what Brian would do, for example. But our projections are based on infill almost entirely. With an apartment, you don’t just go and add a bunch of units, but we’re adding a bunch of units, which it’s a different business completely. I would say that… I mean, everyone says they’re conservative, so I can say it all day long. Yeah, we’re being conservative in our projections. I like to think that we are. I mean, I think our entire year of what we budgeted for one of our parks, for example, we were going to infill eight houses or 10 houses in the first year and we did that in the first month, and so we’re 12 times ahead of schedule right now. And so like to think that, because we were just starting this thing. I mean, we don’t own 40 of these things. Brian’s been doing this for 40 years now, 50, 60 years now, Brian? 70?

Brian:
Yeah, about half that.

Brandon:
80? Yeah, okay. Brian’s been doing this for almost 90 years now, and so I like to think I’m being conservative, but mine’s built almost entirely on infill, so I don’t know how to answer that question. But that’s why I like mobile home parks a lot right now. That’s why I’m a big fan of them and I’ve been for the last couple of years is just because like I believe that when the economy struggles as it is and it’s going to, my hope is that, and we’re going to see here in the next few weeks, my hope is that tenants can still come up with $225 for lot rent if it means the alternative is losing their house versus having a rental where their rent on their apartment, their posh apartment is $4,500 a month, that would worry me a little bit more right now. But at the same time, I mean, the mobile home park people, they’re losing their jobs just like everyone else is at that level, and so there’s going to be some struggling people. Yeah.

Brian:
Yeah. There’s a bottom up challenge in this particular economic situation that we’re in where it’s hurting some of the line level workers the hardest ,and some of you are white collar and medium blue collar are still, they’re working from home or still have some limited work or maybe even fully employed, whereas your restaurant employees, entertainment, travel, some of those folks are the ones that are taking it the hardest, and many of those are our mobile home park residents. So, it’s going to be really interesting to see how that plays out. There’s always a theory that this asset class or that as that class is more recession resistant, but the truth is with every recession looking different, it’s really difficult to say, right? They all will handle it a little bit differently each time.

Brian:
The key is if you’re properly structured and you’re properly capitalized, you’ll be there to survive. And really that comes down to, again, it’s character. If you have the character such that you’re defensive about your investor’s capital and your focus really is in preserving your investor’s capital, you’ll be adequately capitalized if you’re out there just trying to buy up real estate with as little money as you can cobble together that those people are potentially going to suffer, and I have a feeling that we’re going to see a lot of kind of either newer or more aggressive syndication groups, they’re going to flounder in this economic climate, and some of them may fail all together, and it’s going to be really interesting to see how all that shakes out.

David:
That’s really what’s concerned Brandon and I over the last year and a half, maybe two years. We’ve talked a lot about the overwhelming number of brand new investors who went and bought two properties as a syndication, or maybe three or maybe bought a four unit and then a 10 unit and then a 50, and now they’re creating a course to teach somebody else how to raise money and how to buy property, and they have not seen enough or had to operate in an environment that anything but wind at your back downhill road makes it really easy to go that are out there coaching people and teaching people, “This is how you do it.” Whereas someone like you, I think you said you started investing in ’89, you’ve seen a lot. You’ve had a lot of experience. You’re that police officer that can make decisions quickly because they’ve done this for 25 years.

David:
They’ve seen thousands of scenarios start off a certain way and turn differently, so their mind has all this data in it that it can go to and say, “Oh no, when this happens, that’s likely to happen,” where everybody else freezes, and when you’re giving somebody else your money, it is a very good way to build wealth when it’s safe, when you’re giving it to someone else. In fact, I think for a lot of people that are interested in being an investor, the better method is to continue making good money at your job and investing in other people’s deals through syndication and growing your wealth that way rather than quitting your job, trying to learn how to become a full-time real estate investor, taking five years before you ever get any good at it and then start making money again.

Brian:
Yeah, that’s a hard way to go. That’s a tough road. My wife’s been telling me for probably the last, I don’t know, at least 10 years, that I should write a book, and I always resisted it, saying, “I don’t know enough yet. I don’t feel like I have enough experience yet,” even though I’ve done, at that time, like 10 years ago I had done, I don’t know, 300 or 400 deals, right? “I need to do this a little bit longer.” Then you’ll see somebody pop up and they’re on their third deal and they’ve got a book and a course and a bootcamp and you’re like, “Oh my gosh.” But the truth is, is that I’ve been busy running my business, not creating an educational empire, and it’s how do you focus your time?

Brian:
I think that’s another thing that you should look at as an investor in a syndication is how is that person spending their time? Are they really spending their time on an educational business and maybe not spending so much time on the syndication business? Or are they at least… I Want to know that they’re adequately watching over my capital. That’s what I’d want to know as an investor, and I think it’s an important component, and some people really aren’t that focused. There’s guys out there that are doing all sorts of things but not spending any time on their syndication business.

David:
Oh, yeah.

Brian:
That might work when it’s small and you’ve got a little bit fewer properties, but as you grow and get big, it can’t sustain itself that way. Eventually you have to be all in.

David:
There’s actually a systemic threat to investing with somebody who also is making money through coaching. Even if they have the best of intentions, it’s hard for them to make the right business decision when it comes to buying property if they know, “If I stopped buying property, I can’t sell as many courses or programs.”

Brian:
Yeah. That’s a great point, and I think you see a lot of that out there. For us, thank God those also own a lot of property, I’m glad those guys are out there because they make great buyers for the stuff we’re selling. So, I suppose there’s one piece that’s good about it. In fact, I think we’ve probably sold as many properties to boot camp style graduates as we have to larger operators, because there’s a lot of money floating around in that circuit, and some of them are great and they’ll do just fine, and others will flounder and struggle, and we’ll find out over time which is which. This is usually, it’s times like this when you have some kind of a challenge that’s inserted into the mix when you figure out who’s who, right? As they say, when the tide goes out, you learn who’s swimming naked.

Brandon:
Yeah, yeah. I mean, we’ve talked about this a number of times on the show, but I’ve been concerned for the last few years. Like David, you’ve said we’ve been talking about these syndicators who, I mean, I see these projections where it’s like, “Yeah, we don’t expect to make any cash for us for the first six years, but trust me, after year seven, your IRR is going to be 22% because this thing’s going to be worth so much more because the cap rates…” so, all these projections are so based on best case scenario and based on just these rose colored glasses with everything that people are doing. Brian, how do you separate those people, and I want to actually I go bigger than that, but just how do you first of all meet syndicators in general?

Brandon:
Do you talk about that in the book? How do you get to know a bunch of syndicators so you can start building those relationships, and then again, any final tips on how you can pick the one that you should go with, or should you pick multiple ones? I’ll ask that question after, but I’ll pose it now so you can get to it. If you had 500 grand, should you put a hundred grand with five different syndicators or 500 grand with one? But let’s start with how do you find the investors in the first place?

Brian:
Yeah. If you have money to invest to syndication, how do you even find syndications? This is a tough question because you don’t find out a billboard, right? And even if you do, that’s probably not the group you want to invest with. So, this is a very relationship centered business where because of the securities laws are the way they are, most syndicators cannot advertise. Now, you can advertise some offerings if you limit yourself only to accredited investors, which means people with a certain level of income or net worth, you can advertise. But most-

Brandon:
Which by the way, which is what I did. I did a 506C, so I can only take accredited money. But here’s what’s funny. Whenever I talk about it on podcasts or on my Instagram, I always get a bunch of people jumping in and going, “You’re breaking the law, Brandon. You’re breaking the law. You can’t talk about that.” I’m like, “Yes, there are exceptions.”

Brian:
Yes.

Brandon:
“And I chose that route for a reason because I have a big audience,” and so I went that route. But just so everybody knows, I am doing this correctly. I have attorneys, I can talk about it. But anyway.

Brian:
Yeah, you can. That’s absolutely true. A lot of people think, “Oh, I’m going to do a 506C offering so I can advertise.” But really it doesn’t make a lot of sense for most people, because advertising, nobody invests because they saw a magazine ad, right?

Brandon:
Right, yep.

Brian:
They only invest because they trust you. That’s the reason why people invest, and we can get into three trust curves here in a minute, but they invest because they trust you. Brandon, for your example, they trust you because they feel like they know you, they’ve seen you on podcasts, they’ve seen the articles that you’ve written, they know how you think as an investor, and that’s why they trust you. So, if you already have an audience, a 506C makes a ton of sense. If you don’t have an audience, the 506C makes no sense. A lot of people are out there saying, “Oh, I’ll just do a 506. I don’t know any investors so I can advertise.” Generally speaking, that doesn’t really work. Most people choose the 506B because it allows you to accept investments from accredited and nonaccredited investors. The difference is you can advertise, but you can network.

Brian:
So, most of the times, syndication sponsors are discovered because they’re networking. Maybe they have a presence online where, I’ll just use me as an example, here’s how I did it, and then there’s a lot of other people who do something similar. You know, I’m on bigger pockets just answering people’s questions. I’m not advertising or talking about what I’m doing. I’m just answering people’s questions. When people say, “Wow, that was a smart answer, so this guy knows what he’s talking about.” That’s one step. So, look around and see who’s making good comments, who’s posting good answers to questions.

Brian:
Another one is I attend conferences and I’ll speak at conferences. So, you might go to conferences and you’ll see a speaker up there that does apartments indication you’ll go, “That guy really sounds like he knows what he’s talking about.” So, that’s another way that you can discover. Now, if you really want to get down to it, I mean, I have a like a whole section in the book about how to find syndications to invest in. But some of them really require a lot of work, you know? And one of them is you go to the websites of the major brokerages that sell the type of property you’re interested in investing in, so let’s say you want to invest in multifamily assets in Phoenix.

Brian:
So, you would go to who are the biggest brokers selling the most multifamily in Phoenix? And you go to those brokers websites, and sometimes you’ll find a report on there about sales activity and that sales activity might say, “Here’s the top 10 buyers in the Phoenix market. It’s this guy and this guy and this guy.” And generally those guys are usually syndicators, so you can learn using those reports who some of the syndicators are, then you go to their website and you do research on them. So, there’s a number of different ways, podcast guests, you listen to podcasts, a lot of syndicators are guests on various podcasts and you might like what somebody had to say. So, it’s really about figuring out who’s in the industry and then you go to them rather than them coming to you trying to sell you is generally how this is done.

Brandon:
That makes a lot of sense. So, let’s go to that question then. If you’ve got 500 grand, do you put 100 grand with each syndicator, five different syndicators, or should you pick your horse and just go all in on one?

Brian:
Well, I believe that you got to diversify, and diversify means a lot of things to a lot of people. But to me it means that there’s a lot of different ways you can approach diversification. If you have 100,000 to invest and that’s the only 100,000 you have, diversification becomes a little bit harder to achieve. So, one way that you can achieve some level of diversification with a smaller investment is to invest in a fund where the fund might be investing in a number of assets or might be investing with a number of syndicators that are investing in a number of assets. So, sometimes fund investments can provide you with some diversification. If you have more capital than that and you actually have the ability to handle the diversification yourself, I recommend diversifying amongst geographies. So, you might invest in offerings that are purchasing real estate in different markets.

Brian:
Maybe you invest in a apartment deal in Atlanta and another one in Phoenix and another one in Florida or whatever markets you’re most interested in. Also, investing across different product types can make sense for people. You might put some money in a mobile home park syndication like with what Brandon’s doing, and then you might put some money in a multifamily offering, and maybe those two or even in different geographies or maybe they’re even in the same geography, and you achieve geographical diversification some other way, and having sponsored diversification is another one and investing across multiple sponsors. What you’re really trying to do is you’re trying to eliminate any single point of failure, and if you invest all your money with one operator, that’s your single point of failure. If you invest with multiple operators, but it’s all multifamily and Phoenix, then Phoenix is your single point of failure. If it’s multifamily only and maybe it’s a variety of markets with a variety of syndicators, your single point of failure is multifamily. So, if you spread it around, you can hedge yourself a little bit and get a little bit more diversification and safety that way.

Brandon:
That is so good. I’ve never heard anybody explain diversification in terms of that single point of failure, but I really like that a lot. That makes a ton of sense.

David:
Let me make one point about what I like about what Brian said. You can do this. Let’s say you just love real estate, because what I hear a lot of people say is, “Hey, I want to get out of my job and I want to get into full-time real estate,” and I’ll say, “Okay, what does that mean to you?” “Well, I want to do wholesaling and I want to flip and I want to buy rentals, and I also think I want to get my real estate license.” That is trouble when you start to spread yourself thin. Okay? But there is a way that you can diversify risk using that same principle, which is pick one form of investing, of active investing, one form of investing that’s passive, such as investing in somebody else’s deal, and one form of earning money through real estate, like a job. That would be being an agent, being a loan officer, providing some service to people that do that, being a wholesaler, whatever the case may be.

David:
Why I like that method, that’s very similar to what I’m doing, is I don’t worry what the market does. I do not care. When the market goes up. I sell more houses. When the market goes down, I buy more houses and I work with more investors. When the market stalls, I look for creative ways to be able to make deals work. I never feel the fear that other people have of, “Oh my God, what I doing doesn’t work anymore. Now what do I do?” And then they panic. You can diversify with your vocation when it comes to real estate as well. So, that could look like making a bunch of money in this upmarket, not a bunch of money, but making money as an agent, investing it with Brian when you don’t know what to be buying, and then when the market stalls, you’re not making-

David Green:
And you don’t know what to be buying. And then when the market stalls, you’re not making as much money, looking for seller financing deals or buying rental properties for yourself and managing those and then helping other people to buy investment property and earning a commission off of that, buy more property with that commission. Then the market starts to get good. The deals go away, you give the money to Brian again. There’s always something you can do that doesn’t put you in a position and by the way, this is not me saying, “Brian, Brian, Brian, give all your money to him.” He represents just investing with someone that you trust. But when you’re diversified with how you earn money through real estate, you don’t make bad decisions nearly as easily. That’s the point I wanted to get at.

Brian Burke:
Yeah, I think that’s true. And one of the reasons why that is so true is because you’ve got multiple streams of income from a bunch of different ways. Right? And I’ve always said throughout my career that real estate is like a meandering stream through a meadow. It curves left and it curves right as it makes its way through the meadow and if you’re rowing down that stream, the only thing you cannot do is row in a straight line because I guarantee you, you’ll run a ground. You have to be flexible enough to swing left and swing right because as things shift you need a way to survive and to keep going. So that’s why in my business over the years I’ve done so many things as I have, I’ve flipped, I’ve done rentals, I’ve built homes from the ground up, I’ve done hospitality, self storage, I actually built a self storage facility.

Brian Burke:
I feel like I’ve touched all of these different sectors in real estate and I’ve done that because at the time that was what was working at that particular moment. And so I think that what you mentioned there, David, is really on point, that there’s a lot of different ways to make money from real estate. It’s not just one thing or doing one specific thing. It’s being flexible and doing a lot of different things so that there’s never too much pressure to only do the only thing you know how to do.

David Green:
Yeah.

Brandon Turner:
Yeah, that makes sense. Well, Brian, tell us what is the book, what’s it called? Where can people get it? And tell us a little bit about it.

Brian Burke:
Well the book is called, The Hands Off Investor and you can get it of course, on the biggerpockets.com store.

Brandon Turner:
Awesome.

Brian Burke:
The book is just now coming out and the subtitle of the book is, it’s an insider’s guide to investing in passive real estate syndications. And what I’m really trying to do here is fill an unserved need that really hasn’t been out there so far. I related the story to you about the friend of mine who lost her whole life savings and that was a motivator for me to write this book. If I could prevent that from happening to just one person, I’ll have felt like I’ve done my job. But the other reason I did it is because we get so many questions from investors when they’re talking about our deals.

Brian Burke:
And I thought, “Gosh, so many of these people are just asking the wrong questions. There’s harder questions they should be asking than the ones that they’re asking” or they’re just barking up the wrong tree. And the reason I finally figured out why that was is because there’s no place for people to go and educate themselves on how to be a passive investor.

Brandon Turner:
Yeah.

Brian Burke:
There’s tons and tons of books out there on how to buy real estate or how to buy real estate with other people’s money or no money down. There was a guy named Brandon Turner wrote this No Money Down book. I mean, there’s all kinds of books out there on how to buy real estate. David Green wrote a book on investing out of state of all things. I mean, my gosh, you can do anything. But the one thing you can’t learn how to do is how to invest pass away as a passive investor. There was no book out there to teach how to do it. I thought, this really needs to be done so that people know what to ask. So that was my motivation behind it and it’s on the biggerpockets.com store and I’m really proud of it. I thought when I first got down this road, I wasn’t sure if it was going to be any good, but now that it’s done, I’m actually, I’m pretty proud of the way it came out.

Brandon Turner:
That’s awesome.

David Green:
Well your book might be the most important of all of them because if theoretically you could let other people learn how to do all the other investing that you just talked about through the books that we wrote and invest with all those people, you just find the best ones and give them your money and you can sit on the… I mean, that’s truly hands off, right? I’m on the beach sipping a Mai Tai while David Green, Brandon Turner, Brian Burke is out there working to earn me a living. I mean, that’s the most form of passive investing that you can possibly have.

Brian Burke:
Yeah, it’s passive as it gets. But having said that, passive investing is really anything but, even in a lot of ways because it’s not like you just set it and forget it and it’s not like you just start writing checks to people and they go out and start investing your money. I mean, there’s a lot of active component in the beginning because you’ve got to figure out who you want to invest with and make sure you’ve thoroughly vetted them. Because if you’re going to go buy a house or an apartment complex or something like that, that’s the one element you have to underwrite, right? Is you got to underwrite that real estate. But when you’re investing passively, you’ve got an additional component that’s introduced into the mix that you have to underwrite and that is the sponsor themselves. So initially there’s some upfront work to figure out, “Hey, do I want to invest with this person?” And then you can press the go button, but there’s a little bit of work you got to do upfront.

Brandon Turner:
All right, man. That’s awesome. Well, I’m excited to get this book. I haven’t actually got a physical copy and I’m waiting for it to be sent to me so I can read it. I like reading physical copies more than I do, but in addition to the physical, you also have an audio book version and an ebook version of it, so digital. I know you can get all of those at biggerpockets.com, so syndication book again, biggerpockets.com plus syndication book. You can also get the ultimate edition, which includes the audio, the ebook, and the physical, all of that for 49 bucks total. And there’s a bunch of other cool bonuses that come with it, including knowing the backstory of a deal. It’s a bonus chapter.

Brandon Turner:
This is awesome, you just mentioned asking the wrong questions. So you actually include as one of the bonus content when you buy it through BiggerPockets, a list of questions to ask a sponsor and then of course a live Q and A with the author of the book, Mr. Brian Burke himself. So very cool. All right dude. Well. Yeah, everybody go pick it up right now. Last question I have about the book, is this book only really good if you are already an accredited investor and you’re super wealthy and you’ve got a lot of money?

Brian Burke:
No, I actually think that this book has multi-purposes and when I wrote it I originally was going down one road of even focusing on its multipurpose ability, but I decided to downplay it, but it’s still there. So the multi-purpose is, if you’re an accredited investor, it’s obvious you want to make passive investments and you want to learn how to do it right. This book is going to help you.

Brandon Turner:
Yeah.

Brian Burke:
If you’re not an accredited investor, yet you still want to invest in passive real estate opportunities, you really need to read this book so that you can learn what to look for and how to analyze these opportunities and what to expect. Because one day you’re going to be an accredited investor. And there’s also a lot of syndication sponsors that take investments from non-accredited investors. So it makes sense for the non-accredited investor and there’s one more segment of the real estate population that this book makes a lot of sense for. And that is for the person who wants to be a syndication sponsor. And that’s the unsung part of this book that I didn’t really emphasize very much, but I look at it this way. If you’re about to take a college course and you know at the end of the course you’re going to be graded and you’re going to be graded by a test, how much better do you think you would do at that test if you had all the questions and all the answers ahead of time?

Brandon Turner:
Yeah.

Brian Burke:
And that’s what this book does because your investors are going to be the ones that grade you. And if you know ahead of time what questions your investors are going to be asking you what you should be doing, you’ll do a lot better for your investors. So there’s that element that will also benefit from this book.

Brandon Turner:
Smart. Smart.

David Green:
That’s a great point. I really, really like that. I mean, that principle works is so many things. If you want to run a great business, be in touch with what your consumer, your customer wants, and when you’re raising money, that’s basically who your consumer is, is the person investing in your deal. It’s like for me, taking a listing in real estate, we do so well with that because I know what buyers think. I know what they’re looking for. I know what turns them off. And the people who just sell homes and that’s all they do, it’s very easy to lose touch with how buyers think and they just think about how sellers think. So that’s a great principle for life in general. If you want to be good at something, start with what your end result is and work backwards and for you, that’s knowing what is your investor care about.

Brian Burke:
You’ve got to know your customer and that’s really important. And if you know what your customer is, your investor, and people don’t always think of it that way. They think of this as a real estate business, but as a syndication sponsor, this is not a real estate business at all. This is a financial services business. And what we offer, is we offer investment products for investors and that’s really what this is. And it’s not about real estate. Real estate just happens to be the vehicle that we use, to use in those investments. This is a financial services business and that’s how it should be run. And some people, they miss that point. So yeah, know what your customer wants and be sure that that’s what you’re providing. I think that’s enormously important. One other thing I go through in this book is, I talk a lot about analyzing real estate.

Brian Burke:
So even if you’re just a real estate investor that wants to buy real estate for yourself, there’s a whole section of this book on analyzing real estate that you’ll benefit from. Because I talk about things like cap rate. There’s so many misconceptions about cap rate that almost everything you’ve ever read about cap rate is wrong. And I’ll point it all out in this book and you’ll learn a lot about how to analyze real estate and I do that because, as a passive investor, you need to know how to analyze real estate the same way a building inspector needs to know about construction techniques.

Brandon Turner:
Mm-hmm (affirmative).

Brian Burke:
And I don’t do it in the book with the intent of teaching you how to buy real estate, but more just about understanding how to analyze it properly. But everybody that invests in real estate can benefit from that section of the book if nothing else.

Brandon Turner:
Very cool. Very cool. Well, as with most of our books at BiggerPockets, what I always say is, “Look, if you can read this book and pick up one more tip, tactic, some kind of strategy that you didn’t know about before, it helps you in a conversation, helps you get an investor down the road 10 years from now, what’s 50 bucks for a package or 20 bucks for a book?” It’s one of those… no brainer. That’s why BiggerPockets publishing is one… I don’t know, one of the biggest publishers in the world in terms of real estate books, that is. Because these books are just, they pay for themselves. So anyway, pick it up you guys, biggerpockets.com syndication book and now I want to actually, because this is such a long show, I want to bypass our deal deep dive and the fire round and move right into the world famous…

Voiceover :
Famous for.

Brandon Turner:
All right. This is the part of the show, we’ve gone through this already three times with you Brian, but we’re going to go one more time today. The part of the show where we ask the same questions to every guest, every week. You ready for this?

Brian Burke:
Hit me up.

Brandon Turner:
All right, well before I hit you up with the questions, let’s hear from some of the other podcast hosts, see what’s going on this week on the BiggerPockets podcast network.

Jay Scott:
Hey there Brandon and BiggerPockets real estate podcast listeners. This is Jay Scott, your cohost for the BiggerPockets business podcast and this week on the business podcast we have Laura Spalding. She is a former police officer who started a crime scene cleanup business that did so well that she ended up franchising it all around the country. On this episode she tells us all about franchising and she even gives us some of her most interesting crime scene cleanup stories. So check us out this week on the BiggerPockets business podcast. Now, back to your famous for.

Brandon Turner:
All right, all right, all right. Well, make sure you guys are checking out those other podcasts as well. When we get finished with this episode today, make sure you click over to one of those and listen to one of the other shows on our network. With that, Mr. Brian Burke, what is your current favorite real estate related book?

Brian Burke:
Oh, favorite real estate related book. It’s been a long time since I’ve read a real, real estate related book because when you’ve been doing this for so long, it’s like that’s the last thing… it’s like the cops watching cop shows, right? Cops don’t watch cop shows. I do this every day so I don’t read real estate books.

David Green:
Brian, you’ll agree, when we do watch it, we just point out all the mistakes that they’re making. Like, “What are you doing, what?” Right?

Brian Burke:
Yeah.

David Green:
It’s the same thing when we read a real estate book.

Brian Burke:
[crosstalk 01:24:19] officer safety.

David Green:
“Why do you get that close?” And when we read a book, it’s the same thing. Why did you say it like that? That’s not the way to do it.

Brian Burke:
Yeah, it’s so true, but okay, but I still got to give you one, so I’ll give you one. I read this book recently called Upside. It’s by Kenneth Gronbach and it was a really good book. The book is actually on demographics, but it’s really to me, real estate related because everything that we do in real estate, especially in a large scale with apartment complexes and that sort of thing, is all related to demographics and learning how to analyze demographics and how those demographics are going to impact your investment, is enormously important. And it was a great book that taught me a lot about things that I’m looking for when I’m looking at demographics. So it’s called Upside, really good book.

Brandon Turner:
Awesome.

David Green:
Awesome. Okay. What about your favorite business book?

Brian Burke:
My favorite business book, there’s always the old obvious ones, right? You know the ones that we’ve all read, rich dad, poor dad and that sort of stuff was a big influence to me early on. But the most recent business book I read, which I really enjoyed was a book called Ted Talks by Chris Anderson, the guy in charge of Ted Talks. I’ve been doing a lot of public speaking lately and it was a great book to teach some techniques on being a good public speaker so that you don’t put people to sleep. And I really enjoyed that book. It’s a great business related book.

David Green:
You know, I need to read that. I’m actually scheduled to do a Ted talk or TEDx talk in Sacramento and I believe David Goggins and Gary Vaynerchuk are both on the card as well.

Brandon Turner:
Nice.

David Green:
So I’ll have to read up on that. But Ted Talks are really cool. [crosstalk 01:25:52].

Brian Burke:
You guys check it out. Great book.

David Green:
I mean, I listen to those all the time. They’re really, really good. Especially if you want to raise money. Being able to communicate and articulate thought and paint a picture for people is so important. You could have the best deal out there, but if you can’t communicate that to people, it’s kind of useless.

Brian Burke:
Well that’s why these two books are so great. I mean, when you think about it as a syndication sponsor, you have to be able to communicate your idea and your business and you also need to make sure you’re making the right investments. And so the combination of those two books go a long way.

Brandon Turner:
Very cool.

David Green:
All right. So when you’re not flaking on Brandon, when you’re supposed to be visiting Hawaii or buying hundreds and hundreds of properties, what are some of your hobbies?

Brian Burke:
Really the only hobby I have other than working is aviation. I’m a licensed pilot. I got my pilots license when I was in high school using the money I earned from my grocery bagging job.

David Green:
Nice.

Brian Burke:
And I went to flight school and learned how to fly airplanes. So first time I was ever in an airplane in my entire life, never had my feet off the ground, I was actually flying it. So it was a surreal experience.

David Green:
That’s cool.

Brian Burke:
And I’ve been flying ever since and now I’m an instrument rated airplane pilot, student helicopter pilot, and just love going out and exploring the blue skies.

Brandon Turner:
That’s awesome man. Very, very, very neat. Well, with that said, last question from me, what do you think separates successful real estate investors from those who give up, fail or never get started?

Brian Burke:
Oh, it’s just perseverance. I mean, I could have given up a hundred times in all the years I’ve been doing this, and man, I’ll tell you, when the 2009 or 2008 recession came along, there was a lot of really uncomfortable conversations around the dinner table. It was a very difficult, difficult time. It would have been so easy to just say, enough of it, I’m throwing in the towel, I’m going to go back to work.

Brandon Turner:
Mm-hmm (affirmative).

Brian Burke:
But I didn’t. I did what was really crazy and kept going and actually grew. I used an adverse situation to exponentially grow. And I think that’s really what sets people that are successful apart from those that aren’t. Usually when there’s adversity, they tend to recoil and go into hiding or shrink. And instead I expanded and that really made the difference.

David Green:
Oh that’s really good. And guys, as you’re listening, just expect that, anticipate that, prepare for that. You’re going to get hit with wave after wave of fear and then you’re going to think, is it finally over? You’re going to poke your head up and then boom, more uncertainty and fears going to hit. Just hang in there. It’s okay. We can weather this storm. It’s just like a fighter who’s got his opponent that’s just a flurry of strikes that are coming at them and they’re just ducking and covering and you don’t get knocked out. That’s the goal. Because when they’re done, they’re tired. And that’s when your opportunity to go back is.

David Green:
And that’s very similar in this market. We’re getting hit with lost rent and uncertainty and loans going away and how long is this going to last? And we haven’t even seen in America at the time of recording this, we haven’t had a ton of people getting sick, but that’s probably going to be coming soon too. Just prepare for this, right? Expect and anticipate this is coming and don’t give up. Keep listening to podcasts, keep reading books, keep talking to investors, keep your hope alive because when that storm is over, you’re going to see rays of sun and if you’re ready to get out there and start making progress, like Brian said, you’re going to make a lot of progress. That’s really, really good. Right, my last question for you is, where can people find out more about you?

Brian Burke:
Well, I was out in Hawaii a couple months ago and Brandon showed me how to use Instagram, so…

Brandon Turner:
That’s right.

Brian Burke:
I guess you could find me at, investor Brian Burke on Instagram or on the BiggerPockets forums. I’m on there all the time, answering people’s questions. I’m writing for the BiggerPockets blog. I’ve got a series of articles I’ve written that’s going to hopefully come out soon for the BiggerPockets blog, and of course our company’s website is praxcap.com. Praxis Capital is my company, and the website is praxcap.com, P-R-A-X-C-A-P.com.

Brandon Turner:
Very cool. Well thank you, Brian Burke. I’m excited to have you back here on the Island of Maui eventually and we’ll get some dinner and I’ll make you eat some good food so it’ll be good times.

Brian Burke:
Looking forward to it.

Brandon Turner:
All right, and that was our show with Brian Burke. Awesome, awesome stuff today from one of the people that I look up to more than anybody in the entire real estate world. Mr. Brian Burke. That was very cool.

David Green:
Yeah, Brian’s one of those people that every time he’s on, he’s better than he was the time before.

Brandon Turner:
Yeah.

David Green:
In fact, he was talking about how it’s only been seven years since the first show, but between this one and the last one he did, he’s almost doubled his deal volume and it shows that once you hit a certain level of success, you start to scale so quickly that you just learn it, amplified rates and your success comes at amplified rates. As long as you get through that initial learning process of the curve, he’s in a pretty sweet spot now.

Brandon Turner:
Yeah, that’s very true. Well, thanks for joining me today, David. Stay safe. Get out there. Go make some deals happen. We’ll talk to you later. Want to take us out?

David Green:
That’s exactly what we’re planning on doing. Just keep pushing forward just like everybody else can. You don’t know what’s coming, but that’s okay. You can adapt to whatever comes your way and that’s what this is all about.

Brandon Turner:
Just like a cop.

David Green:
Thank you Brandon. I thought you also… Just like a cop. Yeah, somebody should do the… our producer Kevin was like, “Hey, you guys think we can get another cop analogy in there? You think you can add another one?” Rounded up to an even 100.

Brandon Turner:
Yep. There you go.

David Green:
So that’s actually how Brian and I met actually, is we both, before I was ever the host of the podcast or even writing blog articles on BP, he was just another police officer that was an investor like me. And that’s how we connected. And here we are today. All right, so let’s get out of here. This is David Green for Brandon, I promise I’m not breaking the law, Turner, signing off.

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In This Episode We Cover:

  • How Brian got his start raising capital from his cop buddies
  • Bulletproof vests” investors can use to survive right now
  • Brian’s definition of “over-leveraged
  • Why Brian is currently more focused on operations than acquisitions
  • How government stimulus $ may affect the real estate market
  • How and where passive investors meet syndicators
  • The #1 quality passive investors should look for in a syndicator
  • Why the deal sponsor is more important than the deal itself
  • Diversifying your passive investment portfolio
  • Red flags to look for when evaluating syndicators
  • Why “alignment of interests” is overrated
  • The lesson he learned from a friend who lost her life savings
  • And SO much more!

Links from the Show

Books Mentioned in this Show:

Tweetable Topics:

  • “Don’t overleverage.” (Tweet This!)
  • “Character is all you have.” (Tweet This!)
  • “Nobody invests because they saw a magazine ad. They only invest because they trust you.” (Tweet This!)

Connect with Brian