This is the BiggerPockets podcast Show 263.“We’re buying a 256-unit apartment and I go into the bank Friday morning, nine o’clock in the morning, I execute my wire transfer for $5.2 million dollars. I drive to the property and I’m kind of hanging out waiting for the phone call to say okay, it’s clear, we’re good to go. Well, eleven o’clock hits and nothing’s happened. The previous management company had already come in and taken out all the computers and all the phones, everything. The staff that we’re about to inherit has nothing to do with their job. Remember, I am the management company also.
So, I thought, we’ve got to go in and set some stuff up for them because the wire will be there any second now. Two o’clock comes. Everybody’s screaming at me on the phone. Where’s this wire? I did all the backtracking and it left my bank and went to the Federal Reserve at like 9:30. Three o’clock hits, nobody’s seen it. Four o’clock hits, the seller is screaming at me through his attorney. To my attorney. My attorney’s screaming at me now like what the hell is going on?
So finally, my attorney calls me back and says look, you’ve got to get out of there. What are you talking about? She goes, you don’t own that property. I’m like, oh crap, you’re right. We don’t own this property so we had to leave. Nobody knows where the money is. It’s gone. Nobody can find it at all”.
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Mindy: What’s going on, everybody? My name is Mindy Jensen. I am the guest host of the BiggerPockets podcast. With you as always, Mr. Brandon Turner. What’s going on, Brandon? How are you doing?
Brandon: Mindy, I am fantastic, actually. What’s new with you?
Mindy: What is new with me? My children are currently on vacation with my husband visiting his parents and I am stuck at home cleaning the house.
Brandon: You’re home alone and you’re cleaning the house. I’d be like, I don’t know, on the couch watching Netflix like enjoying my time. I’d have like somebody over massaging my feet. Do you know that app where you can choose a masseuse to come to your house?
Mindy: I actually can’t get massages. I am so ticklish, I cannot get massages.
Brandon: I have never heard of anybody having that problem. That’s hilarious. Okay. Good to know.
Mindy: I am only ticklish where I have skin.
Brandon: Okay, good.
Mindy: Just really the most ticklish person on the planet. Yeah, I can’t get massages. I can’t go to the chiropractor, none of that stuff.
Brandon: Wow, that’s really funny. I feel like if this was a morning TV show, we would like totally have a segment called Give Mindy a Backrub and it would just be like the funniest ten minutes ever. All right, anyway, okay well enough about weird massages.
Mindy: So no, we’re not going to do massages. I do want to go back and say I’m cleaning the house because I am decluttering and my children are collectors of everything. So when they’re not home is the best time to declutter. There’s so much crap in their rooms, they’re not going to miss it. But if they see me taking it out, then they will all of a sudden develop a deep longing for that item that they haven’t looked at in six months.
Brandon: That’s funny, I actually do that to my wife as well. I go into her closet and I’m like, she has not worn this shirt in two and a half years. This is my actual system and she doesn’t listen much to this show so she probably won’t hear this. However, I did want her to listen to this one. Maybe I shouldn’t say it. Anyway, I’ll like take her shirt and I’ll throw it out, throw it up on top of like this huge shelf that she can’t reach but I can because I’m tall.
Mindy: You’re so mean.
Brandon: And then if she doesn’t say anything for like six months then I know I can throw that shirt away later on. Because she’ll buy like a new outfit every week so that our closet just explodes all the time. So I just selectively throw things on top of the closet and then once in a while when she hasn’t complained—and if she complains about it, like where’s that green shirt? I’ll be like, oh it’s right here on the floor of the closet. I found it. You know? So that’s kind of my plan. Is that weird?
Mindy: Uh, yeah. Except I do that exact same thing with my kids. I don’t usually throw it away. I donate it if it’s usable. I donate it to Goodwill. But I put it in the garage and let it sit there and if they don’t see it in the garage and they don’t ask about it, then they don’t need it.
Brandon: There you go.
Mindy: They asked about some baby doll carrier like a year and a half after I tossed it. You didn’t need that, sweetie.
Brandon: No, you didn’t. All right. Well, let’s get to today’s show. As much as this is a very funny, weird conversation and my wife is going to kill me if she hears this. But today’s show is fantastic. It’s something I’m really interested in and that’s raisin money from large groups of investors to go buy apartment complexes. I mean, this is really How to Buy an Apartment Complex 101 today. Or How to Syndicate an Apartment Complex 101. You guys are going to love it, I think. Especially make sure you stick around to the very end. Bruce tells a story about like—
Mindy: A heartbreaking story.
Brandon: It’s crazy.
Mindy: A heart attack inducing story. As he was telling it, my heart like dropped.
Mindy: Oh, my God. How do you get out of that? It’s like I think $5 million dollars in a wire transfer vanishing and having no idea what happened. Stay tuned for that. You guys are going to love it. But before we get to that story and Bruce and all of that stuff, let’s hear a quick word from today’s sponsor.
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All right, big thanks to our sponsors always and now before we get to the show, I want to cover today’s Quick Tip. It was kind of in reverse order. That was good.
Mindy: That was pretty spot on. Okay.
Brandon: Yeah, we harmonize really well. We should be in a band together.
Mindy: No, I can’t sing. I love to sing but I cannot sing.
Brandon: You can sing the harmony and I’ll sing the melody and we’ll have a band called the BiggerPockets…I don’t know. It sounds like a good name.
Mindy: The Bigger Pocketeers.
Brandon: The Bigger Pocketeers. Ooh, I like that.
Mindy: That’s what I call everybody when I make an announcement on the BiggerPockets forums. Oh, hey—
Brandon: I call them peeps. That’s what I say. Anyways, what? Announcement?
Mindy: An announcement on the BiggerPockets forum.
Brandon: Yeah, what’s your announcement?
Mindy: That leads me to a Quick Tip.
Brandon: Quick Tip! What is it?
Mindy: The Quick Tip is we have an events and happenings forum, real estate events and happenings forum at BiggerPockets.com/events. And today’s Quick Tip is attend an event. If you don’t have an event in your area, what are you going to do, Brandon?
Brandon: I am going to sit on the couch and watch TV.
Mindy: Well, don’t be a loser like Brandon. Start an event if you don’t have an event in your area. I guarantee you, unless you live in a town of one, I guarantee you there is a real estate investor or someone who would like to be a real estate investor in your town. Or the next town over. They’ll drive to you.
Brandon: They will.
Mindy: If you have a real estate Meetup in your area, go attend the next one. I’m going to one tonight. I’m going to the Smart Real Estate Meetup which is South Metro Real Estate something hosted by Bryan O. from the local BiggerPockets forums. We’re going to go to Living the Dream Brewery. We sit around—well, we stand around—and talk about real estate and drink delicious beer.
Brandon: That sounds like a lot of fun.
Mindy: It is a lot of fun.
Brandon: Sorry I couldn’t be there.
Mindy: Yeah, I’m sorry you couldn’t be here, too. You should come visit more often, Brandon. I haven’t seen you in like a hundred years.
Brandon: All right.
Mindy: The last time I saw you, outside of FinCon—the last time I saw you or the last time you were here, I was out of town and Brandon’s like—I almost called you Bryan. Brandon’s like I’m going to sneak into town when Mindy’s not here.
Brandon: That’s what I used to do.
Mindy: That’s okay, I was in New York at another Meetup. I just hop around the globe going to Meetups because they’re so much fun. So later on in the show, we talk about going to Meetups. Bruce hosts a Meetup and he created one out of thin air when he couldn’t find one to go to. Oh no, he found some. He went to REIAs.
Brandon: Yeah, and then he made his own.
Mindy: And then he created his own, conjured it up out of thin air because he’s Mr. Magic Man and I lost my train of thought again.
Brandon: Well, that’s okay.
Mindy: Pretty much every show.
Brandon: Let’s just bring in Bruce because Bruce is awesome. So Bruce is a serial syndicator of large multi-family properties in central Texas ranging from 120 to 290 something units. He was actually awarded the Austin Apartment Association’s Rental Owner of the Year in 2016 and the National Association of Independent Rental Owner of the Year for 2017. So he’s a big deal.
Mindy: Have you ever won that award?
Brandon: I have not.
Mindy: Bruce is even better than Brandon.
Brandon: He is much better than me. He actually went from college dropout to over 900 units which is a pretty crazy story. So you’re going to hear all about that today.
Without further ado, and I’ll say this before I bring him in, if you have not left a rating and review on the podcast, you should totally do that. Go to iTunes, leave us a rating and/or review. All right, let’s bring in Bruce.
All right, Mr. Bruce Peterson, welcome to the BiggerPockets podcast. How are you doing?
Bruce: Man, I’m doing great. I’m so honored and excited to be on with you guys. This is great.
Brandon: Oh, good, good. This will be a lot of fun today. So, I want to talk about your kind of history. You and I know each other a little bit. We hung out down in Austin back a few months ago and I learned a bit about you. I remember we were sitting around this table and before the event, we had a [Inaudible][9:46] before I started and like, I don’t know. You had a broken leg or something and like, I don’t know, everyone was serving you food. I don’t remember.
Bruce: Well, I was told by Mindy to tell the world that Brandon Turner broke my leg.
Brandon: Oh, good.
Bruce: But no, hiking in Park City, I broke my foot. I was in a boot when you saw me.
Brandon: You were, you were. We hit it off and I am excited for everyone else to kind of hear your story. So why don’t we begin at the very beginning because it’s a very good place to start as our good friend from Sound of Music would say. How did you get started with real estate investing?
Bruce: Well, you know, my story is probably similar to a lot of people but I grew up very, very poor, came out of high school, barely squeaked out of high school. Thought okay, I’m supposed to go to college now. So I went to college. College did not work for this kid, right? I’m a lifelong learner but I am not a guy that can sit still in a class and really stay focused.
So I dropped out of college and became a stockbroker because that’s what I was going to school for anyways. That worked until it didn’t work anymore. At 23 years old, we go to war in ’91. Can’t almost give stock away. I’m a full commission broker. So I started going hungry. So then I find a guy that says, look, I can help you. I can get you out of all that stuff and he lured me into retail. Yay, retail.
Mindy: Retail what?
Bruce: Actual retail. A big box store. Best Buy. Bed Bath and Beyond. Home Depot and Lowe’s.
Mindy: Were you working there?
Bruce: Yeah, I started working there after being a stockbroker. So I did that for about 18 years and then hit a wall. Working hundred hour weeks makes you hit a wall pretty quickly so I just walked away from that and I sat down at the computer one day and tried to figure out how to learn more about this stuff.
And I started reading and learning and teaching myself real estate investing. A few books. I worked with them one or two along the way and they taught me how to do this. With a retail background, college dropout, I started in 2011, bought my first property in 2012. I’m a syndicator. I’ve syndicated every deal I’ve ever done and currently we have closed five deals. We currently own four, almost 900 units.
Brandon: Sorry, go ahead, Mindy.
Mindy: I was going to ask him to clarify for the people who don’t know what a syndicator is, what is a syndicator? And then you can ask your question.
Brandon: That’s a good question. I will.
Bruce: All right. So as a syndicator, I pool other people’s money together and I go out and I purchase a property, manage a property, basically a syndication is anytime that a deal you invest in something with a syndicator with the expectation of your profit or your loss, hopefully never a loss, but your profit rested on the shoulders of one person and one person only.
That’s a syndicated security is what it is. You could call me the general partner. I’m actually the syndicator or a deal sponsor. So I raise money from other investors. We go out and buy property. I run it. I have my own management company. And then I send out quarterly distribution checks to the silent partners or basically the limited partners.
Brandon: That’s awesome. Yes. So this is something that I want to get into more and more as we go forward. I’m actually doing my very first sort of syndication right now and I mean, I’m a general partner but a very small general partner in the deal. There’s a couple of guys that are actually doing most of the work but I wanted the experience. I wanted to get the credibility so I could do future deals. Anyway, this is why I’m pumped about this and I think a lot of our listeners, that’s where they want to head someday.
Now, what’s interesting about your story is that you did not do what most of us do. Most of us start with a single-family house or maybe we get a little bit risky and do a duplex, you know? Like ooh. I am dangerous. You’re just like, nah, screw that. a 48-unit, boom. Can you walk us through that mentally? Why and how you did that?
Bruce: Well, you know, I came into real estate thinking like most people think, two to four single-family homes. Buy them. Pay them off over 20 to 30 years and live off the cash flow. Luckily, I found some people that were doing what I was trying to learn how to do and they said, why are you doing that? That makes no sense. First of all, don’t ever pay off a piece of real estate ever. And I agree with that completely. Not even your personal residence. Don’t do it.
But secondly, they made me realize that I had the skillset to run one of these deals. I hope this doesn’t come across as arrogant but I’ve got the personality to be able to go out and kind of sell what I’ve got. I have the ability to get people to like and trust me. I’m very candid. So I decided to go ahead right off the bat, a 48-unit property. It’s the best thing I ever did.
If I ever did single-family—I married into a duplex three and a half years ago. My wife had a duplex she brought into the marriage. That duplex took more of my time than a 120-unit property I have down the street from it. So it’s just such a no-brainer. Like Cardone said in one of your podcasts, “go as big as you can safely go immediately”.
Mindy: I like that term ‘safely’.
Brandon: Yeah, I agree. It’s smart because like, I actually drew this out the other day and people listening can’t see the drawing. I’m not drawing it right now but basically, real estate investing is often like an exponential curve. So it starts off kind of slow. You might buy one unit then one and then two and then one and two, and maybe you get a four and eventually you get 8, 10, 15, 30, 100, 1000 units, right?
Brandon: Now, if you start the one, you might go like I did, it took me 12 years to get to 50 units or so. It took me like ten years now that I’ve been doing this to get to those 50 units. This year though, like this month, I’m buying 120 units. So I have like tripled my portfolio in the course of like the fall of 2017, here we are. Or into winter 2018. I’m tripling my portfolio. Had I started there, then I can go and exponentially grow from that point.
Bruce: Exactly, yeah. My last two years alone we closed 860 units and four properties.
Bruce: Because like you said, once you get systems and processes and that’s what a lot of what you hear on the BiggerPockets podcast—systemize things, create systems and processes. This thing gets easy. It really does because now we’re hiring—we’ve got corporate staff now. And they handle a lot of the back office stuff and of course, we have property staff. They handle the property. I’m basically the CEO with a vision, at this point. So we can move really, really quickly now and this will become much easier.
Brandon: So here’s the thing I love as I’m looking more and more and I know, I’m hogging all the mic again, Mindy. But—
Mindy: What’s new?
Brandon: What I love about syndication is that like, you know, in larger deals, the infrastructure is built into the deal. I’ve said this already maybe on a podcast. Like, when you’re buying a duplex, I’m competing with let’s say Mindy who’s going to buy a duplex, right? So Mindy is going to self-manage it and do all of her own work and so she can afford to pay way more money than I can. So like we’re not on level playing fields.
When I’m buying my duplex, I don’t want to do the work. So I’m competing. But when you’re buying a 48-unit apartment, you’re not doing the work. When you buy 100 units, 200 units, 300 units, you’re not doing the work and nobody is so you’re not competing with other Joe Schmoes who are doing their work, right?
Bruce: Well yeah, absolutely but let’s take it a step further. You’re in a single-family rented house where most everybody needs to start. It’s totally okay. But in a single-family rent house, this is basically being spoken to the people that can’t get away from single-family because they’re scared.
So let’s say you have a property that pays you $200-$400 a month of free cash flow. You have a water heater pop. That’s $800-$1000 bucks. That’s three to five months of profit gone. I don’t have that problem. I have a built-in expense pro-forma basically so I know what my expenses are going to be and it takes all those blowups into consideration. So I don’t get blindsided and lose four to five months of cash flow in multi-family. It’s much safer.
Brandon: Yeah, I like that.
Mindy: Okay, let’s rewind a little bit. You said, you quoted Grant Cardone. “Go as big as you can safely go”.
Mindy: What do you mean by that? What does that mean exactly?
Bruce: Okay, so you have no experience in real estate but you just got—I saw Bruce did a 300-unit property, I’m going to get a 300-unit. No, that’s not safe. That’s reckless and you’re usually never going to be able to do that anyways. Your lender will never let you do that.
Now, having said that, you could bring a key principal or a guarantor to the table with you that has experience and you may be able to get that loan now from a lender. But, it’s still reckless because you have no idea what you’re doing.
Your first one, even if you’re going to go big, don’t go probably above a 24, 48, maybe a 60-unit property as you learn the business unless that person you bring along with you as a guarantor is going to be able to do it with you. So that’s what I mean by safely. Can I do it? Yes. Should I do it? Probably not.
Brandon: I think that’s smart and honestly, that’s why again I jumped into this syndication deal. I’m not going to make a whole lot of money. I’m a very small piece of a general partnership but I am clinging to everything that they’re doing. I’m involved in every e-mail, in every conversation, essentially I am getting mentored by people who have done this before and learning along the way. That’s my way of getting into a larger deal safely. I’m not just jumping in.
Bruce: Right, so on that 48-unit that I bought, it wasn’t supposed to pay my bills on a monthly basis. But like you have said before—I would have butchered this probably, but your first words are throwaway, right? Run it effectively, profitably, and efficiently but don’t expect it to change your life like that. Like oh, now I can just sit on the beach in Cozumel and drink Mai Tais. It’s not going to happen, right?
So that first one just gets something small but then as soon as you can, sell it. A 48-unit property is great. It’s better than a single rent home but a 48-unit property with two part-time staffers so tremendously harder to run than the 300-unit I just purchased. Even so, the first 48 or 60 or 72-unit property, get yourself above 100 and now you have qualified full-time staff and it gets even easier.
Brandon: Well, let’s talk about that. Why is it so much easier to run a 300—because that sounds counterintuitive—a 300-unit versus 40, 40 sounds way easier because there’s less people.
Bruce: Right, okay. So there’s less people. But it’s all about staffing. The bigger you get, the more qualified your staff is and the more staff you’ve got, so if you’ve got a 48-unit part-time staffers, right? I’ve got a part-time manager and a part-time maintenance guy. And you’re interviewing, oh yeah, I want to work for you part-time. No, you don’t. You can’t find full-time. So you’ll work for me until you find full-time so it’s a never-ending carousel of staff. It sucks. It’s really hard.
But you get into a 290-unit, which is the one I just closed. Now, I’ve got three bodies inside. I’ve got specialization. I’ve got a leasing agent and an assistant manager who does all the bill pay, most of the rent collection, I should say. And collections themselves. And then I’ve got the property manager and I’ve got four staff outside. So now, specialization, higher quality staff, and again, much, much easier.
Brandon: Yeah, that’s awesome. I love that.
Mindy: Okay, so how did you pay for this 48-unit?
Bruce: Again, I’m a syndicator. I bought it in 2012.
Mindy: You syndicated your first deal.
Bruce: Yes. I’ve always syndicated everything.
Brandon: That’s awesome.
Bruce: Yeah, so the first one, I remember, this was 2012 in Austin, Texas, right? I bought it for 34 a door. $34,000 a door. And I had to raise $575,000 to bring to the closing table, basically. Of that, I put in 20%. I put in $115,000 of my own money and then I raised the balance of the money from 14 other investors. I’ve got math teachers that were in that deal. I’ve got a private investigator that was in that deal. I’ve got a lot of tech guys in that deal. Again, you’ve just got to find people that like and trust you and that you like and trust and it’s a great business for scaling, definitely.
Brandon: Yeah, that’s awesome. So that scares a lot of people, right? Like I don’t know people. People say that all the time. I don’t know rich people. I don’t hang around with rich people so I can’t go and syndicate money. I can’t go raise money. Even on a small deal, I can’t find a single private lender to help me do my flip. What do I do?
Mindy: So I’m going to jump in here first and say that there’s a lot of people that you know that have money that just don’t sit there and announce it.
Brandon: Yeah, that’s true.
Bruce: Right, let’s start with once I get on going to a second part of that. All right, so you said, I don’t know any rich people, right? Here are the average of the five people you can spend the most time with, right? Level yourself up. Don’t walk away from your friends or your family. But in these endeavors, trying to build a business, level yourself up. If you walk into a room and you’re the smartest person in that room and the endeavor, get out of that room. You have to find a way.
And I know it’s not easy but you have to find a way to start to run around in the same circles as the rich people you are talking about. What I did, I was lucky. I started in real estate kind of, I guess you’d call me retired at 43 because I saved up money and lived way below my means. But still, I came from a retail background, right? There are not a lot of rich people in retail. So what I did was I created a Meetup, right? We always talk about that. I created a Meetup and it started with me and one other person in 2011.
To this day, it’s still going. Now, I turned over the mail list to somebody else, a friend of mine, Mike. But that thing has grown to about 300-400 people. We meet every other Wednesday and we have anywhere from 30 to 40 to maybe 50 people that get together any one Wednesday. That’s where my people came from.
We got to spend quality time with each other, get to know each other. We started going on a boat together. We started barbecuing, going to dinner together. They got to where they felt comfortable with me, even with no experience, they were willing to entrust me with their first—most of them, it was their first investment as well.
Brandon: That’s awesome. There’s so much there we can really go into but I will say this, if you are interested in hosting a Meetup, BiggerPockets makes it really, really easy to do that. If people go to BiggerPockets.com/events and you can find a local Meetup in your area. A bunch of real estate enthusiasts getting together. Or if there’s not one in your area, you get to be the Bruce and you get to go start one or get to be the hub. It is such a good place to be when you can be the hub because people are coming to you for answers and a lot of them have money.
Like Mindy said, a lot of people have money, they just don’t talk about it. Especially in today’s world, right? Like the stock market’s crazy high and everything’s really exciting but people are nervous. Like, the stock market, how much higher can it go?
Mindy: It’s going to crash any day.
Brandon: Yeah, right? So if you can be like, hey, look at this real estate deal secured by real assets that’s real cash flow, it’s coming in. Like there are people out there who want to work money. You talk about this thing called, lately I’ve called it the deal triangle though that’s a horrible name for it. Basically it says like you need three things to invest in a deal. You need money or you need knowledge or you need hustle. You only need two of those.
In other words, if you can have the knowledge of how to do this and the hustle, you don’t need the money. The other people can bring that part of it. So just pick two, knowledge, hustle, or money. And that’s kind of what you did. You had a little bit of money to put into it but nowhere close to what you would need to buy it. You would need to buy it. You just brought the hustle, you brought the deal, and you made it work which is awesome.
Bruce: Right because everybody else that was in the deal had their own lives to lead. They were either grandparents, they wanted to hang out with their grandkids, or they’re travelling. Most of them still had a job, though. This was a good way for them to passively invest for that passive income so hopefully someday, they’ll be able to walk away from their job because they now have enough passive income. In fact, of those 14 first investors, I believe three of them, five years later, they have walked away from their job because they now have enough passive income to live.
Brandon: That’s awesome.
Bruce: It’s incredible.
Brandon: That’s very cool.
Mindy: Bruce is making people unemployed left and right.
Brandon: In a good way.
Bruce: I’m costing jobs.
Mindy: So Bruce, do you have any tips for hosting a Meetup? You said you started with one other person.
Bruce: Well, I started with one other person and then people that I would run into because you’ve got to plug yourself into a local scene if you will. So I started going to every REIA Meetups, real estate investor Meetups that I could go to and anytime we would go anywhere, people that were interested in what we were doing tried to do the same thing. We would just have a conversation. Oh hey, just to let you know, we meet every Wednesday at Starbucks. Hey, I’d love to come because what happens to a lot of people, you find a group or you find a specific cohort that you meet with once a week or once a month, maybe once a quarter.
If you don’t have a way to consistently stay engaged, you’re going to lose your steam because a lot of people around you are going to be giving you all that negative crap. Oh, it’s a scam. Oh, my crazy uncle Vinny did it and he didn’t make any money in real estate. Well, quit talking to that guy, right? You didn’t do it right. Talk to people that are doing it and doing it effectively. So that’s the biggest thing is you’ve got to keep yourself together so I just started dragging people into our little ecosystem and it just mushroomed because everybody wants to connect.
Mindy: That’s a great point. Everybody wants to connect. We have three or four local Meetups in the Denver area and I’m going to one tonight and every time you go, you come home and you’re like, I can’t wait to invest into real estate. I want to go find another deal. I want to go analyze more stuff. So yeah, the events are really, really encouraging. They’re really inspirational. They’re really—they’re such a great networking space.
Bruce: Absolutely. None of this would have happened for me without it. So yeah, to be hyperbolic, it was pretty lifechanging.
Brandon: That’s awesome. No, that’s great. So what happened to the 48-unit deal? Do you still own it today or did you sell it?
Bruce: No, we sold it two years and four months in. The plan was to hold it for five to seven years but then the Austin market happened to us. We operated very well but then prices just ran away. We sold it two years and four months later. Our total return was over 300%. Again, I saw right away a 48-unit was much too difficult for me to really—okay, it wasn’t too difficult to run but I knew there was an easier way. I knew if I can go bigger, it’s going to get easier and I’ll scale faster. So I had to sell the small one.
And I had a couple of buying partners say whoa, whoa, whoa—we’re in this for the cash flow because we’re trying to retire. Okay guys, think about this. I can give you a 10% return for the next five years or I can sell in three months and give you nine and a half years of cash flow all at once. It’s up to you. And they went, oh okay, I never really thought about it that way. And if you structure your business the right way, for some people, you don’t even have to pay the capital gains because we put our 1031 into our next property. One of my biggest other investors, he paid—what did I give him? I gave him a $249,000 at closing on a $100,000 investment. He paid no taxes on that.
Brandon: Why is that?
Bruce: Well because he had enough losses and he was considered a real estate professional because he owned some single families on his own so now he’s a real estate professional so he can take all of these paper losses that you see on your K1. Now, this is getting really, really deep. But he had real estate losses through depreciation from a lot of those other investments that he could offset that $149,000 profit that I gave him. So he paid no taxes.
Brandon: That’s awesome. And you know, this is obviously not the show about tax tips but like just in general, I like to tell people like the government seems to really like us so they reward us in a lot of ways. There are a lot of ways that real estate investors give rewards. They’re still working it out right now, as we’re recording this, they’re still working out the coming tax changes and I heard that some significant thing happened this morning. I don’t know, I haven’t read the news yet. Yeah, but either way, generally speaking, the government likes us because we’re providing housing to the world. They reward good behavior which is awesome.
Bruce: Right. So think about who your president is right now, right? He’s made his money in real estate. Most people in Congress have or do own real estate so it’s in their best interest to keep it kind of the way it is. I don’t think it’s a bad or corrupt system at all but I don’t see them changing these laws anytime soon.
Mindy: Yeah, it was proposed to change some of the 1031 and some of the homeowner exemptions but I really hope that doesn’t go through and that’s how I invest. I live in my flips so, although I do participate in these syndications. So let’s talk about the next deal after the 48-unit
Bruce: Okay, so the next deal, again it was in Austin. 120 units this time. You know what’s funny? It was a property that two of my friends actually looked at and for whatever reason, they decided it wasn’t for them. So I was like okay, I want to take a shot at it. You know, it’s a small industry basically. You get to know a lot of the players in the market. Not all of them but two of my actual close friends looked at this. And we don’t step on each other’s toes and I stayed out of their way.
When they decided it wasn’t for them, I stepped in, I bought it and it’s been a great investment for us. It’s location. That thing is between—it’s so densely populated in this area, it is between two elementary schools, one on either property line. There is a church in front of me. There is a big grocery store behind me. And there is a bus stop on my fence line. The location couldn’t be better. It’s in kind of a rougher area. It’s a C- neighborhood so very working class but my location allows me to have the highest rent in the neighborhood and it stays about 95-100% full all the time.
Brandon: That’s awesome. Can you explain to folks who don’t know, what did you mean about the C- area? Can you talk about the class systems inside of a real estate deal?
Bruce: Right, so you go different versions of A. You’ve got A, A+, A++, but then you’ve got a B, C, and a D. And all of those classifications have a minus and a plus. A B+, B-, and a B. It’s basically dictated by the age of the property, the rents per square foot, and the amenity package that it has. There’s no exact science to this but a C property is—A is the best, D is the worst.
I don’t want any part of Ds because they’re usually filled with drug dealers and prostitute and you’ve got Rottweilers running around off leash everywhere, cars on blocks. I don’t want any part of that. C class, a lot of people will call it workforce housing and that’s what this is. They’re really, really good people. They just are kind of locked into that kind of a neighborhood because of the jobs they have, because of the schools that they want their kids to go to.
And then you get into a B, you’re getting usually, a B is late ‘80s into the ‘90s and I’d give you prints per square foot but that’s so wildly different by market so it doesn’t make a whole lot of sense to go into that. Now you’re getting some better amenities. You’ve got a pool, you’ve got clothes, a laundry care facility, you might have a gym. You might have a clubhouse.
And then you get into the As, that’s all the new stuff. That’s usually five to ten years old or brand new and they’ve got the dog valet. They’ve got dog walkers. They’ve got massage therapists on staff. So that’s what an A is.
Brandon: So first of all, I always think it’s weird they don’t have an F. I think they should be A, B, C, D, F. Just like school, you know. But whatever.
Mindy: What about E?
Brandon: No. Why don’t they have Es in school? I have no idea. I’ve never understood that either.
Mindy: I remember having an E. No, I didn’t get an E. I had an E. They used to have Es and now they don’t.
Brandon: That’s weird.
Mindy: Brandon’s like nine so he doesn’t remember.
Brandon: I want to put out a call to everyone on the show right now, the hundreds of thousands of people listening. If you know why they don’t have an E, will you let me know over on like Twitter or something? @BrandonatBP or @BiggerPockets. I want to know or what’s your Twitter, Mindy? @MindyatBP?
Brandon: MindyatBP. And Bruce, are you on Twitter?
Mindy: I copied you.
Bruce: Uh, not very actively.
Brandon: Because you’re not a 13-year-old girl?
Bruce: BrucePetersonBB at Twitter.
Brandon: So all right, I want to know why. But anyway, so you’re buying this one with C-. Are you fixing these and other properties—we’ll go through the rest of them later, but are you fixing them up or are you buying them already fairly nice?
Bruce: For the most part, they are. Well okay, so I buy them in good condition. I buy fully stabilized assets in my part of the country and my part of the state. Most of the inventory was beat up, lots of deferred maintenance. It’s not operated very well in 2006, 2007, 2008. All of it has been turned around, put back on the market, so most of the stuff that I find to buy right now are fully stabilized assets but I still usually come into the property and I can still make some improvements. And then with our operational prowess, we can definitely drive value through our operations.
But yeah, on that property, I added a huge barbecue pit area. I put up two campfire style barbecue pits there with two picnic tables because when I got there, I noticed that there were grills everywhere on the property. Of course, it’s against fire code, first of all. But also, it’s going to burn down my property. So I don’t want that.
So I figured, I’m going to come in and be the new sheriff in town. They’re going to be mad. I tell them to get rid of their barbecue grills so I had to create something for those guys and it was a huge, huge hit. We re-plastered the pool. We cleaned up signage and did some landscaping around the entrance to the pool and the office. So we didn’t have to do a whole lot because it was run pretty well when we got it.
Brandon: Okay, that’s cool. And where are you buying all these, in Austin?
Bruce: Austin and San Antonio. Basically, my backyard.
Brandon: Okay, cool.
Mindy: We didn’t talk about numbers for this property, this 120-unit, C- property. What did you buy that for, either total purchase price or per door?
Bruce: 81, 250 a door, I believe, it was. And the purchase price was $9,750,000. So we held it for, well no, right about two years now. Again, we’ve done really well with it. We’ve raised the rent $200-250 a unit since we’ve had it so we’ve done exceptionally well. Of course, I get hounded all the time by people wanting to buy the thing but I tell them, I’ll sell to you but you’re not going to want to pay what I want. They’ll try me. Give me a two cap. They’re like, what? Exactly. I don’t want to sell it so that’s the way you get people off the phone that are hounding you. Give me a two cap, I’ll sell it. Nobody will do that.
Brandon: So why don’t you want to sell these? I mean like, we look at the market. The market seems really, really crazy nationwide, especially down in Austin. Why would you not want to sell?
Bruce: Well, because again, we’re buying stabilized assets that usually, when you buy stabilized asset, you’re going to pay the retailer pretty close to retail. So there’s not a huge value added component. So you can sell but it’s not like you’re going to make this big profit at the end so why not just hold it long-term and just get more and more and more profitable every year that you have it. Eventually, yeah, we will sell it. But when I think the time is right, I’ll bring it to my partners and we’ll discuss it and make the decision we think is right at that time.
Mindy: So what does long-term mean? What does hold it—are you looking for five years? Are you looking for 25 years or is there no set time?
Bruce: Five to ten years, usually. At five years, a lot of times, a lot of your major systems have to be readdressed. The roof might need some work. You might have to repaint something so there’s more capital projects that you need to invest in about five years in. And most of the loans that we’re getting now are 7, 10, and 12-year loans. So my anticipated hold period is somewhere between 7 and 10 years. And we’ll just look at the market every year to make sure that thesis is still in place and we’ll address it every year.
Mindy: So are you fixing up these properties before you sell them or are you putting in the money and then selling a stabilized property or are you—I don’t want to say ditching them but are you like ditching them?
Brandon: When you plan to sell, yeah.
Mindy: That’s not the right way to say that.
Bruce: Well, since they’re not value add properties where we’re going to double and triple our money in two or three years, I’m just going to run the property from day one the way I want to run the property. When it’s time to sell, now let’s pretty it—no, I don’t do that because I do everything I think I need to do on the front end to make it a better place for people to live.
So 192-units that I bought right around the corner from this property we’re talking about now, I noticed in my neighborhood, there were no properties with covered parking. Okay, I’m not going to wait until it’s time to sell. I’m going to go ahead and do it now because I can reap the benefits of the added revenue because I turned 25% of the parking spots into covered spots and now there’s a premium, there’s an inherent premium there. So now I charge $40-$45 bucks a unit for these parking spaces.
So I’m going to do that right away anyways. So no, the plan is never to wait until it’s time to sell and now let’s put a lot of stuff into it and make it look pretty. I want it to look as pretty as it’s ever going to look the day I buy it because I’ve got to have street appeal and I have to have people wanting to live there. So I’ll fix it right away.
Brandon: That’s smart. I’ve never really thought about it or talked to anybody that does that. I know that whenever I live in a house, my own primary residence, I tend to not fix it up all the way until the day I move out. That is beautiful. And I’m kicking myself going, I could have lived with this. Why did I wait to put in the granite countertops until the day I move out? Might as well enjoy it.
Bruce: Right. Well, there’s another school of thought, too. So not just the exterior but you go into the interiors. Everybody’s talking about unit upgrades and the value add because the current owners and all that—10% of the units are running for an extra $100 bucks if you’ll spend $3,000 to upgrade that unit.
So, there’s a big thought now that if you are going to institute a unit upgrade policy or program, you probably don’t want to do more than 20, 40, maybe 50% of the property because in today’s market, that’s a big part of the value add left for the next guy.
So now you can say look, I’ve done 30% of the property, let’s say. But there’s another 70% of the property, you can come in and keep this upgrade program rolling and now they feel like there’s enough meat on the bone for them to want to take it over and drive some more value out of it.
Brandon: That’s smart. I like that a lot is giving the next guy a little bit of room. I think I heard Cardone say that one time. Maybe it was on our show or somewhere else but yeah, giving meat on the bone for the next guy. I think that’s very smart.
Bruce: Well, it’s easier to sell the property when you’re doing that, too.
Brandon: Very cool. Very cool. All right, so I’m curious about the way you structure these deals in terms of like, you’re syndicating them. So I want to talk about that a little bit. I mean, how much do you get? Is it 50-50 or the 80-20 and you get 20? How does that work?
Bruce: It’s usually an 80-20 split or a 70-30 split. Now, if the deal is such that I think I need to offer a little more incentive to get investors on board with me, I’ve gone as low as 85-15. But because to date, very seldom have I ever done an acquisition fee, a disposition fee, a promote fee, a waterfall in the back end. I keep this very, very simple because the more and more complicated you make this, the harder it is for a potential investor to see the value and be able to follow how this is all going to work.
So again, I don’t feed them to death but because of that, every deal that I’ve ever done, people have been okay with not getting a preferred return. So I don’t give preferred returns. Some day, maybe I’ll have to. I don’t know. But to this point, I’ve never had to give a preferred return. We share on every distributable dollar that goes out to the partnership. Now, we’ll have our portion of it, too. But then our premium, that 85-15, 80-20, or that 70-30, we participate in all of it.
But on the back end, we don’t cap the investors on the back end. We all share the exact same way at the back end. So again, I try to keep it very simple and very equitable for them because I want them—if it’s a pleasant experience for them, they’re going to follow me to the next deal.
Mindy: So I’ve got a question. For those that are listening who don’t know, what is a preferred return?
Bruce: Okay, so a preferred return says, let’s say a preferred return is 8%. Yeah, you basically—it is a guarantee. It’s preferred. So I as the syndicator don’t get my premium, my 80-20 split on any dollar that gets distributed until you as an investor get an annualized 8% return, okay? So in that case, let’s say the property itself is returning 10% profit, we’ll call it. Your cash on cash return is 10%. I have an 8% preferred return for the investors. So the first 8%, I don’t get any 80-20 split of that. It’s the 2% on top of the 8% that now, we will split the 80-20 or the 70-30. So that’s what that’s dealing with.
Mindy: Okay, so how do yours pay out then, if there’s no preferred return? You just 80-20 from the very beginning or whatever the numbers are?
Bruce: Every single dollar, yeah. And they come out okay. Because again, I’m not going to charge you a 2% acquisition fee. A 2% disposition fee. I’m buying a $20 million dollar asset. That’s a $400,000 fee on the front end that I don’t charge people. So because of that, we’re all on the same page, right? We make money together. The incentive for me is to make money so I can take that 80-20 split or the 70-30 split.
And so, just a little more depth there. Let’s say the property, over five years, averages a 7% return or the preferred return is 8%. I don’t have to pay them the 8% return if the property can’t handle it. But when I go sell the property now, I have to make up that shortfall of an average of 1% per year from sale proceeds and after I do that, then we take our 80-20 split of 70-30 split.
Brandon: But since you don’t do a preferred, it’s always just flat out, you either split it 80-20 or 70-30 or whatever the thing is. I like the simplicity of that in a lot of ways.
Mindy: Yeah, I do, too.
Brandon: What I find fascinating is every single time we talk to somebody who does syndication, every single person we’ve had on the show has done it differently. There’s never been two of the same.
Bruce: Absolutely. Again, it’s so much easier to understand. Especially getting into waterfalls, like oh my, God. Their eyes glaze over. You start talking about IRR. There are certain terms that a lot of people don’t understand so again, I try to dumb it down the best I can because most of my investors are still going to work. They’re math teachers. They’re tech guys. If I overcomplicate this thing, they’re like, okay it’s probably a good deal for me but I’m going to walk away. My average return to a passive investor is going to be 7-9% in today’s market, year one. It works out.
Mindy: That’s a really great point that if it’s so confusing that they’re not going to understand it, they’re just going to walk away. There’s no point in raising all this money and then not being able to collect any money because nobody wants to deal with your weird splits. I don’t even know what a waterfall is.
Bruce: Basically, for the first x% of profit, we take 80%. Well, let’s say 20%. Then, the next portion above that profit, we’re going to take 30% of that. And then if we exceed a profit, well then now we’re going to take 50% of that. It’s a waterfall so basically it’s implemented in stages depending on how profitable you are. And again, it’s very, very difficult to follow that.
Mindy: Yeah, that doesn’t make any sense at all.
Brandon: When I was putting together—this past year, my goal was to buy a mobile home park and I was going to syndicate it or at least I thought. So I was putting together this big, complicated waterfall number analysis. I mean, I spent weeks.
Bruce: That’s what you’re supposed to do, right?
Brandon: A lot of the big guys are doing these huge, really complicated things and I think I called me buddy, who I think you know as well, Andrew Cushman. I was like, Andrew, help me with this. I don’t understand it. He was like, just don’t worry about it. Just don’t do a waterfall. You don’t need it. Go and raise money and you know, split it with people. And it blew my mind when he said that because I was like, oh, I don’t have to get fancy.
Bruce: Well, you don’t have to get fancy and usually the people that are here getting fancy, and I hate to say this—on some level because a lot of my friends do this, but a lot of times it boils down to greed. It’s like, come on, man. An 80-20 split isn’t enough for you? And don’t try to squeeze every dollar out of an investor and nickel and dime them to death with everything to get as much money as you can out of this.
Because again, they’re going to enjoy the process with you and they’re going to appreciate your openness, your ability to follow the money, basically. And they’re going to keep investing with you. So now that first 48-unit property turned into the next two properties for me, right? So that one basically spawned three properties.
Brandon: That’s awesome.
Bruce: Most all of my guys followed me into the next deals because again, I made this very, very pro investor.
Brandon: Yeah, I love that.
Mindy: And you still made money.
Bruce: We made a ton of money.
Mindy: I mean, you personally. You, Bruce Peterson, still made money.
Bruce: Yeah, so I put in $115,000 and I still walked with $289,000 the day we sold. And we had all the cash flow while we held it, too. Now again, I’m brilliant. I’m not going to say I’m not brilliant. But look, the Austin market happened. I am very good at what I do but look, we just capitalized on a crazy insane market is what happened there.
Because we thought we bought a fully stabilized asset that was going to generate a 10-12% return every year and then sell it because we thought we paid retail for it. Sell it, make a little money on the back end. But it goes back to that thing. Hit a bunch of singles and doubles. Don’t wait for the homerun. There’s almost never an opportunity to present as a homerun. I thought that was a single. It turned into a grand slam homerun.
Brandon: That’s really good advice, yeah.
Mindy: That’s very good advice. So are you still putting money into all of your deals or do you—
Mindy: Okay. So you have skin in the game. I think that’s important in a syndication. I invest in syndications and I want to see the sponsor having something to do with it other than their reputation. I mean, your reputation is great but I want to see you make money, too, or losing money.
Bruce: The whole family’s in. My sister is involved with us. My niece. Our two girls are in the deals with us. But now, to be fair, some people won’t put money into their own deals and there can be a very good reason for that. Because as a syndicator, I am the guy putting my name on the loan. I have to have a certain amount of liquidity or I can’t get the loan. So sometimes, you will see some syndicators not put money into deals because they’re trying to hold back and build their cash reserves on the balance sheet because they need it to sign for the next loan.
So it’s not terribly common, I don’t think. But it does happen and there are legitimate reasons. I agree, I feel more comfortable if you have your own skin in the game that you’d risk losing if you don’t do it well. But I do believe there are some times where it does make sense for a syndicator not to put his money in the deal. But make sure you understand why. Ask them. You know, hey look, I’m thinking about giving you $10,000, $50,000, $100,000, a quarter of a million dollars of my money. Why are you putting no money in the deal? If they can’t answer you or refuse to answer you, just walk away and find another deal.
Brandon: Yeah, I like that.
Mindy: That’s really good advice. Okay, so really quickly, you said that your two girls are in the deal. How old are your girls?
Bruce: Okay, let me explain that a little bit. I said, I married three and a half years ago. I’ve got her, at that time, 15-year-old daughter ask me to adopt her. So now I have an adopted daughter. Don’t make me cry. Stop. So I adopted her. She’s 18 now and her sister is 22 years old so they have their own money that they invest. The first investment we got them involved in, about four, maybe five years ago, it was with friends of ours. We invested $16,000 each in this deal and just like my first deal, that first deal, the day they sold, they got a $50,000 check on a $16,000 investment. So they tripled their money as well. And then it’s just been mushrooming from them.
Brandon: That’s fantastic. I love the idea of getting kids involved. Everyone knows I talk about Rosie all the time.
Mindy: I do, too. My kids really don’t like real estate right now. They’re 8 and 10 and I’ll be driving around and be like, look at that house. They listed it for this, can you believe that? And they’re like, mom, we don’t care.
Bruce: Yeah, our youngest daughter, my adopted daughter, she works for a management company, actually. So we try to make it as much of a family affair as we can so we’re teaching her what it is to own and run and manage a business. Because she wants to start her own company, her own business. She wants to design and market her own clothing line. So she’s learning very, very valuable stuff contributing to the income she’s producing through these assets. So it’s a great thing. We really enjoy having her with us.
Brandon: I love it.
Mindy: That’s awesome. I am really hoping that I can get my girls into real estate when they get old enough to be able to sign legal forms. They can’t do that right now.
Brandon: So Bruce, how are you finding deals today? Brokers?
Bruce: Brokers for the most part. It’s relationship building, right? So I’ve had one slid to me as an off-market deal. It was pre-marketing so they were going to go to market but they brought it to me first and I decided yeah, I want it. So we got it. My first deal was found on LoopNet. And you always hear people rail on LoopNet. Oh, that’s where good deals go to die. Bad deals go to die. Yes.
But it’s not true. In large part, it’s true, but there are gems every once in a while. That’s where I found my 48-unit property. So it’s that thing. So you know, but most of them are found, just publicly listed stuff. All the big brokerages in my part of the country, all the big guys operate down here. But what I do to differentiate myself, it’s not just where am I finding these deals, it’s how do I close the deals? Because a lot of times, I’m going up against multibillion dollar corporations. I’m just a little dude down here in Austin.
How am I getting these deals? I get that question all the time. It’s about, it’s like we were talking about with your investors, the same thing. Be a good buyer. Let the seller think they got over on you. Let them think they won the negotiation. You don’t have to win—you win the negotiation if you can get this dang property. So be a good—yeah, I’m very, very easy to get along with. I don’t push back. I don’t retrade. So I don’t renegotiate a deal.
A lot of people I know, they’ll get it under contract for $10 million dollars knowing that at the end, they’re going to offer for nine no matter what they find. It’s a way to lock up the property because now I’m the highest bidder and then right before my due diligence period is up, I’m going to renegotiate for $1 million bucks. I’ve never done that. I hope to never do that because again, I don’t want people to feel bamboozled and you know, kind of jerked around. So they bring me more and more deals. So I’ve bought more than one deal from the same people often. So you know, be a good, good buyer.
Mindy: I love that, Bruce. And I love you for saying that. I’m not hitting on you but I love you for saying that because there is a lot of people in the BiggerPockets forums that say, oh, I just get it under contract and then I’ll just renegotiate. They don’t say they’ll nickel and dime them but they nickel and dime them. Be honest in your negotiations. Yes, there are $10 million dollar properties that you find, $1 million dollars’ worth of stuff that you have to renegotiate the price for, but just going in knowing you’re going to renegotiate is, you’re being shady. Don’t be shady. There’s enough deals to go around.
Bruce: The last property I bought, 292 units in San Antonio. Purchase price of $23.2 million dollars. The guy on the phone, because you know, when you get into these bigger deals, you often times have an interview over the phone with the seller, right? Anytime I’ve gotten to that point, I have never lost a deal. I’ve won every deal if I can get in front of them, so to speak, on the phone. But he’s like, okay, Bruce. You’re somewhat of a small operator. We’re a billion dollar company. Why am I going to give it to you?
And that’s what I told him. I said look, I’m bringing in enough money to know that if something gets discovered during feasibility, during our due diligence period, I can deal with it. So I thought what was needed at first look was about $200,000 worth of rehab. I brought in $700,000 worth of rehab because I didn’t want to re-trade the guy. I said, it has to be egregious. If I see it’s a $500,000 roofing job, okay. We’re probably going to have to talk about that rick.
But short of something that catastrophic, I have enough contingency to make sure I can deal with whatever I find on your property for the most part, so you have my word unless the deal just completely falls apart, I am not going to re-trade you. He gave me the deal.
And he called me afterwards and said look, I gotta tell you, I was scared to death. You only have a handful of deals. You’re a small guy. He said, I’m not trying to be rude but I am always worried when I give deals to people like you. Are you going to get scared? Are you not going to close? Are you going to nickel and dime me? He said, I’ll bring the next one to you, too. Like, oh my, God. It works.
Mindy: Nice. Yeah, if you’re a standup person, you’re going to get rewarded for that so much more than that million dollars you might have saved.
Brandon: Cool. All right, well Bruce, this has been fantastic. Before we go into the Fire Round, I’m wondering, where do you see yourself going in the future? What does the next five or ten years look like for you?
Bruce: You know, on my white board here in my home office, across the top of it, I have scrawled, $100 million dollars. That’s my net worth goal. How am I going to get there? I’m not quite sure but I will get there. I’ve got to have a plan, right? You’re worth a $100 million dollars, I want at least 5,000 units. Because I enjoy everything we do. We have our own management company so we can just keep pulling them in. It’s just easier and easier to add them. More and more corporate staff.
So, I would like at least 5,000 units and my ultimate goal is not quite Gary Vaynerchuk goal. I don’t want to buy the New York Jets but I do want to own a double or triple baseball team and this is an avenue to help me get there. Yeah, that’s what I’m looking for.
Mindy: I like that goal.
Brandon: Yeah, that’s cool.
Bruce: Thank you.
Mindy: I don’t want to own a baseball team. I’d own a football team or go Mark Cuban and own a basketball team.
Bruce: Yeah, but then you’re only playing in the majors, right? So in baseball, there’s all kinds of minor league teams. There might be some of that stuff for football and basketball, but I don’t think there is so you just have to go straight to the NBA or the NFL and pay billions of dollars. I can buy mine for $20-30 million dollars. So a little more attainable.
Brandon: Just $20-30 million. You know.
Bruce: Well, that’s the size of the properties we’re buying right now.
Mindy: I have this goal of winning the lottery so when I do that, I’ll buy a major league team.
Bruce: Oh, you’re that person, huh? That’s how you’re going to take care of yourself in your older years, right? I’m going to win the lottery or I’m going to sue somebody.
Brandon: There you go.
Bruce: Please have a better plan than that.
Mindy: When my husband was working, he was working with this person, that was their retirement plan. Legitimate, they were just going to win the lottery. Like, really? Like that’s not a joke. They actually said that? He was like they were serious. That was their plan.
Bruce: Oh, yeah. I’ve seen the same study done multiple times, probably three or four different times over the years and they polled people, thousands and thousands of people on how do you plan on taking care of yourself in your golden years? The number one and two answer that I typically see on these polls is, number one, I’m going to win the lottery. And number two, I’m going to sue somebody. That’s disgusting.
Mindy: Both of those.
Bruce: It is, it is. It’s probably not going to happen and if you said, don’t come take my stuff. Go get your own stuff. You can do it. Everybody can do what I’m doing, what you guys are doing. You just gotta go do it. Don’t try to take somebody else’s crap. Go get your own crap.
Mindy: Exactly. And I’m going to correct you. It’s not ‘probably not going to happen’. It is not going to happen. You are not going to win the lottery.
Bruce: I have a friend that actually did win a million bucks in the Texas lottery. I can’t exactly say it’s not going to happen but it’s probably not going to happen.
Mindy: So it’s not going to happen to you because you know somebody. Lottery winners don’t know each other. Yeah. I went to high school with Mike Morefoot and his dad won like the most money in the Illinois lottery at the time. I think he won like $26 million dollars. So my shot—he took the long-term payout. This was a hundred years ago when 20 years was the only option.
Brandon: Wow. All right, let’s head over to the world famous Fire Round.
It’s time for the Fire Round.
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All right, this is the Fire Round. These questions come direct out of the BiggerPockets forums which of course you can get to by going to BiggerPockets.com/forums and if you’re there, Mindy is there like 24/7. Mindy, I don’t think you leave.
Mindy: No, I’m there all the time.
Brandon: Does Josh still have the laptop chained to your leg? Is that still a thing?
Mindy: It’s removable but he’s got the key.
Brandon: Okay. All right, so these are questions from the forums that real-life people have been asking and we’re going to ask you, Bruce. Number one, how do I vet a syndicator?
Bruce: Okay, this is always a funny question because a lot of people say, oh, you don’t go find people that have worked with them in the past. Ask them for a list of—no, don’t do that. If you are trying to vet somebody and you say, give me a list of people that have invested with you that I can talk to. Let’s say they have a hundred investors. Ninety-seven of them hate everything about your being. They are actually suing them right now, let’s say. But three people are on his payroll and they love him. Well, you’re only going to hear from those three people.
Brandon: That’s true.
Bruce: I know it’s difficult if you’re not investing with somebody kind of local in your area to do this, but I highly suggest, find other people just organically. Hey, what do you know about Bruce? Oh, I’ve invested with him. Well, what do you think? If you go ask Bruce for a list of investors, you’re going to get the only three people in the world that like him. So that’s my biggest thing is just to find people that have invested with him and find out, because they can lie about their buyers, even. How do you know how to check up on their track record? Find people that have invested with them.
Brandon: All right. I like that.
Mindy: That’s a really good point and I would like to say that you could ask in the BiggerPockets forums. Hey, has anybody ever done business with Bruce Peterson? If a hundred people say, oh, he’s a schmuck, listen to those hundred people. If a hundred people say he’s really awesome and one person says, oh he’s a schmuck, maybe that one person didn’t know what they were doing or had a fight with you at a bar or something. I don’t know. Just because somebody answers doesn’t mean that they’ve actually done business with you but look at the general trend of the answers when you’re asking.
Bruce: Right, but then you have to follow what you just heard, too. Because I’ve had some people say, well, everybody seems to not like this guy but my God, this deal is incredible. Don’t invest because a terrible person is going to ruin a great deal. So if you don’t like and trust the person that you’re thinking about investing with, no matter how good the deal looks, just go away. There are so many deals out there and everybody’s scared—I’ll never find another deal. If you stay engaged and plugged in, you’re going to find other deals. So don’t get nervous or don’t make reckless decisions.
Mindy: That is so perfect.
Brandon: Yep, I love all that. All right, the next one.
Mindy: As a syndicator of commercial real estate investments, what would be the benefits or detriments to the syndication business of becoming a licensed commercial real estate agent? How can deals be structured or agent broker arrangements be negotiated to minimize constraints and conflicts of interest with the growing syndication business?
Bruce: That was a long question. Okay. I’ll just you the best answer that I have. I am not a real estate broker or an agent and never will be, have no interest in doing that. This is more rewarding and it’s a lot more profitable, too. But the one thing I do know, and I’ve heard this from a few people, your fiduciary responsibility is through the roof now. If I’m a realtor, you’re held to a completely different standard than me who is not a board member of the board realtors or whatever that is.
So, I think myself, you’ll get some learning from being an agent or a broker but what I think is that most of what you’re going to learn is going to be selling retail stuff to other people. It’s not going to help you learn how to invest in stuff. I don’t think it’s really needed and oftentimes, I think it’s maybe even a bad idea to get your real estate or broker’s license.
And a lot of people think, well, think about that. I will be the syndicator, I’ll get an acquisition fee and then I’ll get a commission—look, there’s enough money to not have to convolute everything and that almost has like an error of impropriety. It feels weird that you’re upholding all—I wouldn’t do it.
Brandon: All right. I think I would agree with that.
Mindy: That’s a great answer.
Brandon: It is. All right, third one. I’ve read so many good things about syndications and investing with syndicators but I’m baffled as to where to find a syndicator. I’m guessing due to the relationship aspect of the business, it might just come down to who you know. Are there websites like Syndications R Us or something like that that I can find people to put my money with?
Bruce: Well, there are websites. RealtyMogul, RealtyShares. I’m probably in trouble for plugging somebody, I don’t know. They do exist but for the most part, if you’re just wanting a list of individual syndicators, okay first of all, it’s SEC stuff, right? So I can’t as a syndicator broadcast to you that oh, hi my name is Bruce, I’m a syndicator. Let me show you this deal. That’s against the law, right? You can’t do that.
Now, there are ways that you can do it. It depends on how you register with the SEC but for the most part, you’re not allowed to just go around and tell everybody what you do and please give me money. You have to know people. You have to have pre-existing relationships with people on most of these deals. Short of going to one of the websites that actually takes a cut of each deal that gets run through their system, there’s really not a better way to do it.
Brandon: All right. Cool, cool. Also, I would just add a lot of people would just meet people like they hear them on the BiggerPockets podcast and they’re a syndicator. No, they’re not advertising by coming on our show. They’re just talking with us about their story but a lot of times you can get a lot of stuff by listening to not just our podcast but listening to podcasts in general. It’s a good way to kind of hear people’s stories and I mean, we’ve probably had, I don’t know, a hundred people who raise money on our show. So just you know, listen.
Bruce: Right, and again, we’ve talked about it before—engage. Stay engaged in your local communities. Go to the Meetups. You have to get out. There’s not just some special Google search you can do and have this magical button appear. You’ve got to get out there. It’s hard work but the hard work is, go talk to people. Go meet people. It’s hard if you’re an introvert. It can be difficult. I understand that but you’ve got figure out a way to get involved.
Brandon: There you go.
Bruce: You’ll find them.
Brandon: And honestly, for introverts, the forum’s a really good spot. Like if you don’t want to go in person, engage in a forum. It’s a lot easier when you’re an introvert.
Mindy: I was going to say, if you’re listening to the show, chances are really good you’re a huge real estate geek. So you like real estate. Other people at the Meetups like real estate. Hey, what kind of investing do you do is a great icebreaker. Let people talk about themselves. They just want to sit there and yammer on. Exhibit A, Brandon. Exhibit B, Brandon.
Brandon: What are you talking about? I don’t talk. What?
Mindy: Yeah, okay. So yeah, go to the Meetups or the forums are a great place. Ask a question. Answer a question. You have knowledge somebody else doesn’t and they need yours.
Brandon: There you go.
Mindy: Okay, enough of that.
Brandon: Last question.
Mindy: I’m thinking about putting my money in with a syndicator. But when looking over his numbers, I feel like he’s too low on estimates for the rehab. What should I do to ease my fears?
Bruce: Well, why do you think he’s too low? What knowledge do you have that that person doesn’t have? There are people that I run into that are giving advice. There’s one lady on a forum I saw one day, I won’t mention what forum it was but you know, somebody asked a question. I forgot what the question was. How do you do this in multi-family? And this person weighed in and said look, I’ve never done it but I have been studying for three years and this is how you—what? Who are you taking advice from?
Now on this, where are you getting your knowledge from? The syndicator, chances are they do this all day every day of their lives. They’re very experienced at what they do. So, I’m not saying that you’re wrong by thinking that they’re too low but you’ve got to start asking questions. Again, you’re potentially going to give somebody a lot of money. Ask questions you need to ask and just hope you can get a good enough answer.
But if you don’t have the knowledge yourself, I don’t know how you’re going to know that they’re not doing it right. Unless you have some experienced people around you, you can show some of the stuff to them that you’re looking at.
Brandon: Yep. There you go. And by the way, this question was a good friend of mine asking me this question, actually. He’s talking about a syndicator who I know has done probably hundreds of syndications, if not dozens. Many dozens, right? And I looked at my friend and I was like, you’ve never done a rehab in your entire life. This guy has done dozens of these massive apartment complex rehabs.
I mean like, yes there’s a point where you have to trust people and you also need to question it but like this guy was about as legitimate as you can get in doing syndications. And again, my buddy has never once done a rehab of anything in his life, doesn’t know how to use a hammer. So anyway, it was an interesting conversation. But he didn’t do the deal. He did not go in the deal because he was afraid the number was wrong.
Bruce: See, and that’s the thing. There are so many engineering brain people in this industry that are trying to be in this industry anyways, and they feel because of their training as an engineer, that their job has to have a contingency plan for everything and it has to fit in a box or a spreadsheet.
Well, not all that’s going to happen in this industry. Nothing’s ever going to be perfect and they get themselves so locked up. Well, what happens if? You know, we have a terrorist—okay. What if anthrax shows up on the property? Look, it’s possible but it’s improbable. So people just have to get out of their own way.
Brandon: Yep, I love that. Hey, one more question. This is just my own personal in the Fire Round. What kind of software do you use to analyze—well, a couple of things. Do you use a spreadsheet to analyze or do you pay for a software? And then the second question is, what kind of software do you use in your business to manage just your business?
Bruce: I do spreadsheets. I don’t like subscribe to any kind of service. But for the properties, we’ve used multiple but the best ones we’ve found so far for us has been Resman. It’s very robust. It’s not as expensive as some of the bigger ones like Yardi and OneSight, which are great programs. I’ve never had them. But I’ve talked to people that have used them and Resman is almost, if not as robust as those. And I usually pay about anywhere from $1.50 to maybe $2.00 a unit for the management, for the software, depending on what I want it to do. Now, it can facilitate e-mails for me, texts for me, credit collections for me. It can do other credit builder stuff. There’s all kinds of stuff that you can a-la-carte up to $3.00 a unit but it’s usually about $1.50 to $2.00.
Brandon: All right. Cool. Um, I guess with that, why don’t we move over to the Famous Four. These are the same four questions we ask every guest every single week. So I know you’ve heard them before, Bruce, but let’s go through them. Number one, what is your favorite real estate related book, or a recent favorite?
Bruce: You know, it’s the same one, right, that everybody talks about. Rich Dad, Poor Dad. It just changes mindsets. It helps you understand what you’re doing wrong if you want to get ahead and have a phenomenal life.
Brandon: All right.
Mindy: What is your favorite business book?
Bruce: This is kind of a copout in a way but you know, call me a fanboy if you want, it’s okay—Gary Vaynerchuk. Anything that guy pumped out, I’m all over. Crush it, jab, jab, jab, right hook. Crushed it. He’s just phenomenal. He cuts through the crap and he tells you what you need to hear, not what you want to hear. So I love everything that guy does.
Brandon: So actually, we’re working to get Gary here on the podcast. I don’t know if it’s going to happen yet but we’re working on it. So we’ll see. Stay tuned in the coming weeks but I know he’s got a book coming out and that’s the best time to get people on the show and yeah.
Bruce: Yep. Absolutely.
Brandon: We’ll see. All right, number three. Mindy?
Mindy: Do you have any hobbies besides real estate?
Bruce: I’m bad about this. I’m the one-track mind guy. I think about this stuff all day, every day. But my wife and I, we like to travel. We like to go hiking and then my nerdy thing, I’ve been playing Fantasy Sports for 30 years. So I’m a big fantasy sports guy, baseball and football.
Mindy: I am currently in last place in our office fantasy football team. Team loser.
Bruce: It’s for fun, right?
Mindy: Yeah. And also you are talking to two people who live and breathe real estate and 150,000 are listening who also live and breathe real estate so nobody’s looking down on you for having this be your all day, every day. That’s my thing, too.
Bruce: I feel much better. Thank you.
Brandon: All right, what do you think sets apart successful real estate investors from all those who give up, fail, or never get started?
Bruce: It’s conviction and courage, you know. Have conviction and trust in you and your own abilities, right? When I got involved, I was a retail guy for 18 years. I don’t know anything about this. Well, the skills that I developed leading people my whole life conveyed very well into this industry. So, most of it, we talked about that engineer brain, that extreme type B personality.
Again, you’ve got to get out of your own way. You have to have conviction and courage. Things aren’t going to be perfect. Every deal I do is a good deal for the most part but things still happen in these really good deals. I’ve had a division of Homeland Security take $5 million bucks of my money. They didn’t tell me they took it. They just took it.
Mindy: Whoa, whoa, whoa. I’m sorry. I’ve got to hear this story.
Brandon: Dead guy and five million stolen. Yeah, we have to get these two stories.
Bruce: Okay, so first one, a property we closed about six, seven months ago, I got a text and an e-mail one morning. I’m sitting in my home office and I looked down at the text and my lead maintenance guy thinks he’s doing me a favor by showing me what he found this morning.
Unfortunately, it’s one of our residents. We have him on camera. He jumped the fence at our pool at four o’clock in the morning, inebriated and you can tell he’s just kind of almost falling the whole time. He goes swimming and never comes back up. So we have to deal with that stuff. So again, it’s not always going to be perfect but we get through it.
That day, then, I went and spent the whole day with my staff. We reached out to the family that still lived on property. So, you know, things are going to happen and it’s so unfortunate but for people that are wondering, if you don’t think you can stomach that stuff, this is probably not right for you. Find somebody that you can invest your money with.
But okay, so the other one was, we were buying a 256-unit apartment and I go into the bank Friday morning, nine o’clock in the morning, I execute my wire transfer for $5.2 million dollars. I drive to the property and I’m kind of hanging out waiting for the phone call to say okay, it’s clear, we’re good to go. Well, eleven o’clock hits and nothing’s happened. The previous management company had already come in and taken out all the computers and all the phones, everything. The staff that we’re about to inherit has nothing to do with their job. Remember, I am the management company also.
So, I thought, we’ve got to go in and set some stuff up for them because the wire will be there any second now. Two o’clock comes. Everybody’s screaming at me on the phone. Where’s this wire? I did all the backtracking and it left my bank and went to the Federal Reserve at like 9:30. Three o’clock hits, nobody’s seen it. Four o’clock hits, the seller is screaming at me through his attorney. To my attorney. My attorney’s screaming at me now like what the hell is going on?
So finally, my attorney calls me back and says look, you’ve got to get out of there. What are you talking about? She goes, you don’t own that property. I’m like, oh crap, you’re right. We don’t own this property so we had to leave. Nobody knows where the money is. It’s gone. Nobody can find it at all.
So we leave the property and my CPA wife really doesn’t know exactly what’s going on. She just knows suddenly we don’t have a property and you got me out of there and we’re driving away from the property so I had to tell her what happened. She starts to hyperventilate. I had to get her a couple of drinks. It helped but what ended up happening, anytime you execute a wire transfer, it leaves your bank and goes to the Federal Reserve.
The Federal Reserve gets it and they start looking at it. But then they have other fingers get in that pot. There’s a division, I think it’s the division of Homeland Security. It’s called OFAC. And what they do is they look at that wire transfer to make sure it’s not coming from or going to a known bad actor. So when they come in and they look at this, the name of the property was the same name of a known terrorist organization in Colombia.
So of course, they take my $5 million dollars—we’re laughing now but they just took my $5.2 million bucks and there’s not some friendly little customer service thing. Exactly. You’re Mr. Peterson. We don’t know what’s going on. So we have to go home that night. It’s Friday evening. Sit down at the computer and tell my investors, hey guess what? You aren’t owners like we thought. Oh, and it gets better. I don’t even know where your money is. That is not a fun thing to have to explain.
Luckily, the president at the title company thought, wait a minute, I think I remember this happening ten years ago. So he started making some phone calls and he figured it out for us and we did actually close that Monday. So again, it can get very white knuckle. If you don’t have the stomach for that, don’t do this. It’s fun. It’s rewarding. But my goodness, does it get stressful sometimes.
Brandon: That’s the best story I think we’ve ever had told on the podcast.
Mindy: I can’t even. My heart hurts right now hearing that story. I do a lot of wire transfers and I didn’t know that it went to the Federal Reserve. I’m not sending it to Drug Cartel Estates or whatever the name of your company is, but wow.
Bruce: The seller is losing his mind. I’m like, wait, wait, wait. I did not name this property. You changed the name from x to y and why is the name of it—I was like, look, it’s your fault for calling it what you call it. I was like, quit getting mad at me but yeah. That was a fun experience.
Brandon: Wow. That’s amazing. All right, well, with that, final question of the day. Mindy?
Mindy: Oh, my God. Hold on. I just closed my—
Brandon: Where can people—
Mindy: Yes, where can people find out more about you?
Bruce: At the website. Bruce—I’m sorry, no, that’s my first name. APT-GUY.com. APT-GUY.com or you can also get me at [email protected]. You’ve got to get the dash in there or I won’t get it.
Mindy: I will put a link in our Show Notes.
Bruce: Yep. APT-GUY. That’s it.
Brandon: All right, good deal. Well, with that, you know, man—it’s been awesome, Bruce. I learned a ton and this always gets me like hyped up and excited to do syndication so thank you.
Bruce: Let me know when you’re ready to roll and let’s do something together.
Brandon: I’m ready. I’m ready. We will do it. So yeah, anyway, keep in touch and thanks for being part of the show.
Bruce: All right, guys. Thanks so much. It was great. Thank you.
Mindy: Thank you, Bruce.
Brandon: Thank you.
Mindy: Okay, bye.
Brandon: All right, and that was our interview with Bruce Peterson. Man, I like that guy a lot. And not as much as you love him, apparently, but you know.
Mindy: I love him and that—my heart dropped when he told that $5 million dollar wire transfer story. When he first said that the wire transfer was gone, we have a friend, Shannon Allen, lost her wire transfer. It was stolen because somebody broke into her e-mail and I thought—she lost $50,000, which is horrible to lose $50,000 but $50,000 is nothing compared to $5 million dollars and when Bruce started telling that story, I was like, oh my, God! That’s a horrible story. And then I’m thinking, wow, I do a lot of wire transfers. I don’t want them to take my money. Of course, I’m not—
Brandon: That’s the Quick Tip of the day, actually. It is, always verify your wire transfer number before you send one off. That’s a Quick Tip.
Mindy: That is an excellent Quick Tip. Bonus Quick Tip. Call—and I even put that in my new book, How to Sell Your Home. I put that tip in there. Call your title company and verify on the phone that you have the right numbers. Ask them if it’s going to change because they’re not going to change because your title company has the same bank account from now until forever, from the beginning of time on. It’s not going to change and they’re not going to send you an e-mail at two o’clock in the morning that says, oh hey, sorry. We gave you the wrong number. They didn’t.
Brandon: There you go.
Mindy: Verify the wire transfer.
Brandon: Did your friend get the $50,000 back ever or was it gone?
Mindy: She actually did. This was like, she got conned by the dumbest con man ever who left the money in the American bank account. So she was using Chase and he was using Bank of America or something so he pulled her money—or she transferred her money to him and then he just let it sit there. That never happens. When you are transferring with a scammer, as soon as it hits their account, it is whisked away to some offshore account where it can’t get touched. So she actually did, and the only instance of this ever happening in the history of the world, she actually got her money back. But it almost would have been better if she would have lost the money altogether. She’s had so many problems with that house afterwards.
Brandon: Oh really?
Mindy: Yeah, some flipper did it and then like did everything—how do I say this—halfway? Half something else. He did everything halfway and it rains inside when it rains outside and it’s just a lot of issues. So I hope she gets all that fixed soon. I’m thinking about you, Shannon. Okay, so with that, Brandon, thank you for letting me step into Josh’s shoes today and take over for him. I always love to do that. I will see you again soon.
Brandon: All right. Thank you, Mindy. And thank you to BiggerPockets audience. We’ll see you around. In the meantime, make sure you guys leave us a rating and review and jump in the forums and interact with people. Meet people like Bruce or Mindy or me, hanging out in the forums. And come to my next live webinar up in BiggerPockets.com/webinar. I host an online class every week teaching different topics. So who knows? Maybe this week, we’ll be talking about something that you really want to learn. BiggerPockets.com/webinar. All right.
Mindy: The webinars are really good, Brandon. You do a great job with those.
Brandon: Thank you, Mindy. I like doing them. I like teaching.
Mindy: Like you know what you’re talking about.
Brandon: I might. All right.
Mindy: It’s like you’ve done this before. Okay. For BiggerPockets, this is Mindy Jensen, over and out.
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