GI164: The Hands-Off Investor; Passive Real Estate Investing with Brian Burke

Since 1989, Brian has acquired over 800 million dollars’ worth of real estate; including over 4,000 multifamily units and more than 700 single-family homes, with the assistance of proprietary software that he wrote himself. He has subdivided land, built homes, and constructed self-storage, but really prefers to reposition existing multifamily properties.

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Announcer:
Welcome to the Global Investors Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market. Host, Charles Carillo, combined decades of real estate investing experience with a professional background in international banking to interview experts in all areas of US real estate investing. Now here’s your host, Charles Carillo.

Charles:
Do you have money sitting in the stock market? And you’re worried about it or worse. You have money sitting at the bank, not keeping up with inflation. My name is Charles Carillo, founder and managing partner of Harborside Partners. And since 2006, I’ve been investing my money and my family’s money into income producing properties. These are real assets, real properties with real addresses that produce real cash flow. At Harborside Partners, we provide passive investors who love real estate with a turnkey investing solution. If you want to put your money to work in real estate, but can’t find deals, don’t have the time to get funding in. The last thing that productive people want to do is manage real estate. We find the deals. We fund the deals and we manage the tenants, the termites and the properties. Partner with us at investwithharborside.com. That’s investwithharborside.com. Go to investwithharborside.com. If you love real estate, you like the idea of passive income and believe that income producing properties will appreciate over time. Go to investwithharborside.com. That’s investwithharborside.com.

Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host Charles Carillo. Today we have Brian Burke. Since 1989, Brian has acquired over 800 million dollars’ worth of real estate; including over 4,000 multifamily units and more than 700 single-family homes, with the assistance of proprietary software that he wrote himself. He has subdivided land, built homes, and constructed self-storage, but really prefers to reposition existing multifamily properties. So thank you so much for being on the show, Brian,

Brian:
Thanks for having me on Charles.

Charles:
So you have a very experienced real estate career. If you give us a little background on yourself, both personally and professionally prior to getting the real estate bug.

Brian:
Gosh, you know, there really wasn’t much prior <laugh>,

Charles:
You know,

Brian:
I, I started in this business when I was 20 years old. Oh, wow. And you know, then I just, I didn’t know any better. I, I, it was the only thing I could think to do where you know, maybe I could be my own boss. So I was when I first started, I was actually working as a checkout clerk in a grocery store. And that was probably for the first few months, while I was trying to invest in real estate. And of course I had no money, so that was a pretty slow process. But then I got into law enforcement and I worked for a local police and fire department for about 14 years while I was building my business. And finally the business grew up enough where I could supplement or actually substitute my income from the, from the quote unquote real job and hung it up. And that was 20 something years ago and never looked back.

Charles:
Awesome. So what was your first real estate investment? You know, what was your first real estate investment that you got involved with?

Brian:
I bought a small rental house for, I don’t know, it was like a hundred grand or some small number here in California. And this was, you know, of course, 1989. So, you know, you could get a little bit more for your money back then than you could now. And I did it with no money down, cause I read in a book that you know, you Carlton

Charles:
Sheets

Brian:
Is that it, it wasn’t the car, it was worse than that. It was a worst book that nobody’s ever even read or seen I’m sure. And you know, it says that you could you get the seller to carry back your down payment and I’m like, that’s great, cuz I don’t have a down payment. So, so I I just made an offer on this property and I asked if the seller carry back the down payment and they’re like, yeah, we could do that. And I’m like, oh, this is easy. I guess this is pretty easy to do. So I thought that was gonna be, my next career was buying no money down real estate little did I know?

Charles:
Yeah, that’s interesting. It’s funny because my dad started investing in multifamily in 1984 and I would ask him about it and he’d be like, oh yeah, back then. We just you know, somebody signed their property to you. There’s no due on sale clause. They signed a property here. I get money back at closing and it’s like, you know, it’s, <laugh> a little different today, right?

Brian:
<Laugh> just a little bit, yeah, we did a lot of things back then that, you know, would be a much more difficult to accomplish today.

Charles:
So your firm focuses on purchasing value, add multifamily properties into addition to other properties and things that you offer. You have one I found very interesting was the opportunistic platform. Can you explain what types of assets you target and how you identify ’em? Cause this is something unique that we don’t skip too many operators on a do.

Brian:
Yeah. You know, the, our opportunistic platform really was born from the early days of of Praxis capital. And I started out in the house flipping business, you know, and I was buying, fixing up and reselling houses, buying ’em with the foreclosure auction on the courthouse steps. We actually still have one subsidiary where we do still buy properties at the courthouse steps and fix ’em up and resell ’em. And I’ve got a team that runs that operation. And so that’s kind of Wass the foundation for our opportunistic platform, but it encompasses any, basically anything that we think is a viable real estate opportunity that isn’t just stabilized multifamily. So it could be something like we have a, a partnership where we’re building homes on on fire lots. We had a fire that whipped through town about four, four years ago that leveled 5,000 5,300 homes were destroyed in the fire.

Brian:
And that left a lot of lots behind. So we’re partnered with a local builder, we’re building spec homes on on those lots where homes had previously been so that that’s in our opportunistic platform, you know, and we just done a few other real estate projects that are arbitrage plays. It’s not a big component of our business. It’s certainly just a small offshoot, but it does allow us to provide a menu of different investment opportunities to our investors, to, you know, some people really like, you know, take on a little bit more risk for potentially higher return. And the opportunistic platform gives us a venue to do that. You know, at least on a small scale

Charles:
When I was doing research for this show, I read that only 35% of people that have had fire damage in their homes rebuild it. That’s, that’s kind of crazy. I think it would be a lot higher.

Brian:
I think that’s actually probably a pretty accurate statistic from what we saw after this fire here about a third of the people rebuilt and moved back in about a third of the people just sold their lots. And then there was a third that they’re still in limbo trying to figure out what they’re gonna do. So it’s, it’s been it’s been interesting to watch how that’s played out.

Charles:
Yeah. I imagine it’s even more of a fiasco now because of supply chain issues and then labor issues and the whole nine yards. So it’s you might have a lot more people opting for the check versus becoming developers.

Brian:
So yeah. Well, especially now, if you’re just getting started because you know, it’s gonna take you eight, eight or nine months just to get appliances, you know, before you could have rebuilt your house in six months now you can’t even get materials for, you know, six or eight months. So yeah, it’s if you’re, if you’re looking to get back in quickly, it does present some challenges.

Charles:
Yeah. So you’ve invested in a lot of different real estate classes. Why do you prefer on repositioning existing multifamily properties over others?

Brian:
I just found it’s what we’re best at and what we can scale the most. And, you know, it’s, it’s difficult to scale arbitrage plays. If you’re, if you’re out there saying like, okay, we’re gonna go buy, you know, rundown properties at a discount fix ’em up and hold ’em or sell ’em or whatever. Finding old rundown properties at a discount is challenging. You know, there’s just not a lot of it. And, and when you do find it, they’re generally smaller. Maybe you’re buying a strip mall for a couple million dollars or, you know, some old shop building for 500 grand. And you know, it’s not really all that scalable and it’s usually pretty lo hyper local. So, you know, you’re buying stuff in your own backyard. I, I just you know, my backyard is California. I don’t find California to be a very good place to invest in real estate. So if we wanna go outside of our, our so-called backyard, that means traveling across the country and I’m not gonna travel across the country to go find some $500,000 shop building. I can repurpose into a retail center instead, I’d rather buy 150 million multi-family apartment complex that, you know, we can slowly renovate over time stabilize than ultimately resell. So for us, it’s about scalability mostly.

Charles:
So being vertically integrated with that, I mean, how does that assist you in scaling? I imagine if you’re in so many different, you guys are in a lot of different markets throughout really the whole Sunbelt, like you were just saying what, I mean, how does that, how does, how does that work, where you’re gonna put on your own management on the ground? And so now you’re not only just finding the asset now you’re putting together the whole management team and possibly a new market or a market that you’re growing in.

Brian:
Well, for us, the vertical integration is just about having total control mm-hmm <affirmative>. So, you know, we have full control over the operations of the property. Mm-Hmm <affirmative> we have full control over the renovations of the property and the order in which we’re going to do it with employees that, you know, basically are you know, they’re employed by us. So they, they do what we say, you know, we lay out the priorities and they do it versus third party company where you lay out your priorities and they’re like, yeah, well, you know, we’ve got guys deployed at another property, we’ve gotta finish first. And then, you know, there’s always some excuse. So we have full control over that. Plus we have full control over the financials, you know, we’ve we’ve got enterprise grade software platforms where everything is integrated together. You know, in one system we can see all of our properties you know, leasing rentals, occupancy, income expenses, everything is all there. And that’s an unprecedented level control compared to fractured third party management, where you might have different management companies in each market, everybody’s kind of reporting you differently. And, and you’re trying to sort out, you know, different reporting formats and accounting methods and so forth. Instead we, we can build all this in house

Charles:
So you can keep, I would imagine part of the, part of it, the operation in your centralized head office location, and then the other ones are on the ground. You know, obviously handyman, all that other stuff that goes on services

Brian:
That’s right. So each property, you know, we, we invested properties that are greater than a hundred units in size. And in most cases we’re over 200 units, but I would say in almost every case, we’re over 150 and you know, these properties are large enough to support their own staff. So, you know, there’s an office at each property, a leasing office, a clubhouse you know, that property’s gonna have a manager, an assistant manager, maybe a leasing agent, a lead maintenance technician, a couple other maintenance technicians, maybe a renovation specialist you know, we’re gonna have a whole staff at each of these properties, which is overseen by regional vice presidents who are overseeing, you know, who directly through our corporate office. So right. You kinda have to create a whole organizational structure around it, but you, you know, it’s something you can’t do with smaller real estate. Yeah. You know, you just can’t afford to have a whole staff for one building, but for larger properties, you can.

Charles:
Yeah. That’s the one big plus with going to larger assets versus smaller ones is just the ability to it’s just easier to manage. I mean, that’s what it is, hands down. That’s what I’ve found over over years of doing it. Indeed. so talk to us about this proprietary software that you you’ve written, and then they utilize, how, how do you, how, like, why did you do it and what does it really help you do?

Brian:
Well, you know what I, my, our first, our first platform was born out of necessity. When I started buying foreclosures at the courthouse steps. It was a very old archaic system back then with, you know, you would learn about the foreclosure sale through a legal notice in the newspaper that you would clip out and, you know, and so it was fun because I would go to the auction. And I was, when I was first getting into this business, I was watching other auction bidders and noticing that everybody was tracking things through, like, they had like a backpack full of Manila folders with papers flying everywhere. And, you know, and people were losing track of what was going to auction and, you know, cuz they would get postponed and then, oh, I lost that file. So I realized, I thought, you know what, there’s gotta be a better way.

Brian:
So I developed my own software platform that would track all these foreclosure sales and allow us to do title searches and prioritize the leans and kind of run basically our whole foreclosure auction business through this software platform. I wrote the thing myself, you know, nights and weekends and like working 24 hours a day for years, it took me years to, to really get it fine tuned and dialed in. And that really helped facilitate our growth when foreclosures went crazy. And then, you know, seeing the value of having your own platform that you wrote and, and, you know, did the specs on when I got into multifamily, I kind of realized we needed the same thing. It was hard to find really good financial analysis software to determine, you know, income and expenses and projections and calculate potential returns and waterfalls and all that sort of stuff for income real estate. So I decided to dip back into the old skillset and and do it again. And at this time, right, a platform based in Excel that would allow us to underwrite and analyze multi-family real estate and, and make projections for return and sensitivity analysis and all that sort of stuff. So that’s kind of our, one of our pieces of our secret sauce that helps us with a competitive advantage.

Charles:
Interesting. So if you’re working with a lot of passive investors to finance, a lot of these deals that you’re buying, what do you think? I imagine you’ve been on both sides of it and been a passive investor and other, maybe real estate or other investments. What do you think is most important or what should passive investors look for when investing in this syndication? What between, let’s say the operator and then also the property?

Brian:
Well, I think most important, and this is a debate that always comes up is people will ask, you know, what’s more important, the, the sponsor or the deal, you know, this is, there’s always this little chicken and the egg thing. You know, I’ve, I’ve always been a proponent of, of recognizing that the sponsor is more important than the deal because you know, a great real estate sponsor can, can create a incredible outcome out of extreme adversity, but a bad one can screw up a perfectly good real estate deal. So, you know, it’s really important for passive investors to understand who they’re investing with. And, you know, I, I wrote a book, the hands off investor came out in 2020 that’s 350 pages dedicated to everything you gotta look for when you’re investing in passive real estate syndications. I mean, if you wanted to boil the whole thing down to a couple soundbites, it would be look for a sponsor that has a good track record, a solid track record and preferably one that survives some market cycles. You know, you wanna see somebody that’s been able to get through adversity survive and be there to to live another day, cuz if they, if they failed or if they haven’t been around long enough then they, they might not have the skill set to get through the next adverse cycle when that comes,

Charles:
Speaking of adverse cycles, what do you think are the, how would one what’s the best way for an operator to prepare for a pullback and cuz I mean you’ve been through probably two or three of them now.

Brian:
At least, yeah. I think the best way to prepare is to structure your acquisitions properly. And, and by that the most important way that that you can structure your assets is to not take on too much debt. When I look back at the collapse of oh 7 89, you know, the great financial collapse as you call it or the great real estate reset or whatever you wanna call it. The properties that we were buying through foreclosure from banks and elsewhere were dominantly. And I would say somewhere in the high nineties percent dominated by people who took out too much debt, they, they had zero equity to start with. They were doing a hundred percent financing or, or, you know, just really high levels of financing and starting to see that happen again right now. Even in the multifamily side, we’re seeing right, it seems like most buyers, these days are using bridge debt.

Brian:
They’re using fairly high leverage. They’re doing, you know, 80 or 90% of cost, which could equate to somewhere close to a hundred percent purchase price you know, with draws coming for future fundings for renovations. And to me, that level of financing is dangerous right now we’re we’re financing somewhere in the 60 to 70% of purchase price range and we’re funding our renovations outta cash. So that puts us, you know, post renovation somewhere around 50% LTV which if we have a pullback, I feel that we have some margins of safety, too much debt eliminates those marks of safety. You can find yourself winding up in a world of hurt very, very quickly.

Charles:
Oh, interesting. So what are other than over refining over leveraging what are some other mistakes that you’ve seen real estate investors make?

Brian:
Well, some of the big ones are they, they tend to overestimate and underestimate and, and it’s always in the way that doesn’t help them. So they might overestimate how much rent increases they’re gonna get or what rent they’re gonna get. And then they might underestimate how much it’s gonna cost to repair the property, or they might overestimate their exit price or underestimate their exit cap rate. So there’s there’s all kinds of misses and those are, those are where the misses usually are. It’s usually in how much you’re gonna be able to sell it for how much you’re gonna be able to rent it for and how much it’s gonna cost you to get from the condition, the properties into the condition you want to get it into. Those are the big misses and they they can be death sentenced to a business plan.

Charles:
Brian what do you think are the main factors that have contributed to your success over the past few decades?

Brian:
Well, obviously some tenacity because getting through the downturn of the real estate crash was not an easy thing. So if I, I had plenty of opportunities to throw my hands in the ear and give up, never did. So I think that was probably a major contributor to our success. I think another contributor was that knock on wood after 20 something years of investing, using investors money, we’ve never lost a nickel of investor principle and a track record, like that helps to fuel future growth because people recognize that if you’ve been able to pull that off, maybe their principle is a bit more protected than with someone that doesn’t have the same track record. So I think you know, success breeds success.

Charles:
Yeah. So how can our listeners learn more about you and your business? Brian?

Brian:
Best ways are to check out our website at for Praxis capital it’s Prax cap.com, P R a X c.com. You can also follow me on Instagram at investor Brian Burke, or check out the hands off investor available on Amazon bookstores or bigger pockets.com/syndication book.

Charles:
Okay. I will put those links into the show notes and I wanna thank you for coming on and looking forward to connecting with you in the near future.

Brian:
I appreciate you having me on Charles. Thanks much.

Charles:
Thank you.

Charles:
Hi guys! It’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin, set up a free 30 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

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Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.

Links and Contact Information Mentioned In The Episode:

Praxis Capital

About Brian Burke

Brian Burke is President / CEO of Praxis Capital Inc, a vertically integrated real estate private equity investment firm.

Brian has acquired over 800 million dollars’ worth of real estate over a 30-year career including over 4,000 multifamily units and more than 700 single-family homes, with the assistance of proprietary software that he wrote himself. Brian has subdivided land, built homes, and constructed self-storage, but really prefers to reposition existing multifamily properties.

Brian is the author of The Hands-Off Investor: An Insider’s Guide to Investing in Passive Real Estate Syndications, and is a frequent public speaker at real estate conferences and events nationwide.

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