All Forum Posts by: Brian Burke

Guys, this is a great idea. I must admit that I fairly regularly check the activity on the forums, but I'm less diligent on checking the blog. Thanks for helping me stay current.

Ben, I'd choose knowledge over money 10 times out of 10.

I've done hundreds of deals with little to none of my own cash, but none of them compare to the one I closed a few weeks ago. That one made over $800,000. I posted about it in the success stories forum last week. Here is a link to that post:

https://www.biggerpockets.com/forums/223/topics/82312

Doing deals with other people's money creates an extreme responsibility that I don't take lightly, but it is absolutely necessary if you seek to achieve scale.

A track record seeded by self-funded deals gives the credibility to successfully raise capital from others. Even "self-funded" doesn't mean that you can't do the deal with less than $10,000. I used a combination of subject-to, wraps, seller financing, hard money, and credit cards to seed my start in the business.

I like the way you think, Will. Finding another deal like that is a dream come true, but that won't stop me from trying. It's out there somewhere...

So true, most of my investors tell me the same thing. They are looking for alternative investments that contain volatility and have a high probability of being a winner. I think the timing is right for real estate to accomplish that objective.

No. I have several currently active funds. Many of them are single-asset, where the investors contributed and a multifamily property was purchased. The only funds there are operating reserves.

I also have a few funds that are discretionary blind pools. In these funds, investors contribute their capital directly into that entity's account. From there, I can make asset purchases at-will. In funds that resell assets as a normal course of business, funds are returned to the bank account at the time of the sale. Each entity is overseen by my accounting firm as they review the financial statements annually for the preparation of tax returns, however they are not audited financials. As the size of the offerings increase, audits will likely become a component. Of course, track record is important, and I'm fortunate to have funds that have passed the 10 year mark, surviving in some pretty extreme market conditions.

You're right, Joel. Having a large scale comes with risk, and I worry about it every day! My staff is a mix of hourly/salary and commission, with the majority on hourly. So far, deal flow is not a problem for me. Rather, my deal flow has exceeded my ability to raise capital. The company will change over time, as fix & flip scales down to some degree, however our SFR rental portfolio is growing and the multifamily side is showing a lot of promise. We can shift staff from one discipline to another. My partners had over 50 employees when the market was full-speed, and had scaled down to less than a dozen right before the market tanked. It's a drag to down-scale, and I hope we never have to do it. Relative to the amount of business we are doing, I think our staffing is rather small, so we have an advantage because we do a lot of work with only 25 people.

Brandon Turner, that is so true! I say that you can make money flipping in up markets, down markets (watch you scale though), and sideways markets. The biggest risk is when the market turns from up or sideways to down, because that change happens quickly and you won't be able to dispose of your inventory fast enough. Once the market turns down, at least you know it is going in that direction and you can get going again, carefully. When the market was declining, I used a 3% to 6% "declining market adjustment", subtracting it from my ARV to allow for lower pricing that I could expect in 3 months when the flip was done.

Sounds like you have an advantage in your area that you can flip houses in price ranges that work as rentals. Where I am, it's tough to buy flips in the lower price ranges because buy/hold investors (myself included because I am one) draw that inventory leaving little meat on the bone for flippers. Flips tend to be in the higher price ranges where the numbers don't work to hold. Each area has it's unique nuances, I guess!

I started in my local county. When I couldn't find opportunity here, I went to a neighboring county that was less populated because it wasn't too far to drive and there were fewer investors there. When that got crowded, I went further out. Partly because I had a friend in the area that needed a job, and having someone local that I could trust was key.

Then the market capitulation happened. In order to truly scale, I needed to broaden my horizons even further. That's when I found my partners. They had a large homebuilding company that actually survived the market downturn but they wound it up because there is simply no economic reason to build. That enabled me to rapidly scale to several more areas because they had staff and connections that we could utilize in a large area where they had previously been building subdivisions. Even that expansion was well thought out however. Each selected new geography was studied to determine if there was opportunity, and then tested slowly, and then implemented one area at a time.

I slowed down fix & flip in 2004 and got back at it in 2008. I just didn't want to catch a falling knife. I was able to find 4 or so deals in each of those years that were such good deals that I could get in and out of them faster than the market could fall, but just didn't want to own a huge inventory of flip houses at that time. Right now, I typically carry 20-40 flip houses in various stages at any given time, but in a declining market that comes with a different risk profile!

I agree with your observation, it does make sense to buy existing product and improve it than build new when houses sell below replacement cost, and to build when the reverse is true. That said, Josh is also 100% right on with his comment. It was worth more than $0.02.

Thanks everyone for the awesome feedback! I'm glad y'all liked the show.

Today we held a catered event for our investors to show our appreciation, so I've been out all day! Now I haven't eaten in 11 hours (I prefer pizza over catered food) and it's getting late. Like I said in the podcast, this business is hard work!

I promise to answer every question, but I'm going to do that tomorrow when I can do so thoughtfully. For now...time for sleep!

Nope, Austin Texas. I agree with you that Sonoma County is beautiful, but it's not high on my list for places to own apartments!

Good question, Glenn Espinosa. I originally bought this as a 5-year hold. Nevertheless I calculated two ARVs in advance of the purchase, a year-2 stabilized ARV, and a 5-year exit ARV. I calculated it using a 7.5% cap rate and projected year 2 stabilized Net Operating Income (the exit ARV was calculated using subsequent-year projected NOI, in other words pro-forma year 6 income). The year-2 ARV was $2,325,000, it did considerably better than that!

You are right, there were a lot of variables. I know from experience what it costs to run a multifamily property, so the expense part was easy, the second variable is rental rates and vacancy. I totally blew that one. Well...kinda...I like to project conservatively. The income exceeded projections because the tolerance for rent was higher than I forecast, and vacancy ended up lower than forecast (oh, darn!). The combination of those factors resulted in a higher Y2 ARV than expected. I wish they all worked that way! Maybe it's the start of a trend...