Aileen: Thank you, everyone for joining today’s episode of the, How Did They Do It? Real Estate podcast. We are your hosts Seyla and Aileen and today we have Bruce Wuollett. Bruce is a founder visionary and the current owner of Bakerson. Growing up in the bakery business in the twin cities in Minnesota, Bruce wanted to pay homage to his now late father, hence the named Bakerson. He has a proven track record of success throughout Bakerson’s nearly 18 years in business with thousands of individual units bought repositioned and sold. Bruce has overseen all aspects of the business including operations, acquisition, project leadership, equity fund management, property specific syndications, legal, finance and more. His focus is finding good deals while his passion is serving the residents by providing them with one of their basic human needs – shelter. Prior to launching Bakerson in 2002, he served on the acquisition team at a Phoenix-based real estate investment company. We’re very excited to have you on today, Bruce. Thank you for joining us.

Bruce: Thank you so much for having me on. Pleasure to be here.

Aileen: So, before we get started, can you tell our listeners a little bit more about your background and how did you get started in real estate?

Bruce: So, I tell people that I’m an SOB, I’m a son of a Baker and I grew up in a bakery business and that’s why it’s Baker Son. And I spent, yeah, I started 11 years old working alongside my father, getting to know, you know, baking and I worked there for 15 years before I branched out and did some executive recruiting, some sales and medical device sales, started up a drug education business that only lasted a year. And then I had read Kiyosaki’s “Rich Dad, Poor Dad” and it made me think about real estate. And from that, from there, I thought, Hey, I could do that and I started looking at some properties. Well, I had worked with the guy, Gary in town here who did tax in foreclosures. And so, I worked alongside him for a year and a half and he was my mentor and I learned about real estate. And I said, Gary, you’re leaving so much money on the table that we should we could buy these properties. And he said, Nope, that’s not my system. That’s not my business. And I said, well, can I buy them? And he said, sure, whatever you negotiate, you can buy them. So, then I started to buy them individually and I had a house or two houses that triplex and a duplex that we had used other people’s money for. And we had investors that put the money up and we rented them out and then ultimately sold them. But that’s what really launched the business in 2000, 2001.

Seyla:  Awesome. Bruce, will you be able to provide additional information and how you transition from purchasing your first home to your first multifamily apartment?

Bruce: Well, we had when I started selling house is what we did is we did wholesaling. So, we would buy the property and sell the contract, not started when we first started by, I bought them and held them, but then we started, I got new to wholesaling. We found out that wholesaling, as it was done was to me, I didn’t like that process so much. So, we developed a plan for actually taking down the property and then reselling it immediately, or very short order by doing basic cleanup. And when the market shifted in 2007 and eight, you know, when it had the crash team, we were at that point, really heavily invested in land development deal and the land development deal did not go well. And so that’s one of the learning experiences we had that cost us, basically everything that we had built up to that point was gone evaporated overnight. And so, I got back into wholesaling houses. Well then that works great in 10, 11, 12, 13, it was phenomenal times of buying and selling houses in Phoenix but then when the technology came in and you could bid online, you could get title reports online, you get hard money, a hundred percent financing and it was amazing what other companies were doing and we did not jump on the technology bandwagon and we thought, we’re not, we’re still in the streets. This is what we do or relationship people. We’re going to drive around neighborhoods. Well, the market basically started to dry up and it was hard to compete. Plus, the margins that some of those other wholesalers and retailers were doing, whatever, you know, some were 12, $1,500 margins and we were at around 5,000 and we couldn’t do it the volume to justify that. So, we started flipping multi-family and we did 25, 26 apartment builders that we would get under contract and we would sell the contract other investors and that was really like okay I see that. Well, then we get introduced to an idea and I said, okay, if we take each unit, we break it down per unit. That’s like one house. If you have 64 units, it’s like 64 small houses and you put it in a spreadsheet all 64 units, everything that has to get done, it’s like 64 individual house transactions. Well, we had at that point flipped over 2000 homes. So, it was like to go to that individual units and breaking it down into simplicity, made the transition quite simple in my mind.

Aileen: So, you mentioned that you started off with the land development and that didn’t go well. What happened there?

Bruce: We didn’t start off with land development. We started off with houses, but when we got an opportunity to lock up a square mile of land in the West Phoenix Valley, we had a golf course that was going to buy it from us. We were in negotiations, but when the market crashed, everything went on hold and there was no development going after the crash, the land became worth what the property taxes were owed and there were millions in carryback and debt that we had. So, we ended up returning that back to the owners. I think they all still want to get today, you know, 10, 12 years later. So that was just the market crash so that we couldn’t withstand that.

Aileen: How did you get the courage to move on and continue on with real estate?

Bruce: Well, what other choice at that point the market was down and nobody would hire me. I was like, I’m not employable. So, I got to do something. So, we just went back to the basics of what we knew was successful and went back to driving neighborhoods and had better systems in place in 2010. So, we were really able to ramp that up. And in 2012 was our biggest year. We did 287 houses that year and it was as many as 30 in a month. And our record day was seven escrows closed in one day with three different title companies. I’ll never forget that day. It was a scramble going to make sure you get all done in time.

Aileen: That’s an incredible feat.

Seyla:  Fast forward to today. Will you be able to give us an overview of Bakerson company and what is the company’s portfolio now and a little bit more detail?

Bruce: We’re not a portfolio investor. So, the portfolio is always changing a year and a half ago we had over 400 units and now we’re down to 165 plus some condos. So, it changes all the time. We’re in the selling mode now and we’ll be in the buying mode here we want to pick up one more property yet this year we were in negotiations on multiple. So, we’re not a portfolio holder, if you will, at this point, we were working on that, but we’re in that transition. So, the next properties we buy will be legacy. They’re the ones that we’re holding and basically never sell, or have no sale date in mind. It’ll be a 10-year plan knowing that in five to seven years, we might modify that plan. But in five years, we’ve done nearly 900 units that we repositioned in two markets, Phoenix and Tucson, smallest being six units, largest being 120. It feels like our bandwidth is much broader than that. We can do a two- or 300-unit building if we can find something because we did at one point, we had four projects going on at one time that was over 300 units over, across four properties. So, we’re able to do larger projects. I’m very confident in that. The market’s tight.

Seyla: Yep. The market is tight in Phoenix, I must say, that’s for sure, It’s a very hot market. And will you be able to share with our listeners your success and how you are able to scale up your business?

Bruce: Well, that could take a couple of hours, I would suppose. Right now, so if you get more specific on that, what do you mean because scaling up means different things to different people. And so, if you could be more specific on that question?

Seyla:  Yes. If you can provide how you scale up your business to bring up deals and scaling up, buying more additional properties pretty quickly, and also be able to disposition them pretty quickly. And like you mentioned earlier as you’re able to put seven to eight units or properties in escrow in one day. How do you get scale up to that level?

Bruce: Yeah, that was in houses. And that was a whole different process and it was, there was not really a lot of systems in place beyond my own, what I did for me, but currently for, to scale our business now, the best systems we have in place is a good team. And it comes down to team like we have a property management company, third party that we hire. We do all the construction, heavy construction in-house we hire the property management company does the light turns into light construction. So, our ability to scale has to do with the teams that we’re building around us, as well as the staff, we have. It comes down to systems and to plug it in and we’re using more and more software. We’re using a software underwriting tool as opposed to an Excel spreadsheet. And it’s phenomenal what it can do and it gives us the option to put a property in and within 24 hours get a complete underwriting on that property, on where it sits. And then we can put in some metrics and what we can do to the property and then we can have your best case, worst case scenario put into the program as well. So, it really, really comes down to systems software and a good team.

Seyla: So how did you determine when would be a good time to disposition an asset?

Bruce: Our projects have typically been you know, 18 to 36 months. So, it comes to when it’s 90% occupied, we would sell, but in the market now, all bets are off because even prior to COVID, we had people looking at our properties and we would sell them. They weren’t even 90% occupied and they would make offers that we thought were kind of silly. So, we said, sure, we’ll take it. So, the market in the last two to three years has been very hot so that you could sell a property that you’re not even completed the project, but you have a good proof of concept that they could take to market themselves. They liked that. Okay. They did the heavy lifting. Now it’s a proof of concept. I’ll look at what they’re doing. They’re pushing the rents then, but they would buy the property on proforma numbers up to this year. This year, of course, now they’re buying on actuals because lenders are lending on actuals. But in 2019, we sold on Performa and the lenders lent on performance because the market was rising so fast. But in the future, when we sell, we want some market goes into a more normal market. If we can have such a thing, but more stabilized markets that we would hold them, the disposition would happen once we look at the whole cycle and probably sell if somebody approached us. But our goal is to not sell, not have a disposition. And then in three to five years, we’d get a refinance and get all the investors, all their capital back but yet there’s an opportunity for them to stay in the deal indefinitely with no money in the project. And that’s our, that’s our legacy build that we’re doing right now, which is a compounded real estate interest or return, I should say.

Aileen: So how has your investing strategy now shifted during the pandemic than it has in the last couple of years?

Bruce: Yeah, we’ve always purchased conservatives. So, we bought a good deal that’s a good deal today and tomorrow will take care of itself. And so, we’re, I don’t think it’s changing our mentality. What I think it will do is it will allow more opportunities here in fourth quarter of 2020 that people will want to start to look at selling and to be opportunity for us to buy. I think the shift will be more opportunistic in more properties becoming available because of those that are in short hold, a lot of the equity funds and those are in and out in three to five years. And some of those might be at that point and they need to sell to redistribute and reposition their assets or their capital. So, I’m feeling the opportunity will be on the buy-side more than anything else. I don’t think it’s shifted our strategies because of our focus on the community and the resident won’t change. We’re going to be the same people before, during, and after a pandemic.

Seyla: You mentioned about the residents that your company has been focusing on them. That’s probably one of the topics that possibly overlooked majority of the time. Can you provide some insight of how important it is to serve and focus on the resident?

Bruce: Well, that’s is the largest. That’s the biggest pet peeve I have. When we look at a property that’s for sale or property that potentially we could buy and I see how they treat the residents as in class C workforce housing as second-class citizens. Our focus that at Bakerson is the permanent resident, one who may never own a home and like to live in one, but they’re self-paying residents. So, 90% of them pay their own rent and maybe 10 to 15%. So, 85, 90% pay their own and 10 to 15 would be subsidized through section eight or some other type of program. But just because people make less money, doesn’t make them less human and it really bothers me when you go into a property and you see the way that the owners treat them and they treat them as a commodity and I think that’s just wrong. If you treat them as humans, treat them with dignity and in the end, there’s a little secret. If you treat the residents, right, they’ll take better care of the property, which in turn can take better care of the sponsor and the investors behind it. It’s a long play and it’s not instant gratification. It takes a while to get there, but it’s worth the journey. Trust me when we get it stabilized. That’s why I don’t want to sell, we’re selling now, I’m like, I don’t want to sell this as a property we turned around. I’ve come to like the residents. I like the community. I like the vibes in the area and now we’re getting rid of it. So, I said, maybe we should never sell and that’s why we’re making that transition.

Seyla:  Can you share some of the things that your company has done to ensure that the residents feels like they are at homes and be happy?

Bruce: We have five pillars that I speak about every week at our meeting. And the pillars are that our passion is serving the underserved our focus is the permanent resident, one who may never own a home, would like to live in one. Our mission is creating communities which are safe, functional, durable, and clean. And our desire is to attract like-minded individuals, to take this journey with us and we have a promise to leave all things better than we found them. If we do those five things on a property, you will see the impact and the people will feel the difference. And when I walk on a property and if they know I’m the owner, they don’t always know because, you know, wearing shorts and a polo shirt and, you know, walking around, but there’s sometimes they’ve approached and say, are you the owner? And then they thanked me. And I said, you know, that’s just worth it. Just having them say, thank you for what you do here is well worth the journey.

Seyla: Has your company done anything differently, especially now with the COVID situations to help out with the resident?

Bruce: Communication, our property managers are really doing a terrific job on communicating with the residents, what they are, what they can and can’t do what is allowed. What’s not allowed what the law means that they’re very proactive in the communication with the, how the laws have changed. I mean, they’ve changed completely over the last six months, unbelievable a switch, but yet there’s still a responsibility for the resident to pay their bills because they don’t. How does the owner keep the water on and keep the community going if there’s not income? The owners and sponsors don’t have pockets that are deep enough to people live for free. So, people realize that, Hey, they got to do their part to maintain the community. We’ll do our part to maintain property for them.

Seyla:  So, what are some of the activities that you or the property managers do to keep the residents coming back and maintain the occupancy for your department?

Bruce: Yeah, similar to what I just mentioned, that the communication, the proactive communication with the residents, and if they’re having trouble paying the rent, because they’re out of work or have issues that they can direct them to organizations that are set out, there are funds that are available through public for these residents to go and apply for and able to walk them through that process, to help them out. Also, quick response to complaints if I’m at the property and residents says, Hey, we have an issue with our shower’s been leaking for six weeks, and nobody will look at it. That bothers me. And we’re going to have a little conversation with the property manager and say, this is not acceptable. That if there’s leaking faucets and there’s complaints, they should be dealt with. And there’s also those people that over complaint, they complain about everything that aren’t even complaints, because they like to just, they have too much time on their hands. You also deal with them in a very gentle and nice way and say, listen, I understand your concerns and we’re taking care of them but at this point, this is where you’re at. And just communicate, communicate, communicate, communicate. Keep the door open.

Seyla:  So, throughout your journey so far, you have purchased many homes and many, a multi-family complex and all, they went through a full cycle of re disposition in them. What is next for you?

Bruce: The next thing is we’re partnering with some international groups that launch boots on the ground in Phoenix in Tucson. So, our next scalable opportunity is to work with those that are outside of the US that want to invest here, but don’t have the ability to have boots on the ground. A property management company is one resource for boots on the ground, but having a co-sponsor like us on the ground will make a huge difference for them. And additionally, the opportunity we see in the next three to six months is the lack of ability to travel here because of COVID and other restrictions. Many countries have restrictions through the end of the year and it’s an opportunity for us to help these organizations to take out some properties here in Phoenix and Tucson that we feel is opportunistic for creating a long-term relationship to prove that we are a partner worth working with.

Seyla:  How has real estate investing impacted your life so far?

Bruce: There’s the ups and the downs, and it’s a roller coaster. The biggest thing is I’m able to bring family into the business, my son and my son-in-law and brother-in-law are our key employees here. And then we have three other employees that I say are adopted family members, right? So, there we’re like a family, but the way that has impact me, I realized that no matter where you go, there’s real estate and no matter where you go there’s opportunity. And so, I’m always looking at that as, Hey, how else can we make a difference? And so, when I go to other communities, other areas where I’m not going to invest or buy, I see what they’re doing and that’s attracting residents are making their property look appealing. So, it’s in my blood and so the impact is, it’s my life. It’s everywhere I go, because anytime you’re walking on the surface of this earth, you’re on real estate. Right?

Seyla:  What is one thing you know now about real estate that you wish you knew when you started?

Bruce: The tax side and the tax benefit. I’ve been talking to people that do cost segregation. And also, if I’d have known the impact you could have with green being like solar, we did a solar project on one of our properties and it gets terrific tax credits. Right now, if I had more knowledge on tax credits or would have had, I think we had to be in a lot different position on that tax credits are available a lot more than I thought and they’re not as much work as you would think either.

Aileen: So, would it be engaging with more CPAs or how would you go about doing that?

Bruce: Probably more with the community. There are organizations here that really push the tax credits like we work with a cost segregation company, but they could also tell you that, Hey, there’s other opportunities you could do, you can get some credits for led. You can get credits for dropping, like in Tucson for every toilet we buy, they send us a check for, that we installed as low flow. They send us a check for $75. So basically, you can get a toilet along the way through these credits. Well, that’s pretty nice. So, what we did is we upgraded from the 75 to a $120 toilet. And so, it costs us $50 to have a low flow, very nice high-quality toilet in each of the units we put in low flow faucets, low flow, and they give you credits. They send you checks dollar. You can get federal and regional tax credits for solar. But the biggest thing is, if you can save water in Arizona, if you find ways to save water and the government or the utility companies will give you money for doing that, pursue all of those, the way you can so the credits, as far as the utility go, you get from the utility company. So that requires you to be engaged with your local utilities.

Seyla:  If somebody wanted to start up with this real estate business, what is one thing that sets the successful people apart?

Bruce: It has to be grit and just giving that extra oomph, you know. One thing is to get somewhere like people can be successful and really do well for a season, but how do you maintain that over time? It takes a lot of grit and it takes a lot of perseverance and I’m a mountain biker. I’m an avid biker on nearly every day, the road or mountain biking. In fact, we just did a nice 36 mile ride this morning before this call.

Aileen: Wow, 36 miles.

Bruce: Yeah. So, but what I do is when I’m mountain biking, you get a steep Hill. So many times, you get almost to the top and you’re just grinding it. And you’re like, Oh, well, now I say, you know, if I give myself two more revolutions on the pedal at full torque, I can roll over the top and coast on the other side, it’s the same thing in business. If you just get that little extra effort, as you’re getting close to the finish line, you roll over at a higher momentum, you can carry that momentum into your next deal. But if you get tired towards the end and you’d give up, then you can have failure and you can have barriers that are difficult mentally to overcome. So, there’s a mindset in real estate that you need to give that extra effort when there’s most needed, which is at the end of the transaction. We have one right now that we’re at the 11th hour, they’re supposed to close today. And there’s some negotiations going on because they have to change their funding. And we’re trying to, we’re doing a little give and take, well, this is where we got to give that extra effort to make sure we don’t lose the buyer. Or if we do, we know what we’re going to do for plan B. If we’re going to keep it and refinance it. So, giving that extra effort at the 11th hour at the last bit is probably, you don’t up too soon. I watched people like get into this business just when they’re about to have success, they give up because it’s too much work or they’re scared of success. I don’t know. So, grit, that’s the word I like to use is to have some grit.

Aileen: How do you get that extra grit when you’re at that last hour, Bruce?

Bruce: I get energized when there’s resistance and I like it to, when we go biking, I really thrive on the Hill, climbs that my son and son-in-law, they liked the downhill, but I love the Hill climb because there’s an extra resistance. And even today on a long uphill, I felt like man, I feel way better. So, it’s the same thing in business. When there’s a little resistance or Bruce that can’t be done, I’m like, hah, watch me. It can be done. And so that’s where I get excited where the different. People say you can’t invest other people’s money years ago and of course we do. They say you can’t Oh, you Bruce, you can’t do that. We’re working, focusing on the resident is not the right thing. You got to focus on the balance sheet. I said, no, Greg, our CFO he’ll focus on the balance sheet. I’m going to focus on the resident. So, they give us a better balance sheet. So that’s what gives me the, where there’s resistance, that’s where you push through and you generally have better results and that’s where I get the energy is just having that resistance that I can do this. I can push through it.

Seyla:  Got it. Thank you for sharing that, Bruce. You also earlier, you mentioned about having a system in place where you’ll be able to share what tools or techniques that you have used in order to improve the efficiency of your business or personal.

Bruce: Well, it’s pretty broad. It’s probably hard to pinpoint any one or two things, but the having systems in place period are good. And to talk to other, probably the best thing to do is talk to other operators, what they’ve done. So, one of ours is software tools where you have a software underwriting tool, where we input the information and through AI or virtual assistance from other countries, they are able to bring these to input the data for you. Well, they can do it in a fraction of the time. Instead of paying somebody 20, $30 an hour, if AI can do 90% of it in minutes, sometimes you send the documents, boom, it’s uploaded. AI reads it. And the AI over time can now, if you use the same type of reporting, eventually it knows what you’re sending. It’s phenomenal, what that can do. So, utilizing more technology and less human requirements is clearly a way to increase your systems. Humans are expensive and oftentimes any efficient software in the morning can use software and follow. That is probably where you can go. The other thing is it comes down to math. Everything in this business comes down to math. The numbers don’t lie. If you have the right numbers, follow those numbers, you can just create that, those spreads you want and you’re efficient in. Probably the best way to be efficient I guess there’s no one to say no. Earlier in the process, no, that’s not a deal. Don’t try to make it a deal. How many times do we take this to the, Oh, what if we did this? We can make this. You spend weeks trying to make a deal out of nothing. Don’t do that. Just, say okay. It’s not a deal. No, at this price, that’s not going to work and we willing to walk away.

Seyla: No, that’s great advice, Bruce. Thank you so much. And if our listeners wanted to find out more about you and learn about your business more connected.

Bruce: Well, there’s a few different ways. One is bakerson.com, B A K E R S O N.com or my email Bruce@bakerson.com or they could always call 520-808-9111.

Aileen: Awesome. Thank you so much for sharing Bruce. We really enjoyed having you on today.

Bruce: Well, thank you so much for having me on it was truly enjoyable. I appreciate it. Appreciate the opportunity.