Aileen: [00:00:00] Thank you, everyone for joining another episode of the, how did they do it? Real estate podcast. We are your hosts, Seyla and Aileen and today’s guest is Brian Burke. Brian has an extensive real estate background where he has been investing in real estate for over 30 years and is the founder, president and CEO of Praxis Capital.

He has purchased more than 750 properties, including over 3000 multifamily units worth more than half a billion dollars and has raised a hundred million dollar plus from individual investors. Brian is also the author of “The Hands-Off Investor”: An Insider’s Guide to Investing in Passive Real Estate Syndications.

 So we’re really excited to have Brian on today’s episode.  Welcome to the show, Brian.

Brian: [00:00:41] Thanks for having me here. It’s a pleasure to be here.

Aileen: [00:00:44] can you give us a little bit more by your background and how you got started with real estate?

Brian: [00:00:48] Well, I got started in real estate like a lot of people would, and that’s with single family homes. That was where I cut my teeth, doing single family fix and flip. And then, I was buying houses, you know, originally from distressed sellers. And then I started buying houses on the courthouse steps at foreclosure auctions, and then kind of grew into a rental property landlord where I was keeping some of the houses, buying and, you know, building up a rental portfolio.

And then, and then I came to the conclusion that I could really scale my business a lot if I could get into multifamily. So my first multifamily acquisition was over 20 years ago and it was a 16 unit apartment building. And to me that was huge. It was huge.

And, I’ve just grown it from there. So now, you know, 3000 units and a half a billion dollars in real estate later, I’m still doing and in 30 years from now, I’ll probably still be here. I’ll be on your show again in 30 more years.  

Aileen: [00:01:42] First off we want to just congratulate you on publishing your book this year.  I know that was a really great accomplishment.

Brian: [00:01:47] Yeah, that was a, it was, eh, an incredible thing. I never really thought I would do that. My wife’s told me for years, I should write a book and I’m like, you know, I’m not experienced enough to write a book yet, or I don’t, you know, I’ve only, I’ve only done 400 real estate deals.  I don’t have enough experience to write a book yet. And, so I waited until I had about 750 under my belt and then decided, all right, I guess now maybe I know enough to write a book and then I wasn’t sure if anybody would read it or like it, or if it even would be any good and yeah, the big thing for me is, I didn’t know how hard it was to write a book.

I mean, it was such an overwhelming thing and I, I was having lunch with Brandon Turner one day and he’s a BP author and I asked him, I said, you know, how do you do that? How do you write all these books?  And he kind of told me how he gets started when it’s time to write a book. And I thought, well, geez, I can do that.

So this isn’t so hard.  So I did what he suggested and then I found out, yeah, it really is hard.

Seyla: [00:02:40] Thank you very much for providing your background and, thank you again for coming to our show. It’s a great honor to have you here.  Could you please, provide a little bit more details about your book, The Hands-off Investor, and a quick summary of the book?

Brian: [00:02:55] Yeah, The Hands-off Investor was written with the passive investor in mind.

You know, in that conversation with Brandon, I said, you know, I don’t even really know what I’d write a book about, you know, it’s and you know, he was like, well, you know, what is it that you specialize in? And it’s like, well, we specialize in, you know, having investors invest in real estate, he’ll say we should write a book about investors or something.

And I’m like, wait a minute. Nobody’s written a book to teach investors how to invest. In passive real estate syndications. And you know, and I’m a real estate syndication sponsor. So, you know, I know all of the, insider tricks and, you know, I know how this business works. I could write a book to teach investors how to properly invest.

And at first I thought I’m not the right person for this. You know, this should be written by someone who just does passive investing, within it. It struck me as I got into the writing of the book that, no, really this requires somebody that knows the insides of the business and that’s me. And so the book is written to teach people who are thinking about investing their heart, earn dollars with a syndication sponsor in a real estate deal of which they have no control over it.

How do they make that investment and do it the right way and try to stack the odds in their favor. And that’s what The Hands-off Investor does. It’s not to teach you how to be a real estate investor, it is to teach you how to watch what the real estate investor is doing and ask the right questions and know if the answers they’re giving you, make any sense.

Seyla: [00:04:23] Yep. I’m very excited and actually got your book and I cannot wait to read it from front to end. Yeah. And, Aileen and I, we’re both also passive investors and we really hope that we actually have this book before we actually jumping in, into investing any of the syndication deals.  So, just a start, from the basic point of things, what is a syndication and who are the main players in a syndicate?

Brian: [00:04:48] Yeah. So a syndication is an arrangement where, an investment sponsor. So that would be like somebody like me, or, you know, any of the other companies that are out there that are, that are putting out private offerings for people to invest in. Somebody is in control of the deal.  They find the real, they execute the purchase agreement.

They go find the financing. They’ll be in charge of managing the asset after they acquire it.  And they’ll be in charge of selling it. That’s the syndication sponsor.  They team up with Investors who are just private individuals, high income earners, high net, worth individuals, family offices,  whoever the case may be that have money to invest.

So like, you know, you always see like on late night TV, they talk about, you know, you can buy real estate with none of your own money. You can use other people’s money. They call it OPM, you know, use other people’s money. well, you know what? This book is written for the other people, you know, what about the other people?

The people that have the money. That’s the investor side on a syndication. So you have the investors and you have the sponsor.  the investors just bring the money, and the sponsor does all the work and makes all the decisions. So that’s the essential components. Now the tricky part about all of this is that the investors don’t really have a lot say in what happens, they’re truly passive. And that means you have to place a lot of trust in that syndication sponsor. And you need to, you know, your toughest decision is going to be which syndication sponsor do I invest with because making the wrong decision, there will set the course for potential challenges, difficult.

Oh, these are even outright failure. So that decision is critically important.

Seyla: [00:06:26] From your experience, as a passive investor, what is the biggest mistake that a passive investor should avoid when looking into investing in the syndication deal?

Brian: [00:06:36] Well, there’s two in they’re somewhat related to each other.

So the biggest mistake is that they invest with them, the wrong investment sponsor. That’s the biggest mistake people make. And usually the reason they make that mistake is they’re focused on the wrong things and they don’t do the proper due diligence. And so, if you think about, you know, today’s world, we buy everything I think on Amazon, right?

You go to Amazon. Yeah. Type in whatever it is that you’re looking for. You get a variety of different products that meet your search criteria and you’ll pick the one that has the lowest price, for example,  you know, and so it’s very easy kind of point click done,  and you can’t use that same concept in private investing because what people do is they want to go to a crowdfunding website.

For example,  they say, I want to invest in apartment building. They get a menu of 20 different options. They look over that menu of options and they go, this one has the highest rate of return. Well, it’s the highest, promised or highest forecasted rate of return, but will it really be the highest rate of return?

So people will gravitate towards the one that has the highest rate of return know, that’s the best one for me, I’m going to invest in it and they don’t do any due diligence. They don’t look behind the numbers to see. See if that projected return is achievable or even likely or even possible, they just believe it and invest in it and don’t do any homework and that’s the biggest mistake they can make.

Aileen: [00:08:01] Yep. And then in your book, I saw one of the stories that you had about one of your friends who, invested with one of these syndicators just looking at the numbers and not really investigating the background of the individual.  And they ended up, basically,  bankrupting her and, ruining her retirement future basically.

Brian: [00:08:20] She lost her entire life savings. Yeah. Lost her entire life savings. And the reason was, is it turned out the investments selves were probably sound, but the syndication sponsor involved in those deals was a crook. And if you invest with a Thief, the outcome will not be good, no matter how strong the real estate investment is.

And that was the piece that was missing in that due diligence process. So it’s very important that you have a really good understanding of who you’re investing with because they can make or break you.  You don’t want to invest with a crook first and foremost, that’s an automatic.  Fail.  but you also don’t want to invest with someone that’s inexperienced or doesn’t have the market knowledge or the things required to successfully implement the investment either.

Seyla: [00:09:06] Yep. That’s really great advice.  and, can anyone invest in a syndication deal?

Brian: [00:09:11] Anyone can invest in a syndication deal. Yes, no, there’s a few asterisks to that statement. so if a syndication, okay. Investment is publicly advertised.  then that syndication investment will be restricted only to accredited investors, which means  you have to have a million dollars net worth not including your personal residence, or you have to have an income of greater than $200,000.

If you’re single or you could use 300,000 combined with a spouse, if, if you meet the accredited investor criteria and the accreditation is not a certification or a test.  It’s just simply you either have the income or the net worth, or you don’t.  If you meet that criteria, you can invest in any syndication investment. Even if you saw it on a billboard, you can invest in it. If you’re not an accredited investor, then there can be restrictions on it, on what a syndication investments you can invest in.  Specifically you can’t invest in any of the syndications that add for ties, which mean means that you only can invest in ones that you find out about through word of mouth, through friends and that sort of thing. And, and generally speaking, it’s preferred that you have a preexisting relationship with the syndication sponsor. Now this, exemption was basically designed so that, you know, the average person could go out and do a real estate deal and have their family and friends. Invest with them.

They had a preexisting personal relationship or a preexisting business relationship. So there was some trust built there already.  That’s what it was designed for. The way it gets put into practice in a lot of cases is people who completely don’t know each other. They’re investing in a sponsor’s deals and that’s where it gets to be a little bit more murky.  It’s okay. They don’t have to have a preexisting relationship, but they all also could not have come by way of an advertisement. And so generally the preexisting relationship is the proof that they didn’t come because of an advertisement. So a lot of sponsors will say they have to have a preexisting relationship in order to invest.

So you’ve got to kind of check with the sponsor to see if you can invest or not.

Seyla: [00:11:31] Got it. And thank you for that. And now I would like to talk about the current market now, as you know, in the COVID-19 situations and a lot of investor, it is possible, probably, afraid to invest and possibly wanted to know.

Is it a good time to invest, based on your experience in the last 30 years of investing in multifamilies and single families, what is your view of the current COVID-19 market compared to the other market downturns?

Brian: [00:11:58] Yeah, it’s different than the other market downturns. You know, the most recent market downturn we had was the great financial collapse that really began in 2005, but it was most deeply felt in 2008 and 2009, that financial collapse was caused.

Buy real estate real estate in 2005 was being sold and finance to buyers that were completely unqualified with loans that they could never afford to repay, subsequently that caused the collapse in the real estate market. And that collapse in the real estate market  caused collapses in the job market, in the financial and real estate and construction sectors, which ultimately led to a cascading effect of job losses and a major economic malaise.

That really hit the hardest, in Oh eight Oh nine. so real estate, took a beating, to buy real estate in 2005 was a death sentence for a real estate investor, but to buy it in 2009 at the trough of the market was the greatest opportunity ever in my lifetime to buy real estate. That’s exactly what I was doing is I was buying it by the way, bucket load in 2009 because it was a great opportunity. This current situation is completely different. This situation was not caused by real estate. It was caused by a virus and then the reaction to attempt to control the virus. And that, has impacted jobs first, which will impact real estate second. So kind of the reverse of what happened in the last, economic climate or economic cycle.

So what we see, I see now is we see, is creating some affordability issues, especially in the service sector of the economy, which is hitting the lowest tier, the lowest rung on the property ladder, you know, your class C properties, your class D properties, the rental market, more so than the for-sale market, high priced areas like California and New York are getting hit harder than lower cost markets like Phoenix, Tampa, Dallas, you know, those kinds of places are seeing less of an impact.

And also how long and how deeply they’re closing out local businesses. And so California, who’s shutting down, everything is suffering worse than, you know, maybe Georgia, which is completely open for business. So there’s a variety of different impacts to real estate. If you own something that rents for $1,100 or $1,200 a month, you’re probably going to do just fine.

If you’re in an area where people are moving to like the States like Phoenix, you know, Texas or Arizona, Texas, Georgia, Florida, Carolinas, Tennessee. But if you own $4,500 a month apartments San Francisco, you’re probably in for a world of hurt. So the market looks different depending on who you are, where you’re investing and what price point, your real estate is in.

Seyla: [00:15:01] So for the passive investors, who, wanted to jump into a syndication deal right now doing the covid pandemic. How would you respond to them?

Brian: [00:15:12] Well, I would say first read the book so that you will know what questions to ask and how to do due diligence on potential sponsors, how to analyze real estate to determine whether or not their business plan makes any sense,  or if they’re missing things in their underwriting and that sort of stuff.  So get educated. The first and foremost thing, and there’s time, you know, the market’s going to recover  and it’s going to take time for it to do that.

So there’s no reason you have to jump in  head first into an investment by next week, or you’re going to completely miss the cycle,  not going to happen.  you have time to educate yourself a little bit, understand what you’re getting yourself into. And then, find sponsors that you think are going to be capable of taking advantage of the upside of this cycle and successfully executing an investment plan.

So take your time with that, get to know the sponsors that you think you might want to invest with  diversify your investments, which means don’t invest all of your money with one sponsor. Don’t invest all of your money in one city. Don’t invest all of your money in one type of real estate, consider passing some of the money around a little bit.

Maybe you’ll do something apartments in,  you know, Phoenix and Texas and Tampa and the Carolinas. And you’ll do a little bit of industrial in, you know, in Houston and, and Tucson and things like that,  where you’ve got a little bit of different exposures,  you’ll have some different sponsors, involved.

What you’re trying to do is you’re trying to eliminate any single point of failure. And if you can do that, then you can absorb a hit in one place, with your successes and other places. And don’t put all your eggs in one basket.

 Seyla: [00:16:59] from an active side as a sponsor, do you have any strategies that you communicated to your existing investors currently?

Brian: [00:17:06] Yeah. we, you know, our strategy right now is we’re looking at markets where there is strong post COVID rent growth forecasts. and what are also interesting are markets that are getting hit hard by the COVID pandemic. So one interesting market, for example, is like Las Vegas. They’re probably going to have negative rent growth for the next year or two, because that’s a heavily service sector, basically economy and that’s taking the biggest hit right now. So, you know, they’ll see some dislocations in their market, but post pandemic, when the tourists come back, it’s gonna come back pretty quick. And that rent growth will come back. So, so, you know, we’re looking at markets like that. We’re looking at markets like Phoenix, which is the nation’s leader in rent growth.

And it’s because everybody’s fleeing California.  and leaving this state for, uh, Phoenix and Tucson. You’ve got people leaving New York and moving to Florida. So, you know, investing in those markets where people are moving to makes a ton of sense. And that’s really the message we’re conveying to our investors is we want to be investing in markets where people are moving to, not where they’re moving from.

And we want to find, deals that we see that can perform, even if we can’t raise rent right away.

 Seyla: [00:18:21] So if an investor wanted to invest with you Brian, how would they go about doing so

Brian: [00:18:27] If they’re an accredited investor, the easiest way is just to go to invest with praxis.com. And on that website, invest with praxis.com. They can, watch the webinar for our current offering, which is a, 506C offering, which means that we can take, we can advertise, but we can only accept accredited investors.

They can watch our webinar and they can express interest in investing or getting more information right there on that website. otherwise, if they’re not an accredited investor, they can go to our website, learn about what our company does. They can send us a contact request. We can have a phone call with them and start to establish that preexisting relationship, that we talked about earlier and get to know what their goals and objectives are, and their, what their investment criteria is and that sort of thing.  But, for accredited investors, that’s pretty easy.

Seyla: [00:19:16] so you already wrote a book, you own thousand of units. And what is your next focus?

Brian: [00:19:23] my next focus is just simply growing our portfolio. Um, you know, we’re in the midst right now of raising a fund, that we’re using to, uh, be prepared to acquire opportunities as we find them in this, interesting economic, dislocation that we find ourselves in right now.

So that’s going to be our focus. For the next while I’m I’m a one trick pony. I do real estate really well. I’m not going to be the next, series book, author, and have a menu. You have 10 different books you can read. I’m probably one and Dunner, in that regard, I don’t know.

Maybe I’ll have one more in me someday, but buying a multifamily assets is something we’ve found, we’re really good at. And if we stick to our lane, we get to where we’re going. If we try to veer off our lane too far, we crash in the trees. So, um, this is where you’ll find me for the next 20 or 30 years.

Seyla: [00:20:15] for someone who just starting out in a real estate multifamily investing business, what is a one thing that sets those successful people apart?

Brian: [00:20:24] Well, one is that they stay after it for the long term and they don’t give up. And, you know, if you’re, if you’re going to be, let’s say you’re aspiring to be a syndication sponsor.

What you’ll find is it’s a lot more difficult than you ever imagined. And people tend to underestimate that. And when you get into the face of difficulty, people give up, they quit. They say, Oh, this is too hard, or it’s impossible, or I can’t do this.  And they stop. and generally that’s the biggest mistake that can make, because if they stuck with it, they might find that they would be enormously successful.

I know that’s what happened to me. I found it to be very difficult and challenging with a lot of obstacles and barriers, but if I could tackle all of them, I was able to find success. So I think, that perseverance of never giving up. Yeah. The one thing that’s going to separate who survives from who does it.

Seyla: [00:21:16] Throughout your real estate career, what has been the highlight?

Brian: [00:21:20] right now is the highlight. I mean, we’re, I’m finally at this point where I have a business that’s really building and feeding upon itself.  you know, we’ve got, an incredible, Base of investors. That’s continuously, organically growing all on its own from word of mouth and referrals.

And, and people, saying good things about us to their friends. And no one could ask for a better business than one where all your marketing is done by your customers.

Seyla: [00:21:50] What tools or techniques have you used to improve the efficiency of your business or your personal life?

Brian: [00:21:56] Technology has been the biggest one for me.

 I’ve been a believer in this way. Back from the beginning, when I first got started in investing in this, in real estate, there was barely even such a thing as the internet. I didn’t have email, I didn’t have any of that. Stuff. And I remember when I used to go to the courthouse steps to buy foreclosure sales from the notices as you’d cut out of the newspaper.

That’s how we did it. I would say I go there and everybody at the auction had like just a whole briefcase full of file folders in each file. Photo represented one of the properties that was going to auction. They had all these. Files and something would come up for auction. And, you know, they had to shuffle through all this paperwork to figure out how high they wanted to bid.

And I thought there’s gotta be a better way than this. So I taught myself how to write software code. And I said, you know, I know exactly what I need. I need a really sophisticated database that can track all these different things. I can run my title searches on it. It will automatically prioritize liens for me.

 It will calendar all the upcoming auctions  and I created this incredible software tool. That set me miles ahead of the competition, where I could literally go to the auction and bid on something that everybody else would be looking at each other going like, what was that? I didn’t have that one where’d that come from  because they have lost track of it and I didn’t lose track of anything.

 And so I figured out that I needed to apply that same principle to all aspects of my business.  And that’s how we, you know, now we use a really sophisticated financial modeling software that I also wrote myself,  that enables us to acquire multifamily properties and.  I know exactly what we, how we can forecast the financial performance and that’s just been normally helpful in this business to have that sophisticated  technology and that competitive advantage and enables us to do this without expanding our head count too much  and having massive overhead of people,  to do what fewer people can do with the right software.

Aileen: [00:23:50] Thank you so much. If our listeners wanted to find out a little bit more about you, Brian, where can they go?

Brian: [00:23:55] the best place to go is our website.  praxcap.com it’s P R A X C A P.com. they can follow us on Instagram at PraxCap on Twitter at PraxCap.  My personal Instagram is InvestorBrianBurke,  and of course our, biggerpockets.com is a great place to find me there, answering people’s questions on real estate topics.

 And of course investwithpraxis.com. If you’re an accredited investor and want to. Find out more about investing with us.

Seyla: [00:24:23] Thank you so much, Brian, for being on our show and thank you so much on behalf of all the investors out there. So we will appreciate that you actually wrote this book and, uh, giving us  a blueprint and, uh, so that  all of us.

Won’t repeat the story that your friend just went through, in the past. So we appreciate that. Thank you so much.