Bigger Pockets With Brian Burke

Tim Lyons (00:00):

Greg, you ready?

Greg Lyons (00:00):

Let’s do it baby. Okay, 3, 2, 1.

(00:15):

Welcome to the Passive Income Brothers podcast.

Tim Lyons (00:17):

Here we take the fear out of real estate investing using real life stories of everyday successful investors. Let’s go. Welcome to another episode of the Passive Income Brothers podcast. My name is Tim Lyons and today I’m joined by two absolute rock stars, one of which be, and my brother Greg. How you doing today, Greg?

Greg Lyons (00:34):

Tim, you’re never going to guess it, but I’m doing great. I know I say this every time, every week, another day, another dollar woke up, happy and healthy. Family’s happy and healthy. So you know what? It is a great day and we have a great guest today.

Tim Lyons (00:50):

So before we started recording, I was talking to our guest and I said, at the risk of sounding stalkerish, I wanted to let him know that I’ve been following him for years now and listening to his podcast and I read his book. I even listened to his book after I read it on Audible. It’s somebody that I think you guys are going to get a ton of value because listen, this is somebody who’s been in the trenches, has started from zero money and has grown a phenomenal, phenomenal company. So with that being said, I want to welcome to the Passive Income Brothers podcast. Brian Burke. How you doing today, Brian?

Brian Burke (01:26):

I’m doing great. Thanks for having me guys.

Tim Lyons (01:28):

It is a pleasure. So Brian, the main reason why I really wanted to get you on the show was because I get a lot of flack from my coworkers about my Ponzi scheme about, they call me Lieutenant Lyons, I mean Lieutenant Madoff and it’s a thing, but my friend were in the law enforcement side of things way back when, and you kind of got your start in real estate little by little. And I know that you can probably resonate with some of that ball busting a little bit, but can you bring people back to when you were 20 years old and you were a prolific house flipper? How did that all start?

Brian Burke (02:07):

Well, it all started because I really had no other options. I was grinding the wheel like you are, Tim. I was working for a department that was both police and fire, so I was doing both. And fire was great when you’re working a Kelly’s schedule and you’ve got four days off every other week, and there was all this time to flip houses. But when I was on the law enforcement side, I was working swing shift with Monday, Tuesday, Wednesday off. So I basically had the whole business week free. So kind of going back to the entrepreneurial side of me when I was just a kid selling pomegranates at the corner in front of my grandmother’s house, that was my first business. I figured that I’m really not cut from the cloth to work for someone else, even if that’s someone else is the government that gives me a pension and holiday pay and all that great stuff. I was going to be much happier if I could work for myself. And what skill did I have? Well, I really had none that was marketable anyway, so I figured if I know nothing and I have nothing and I’ve got no money, I might as well become a real estate investor. Isn’t that the thing to do?

Greg Lyons (03:19):

So Brian, to recap for the listeners, you were unemployable and you had zero skill. So that is just a wonderful start to what has become an exceptional career.

Brian Burke (03:30):

It’s a great resume. Isn’t it?

Greg Lyons (03:31):

It is wonderful. It’s short, compact, sweet, the whole thing. But you finally did find your footing in real estate and I think for a lot of our listeners it’s how do I get started? And there’s a million different ways to make money in real estate, but you kind of found a niche and started kind of going all into it and it’s a great story of how you kind of bootstrap your way into it.

Brian Burke (03:55):

Yeah, I started out, I started selling books. I had this little book business where I would send out all these letters to people that I’d get off a mailing list that I would buy, and there was a variety of books they could purchase and I just drop shipped. I never had to actually have an inventory. When I’d get a book order, I’d just send it to the book people and they would send the book out. And I thought at one point I should get all these books and at least kind of know what these books are. And I probably sold four books. So it’s not like this is a big business or anything like that. But one of the books was a book on real estate investing and it was probably the worst real estate book investing book ever written and nobody’s ever heard of it.

(04:34):

And I couldn’t even recall what it was to save my life, but there was chapters in there about how you could buy real estate with no money down and using other people’s money. And I thought, wow, that’s perfect. I don’t have any money. So if you can buy real estate with no money, this is for me. So the first step is to find real estate. So I start sending out letters to people. Of course nobody answers, and I start looking at notices of default, but you can look at those all day long, but it doesn’t mean you’re buying anything. And then finally, I found this place that was for sale and I thought, I’m just going to see if they’ll finance it for me. So I made an offer and just said, Hey, if I get a loan from this finance company, would you carry back the down payment? And they’re like, yeah, we’d do that. And it’s like, oh, it is just like the book says you ask if they’ll finance it and they say yes, and you buy a house with no money down. I thought this is a piece of cake and the rest is history. But not quite that simple though.

Tim Lyons (05:33):

So Brian, I love that because a lot of people that we talked to, the barrier to entry to real estate seems very high and we’re from the New York City area, and I know you’re from Northern California, but you think you grew up in LA County or something like that. So yeah, I told you I was stalkerish. Oh

Brian Burke (05:50):

Man, I’ve got to look over my shoulder Once in a while.

Tim Lyons (05:52):

There’s no doubt about it, a hundred percent. So what I’m trying to say is high values, relative values of home prices. So when people read the 1 0 1 book about real estate, they go, okay, I’m going to buy it. I need to rent it out for the 1% rule. Well, if you’re buying a $700,000 private dwelling, one family house, chances are you’re not going to be able to sell it. I mean, rent it out for 7,000 or $7,500. I don’t know, but call me crazy. So you got started though with no money and you talked about in your other podcasts about using credit cards and then graduating to private capital, and then finally really kind where Praxis capital is today, regulation D 5 0 6 B and C offerings. Can you kind of take us through the progression of finding capital to do real estate deals?

Brian Burke (06:46):

Yeah, well, and I’ll begin just a little before that because we were talking about buying this first property and no money down just because the book says and all this and that, but maybe my greatest asset at the time was this expansive resume I had where I knew nothing. And actually I think that worked in my favor because when you’re young and kind of young and dumb, I was and don’t know any better. You just think if a book says you can do it, you go do it, or I think I can go do this and you don’t know any better, so you try right? As we get older, we’re like, ah, that stuff doesn’t work so you don’t do it right. And so that I think was probably my best asset. So I was always thinking like, well, what’s the next way I can get the next house?

(07:29):

Well, I don’t have any money still, so maybe if I were to start getting more credit cards, I could cash advanced credit cards and get some money. So I started applying for every credit card offer that came in the mail and I used to get them every day. I’d get a credit card offer in the mail, I’d apply for it and I’d apply for it, and I had this stack of credit cards. I went down to the bank with the stack of credit cards, I handed them all to the teller and I said, I want to cash advance all these to the max. Not thinking that when you do that, that they’re going to look at you, you’re crazy, which of course they did or thinking like, oh, that doesn’t work. I just figured, well, hey, it has a cash advance limit. I’m going to go max it out, why not?

(08:07):

So I did and I walked out of there with a cashier’s check for this stack of money, and I used that to go buy the next house. And then after that it’s like, well, okay, well that was kind of a pain. It was a lot of work for not a lot of payoff. Maybe I’ll sign up for signature lines of credit because then instead of handing the teller 15 credit cards to get 10 grand, I can just write a check for 10 grand. So I got a signature line of credit. Wells Fargo Bank actually gave it to me, if you can believe that 20 something year old kid gets a signature line of credit for 10 grand. And then I would just build off of that each time it was like, okay, how can I get more money for the next one? And then it was like, okay, this friend of mine, he had a friend that had a few thousand dollars.

(08:50):

Well, okay, I asked the friend, Hey, if we buy this house, would you go in on it with us with your few thousand dollars? And they did and we split the profits with them and then my friend kind of helped fix it up. I didn’t know anything about fixing up houses. So it builds one progression at a time. It’s like when you roll up to a fire and you got to get up on the roof. How do you do it? You pull the ladder off the truck, you extend the ladder, you put your foot on the first rung, and then you put your next foot on the next rung and you start walking and climbing up that ladder. And that’s exactly how I did real estate. It was one little step at a time that seems really stupid at the time. You look back on it, you’re like, oh, I don’t ever advise anybody to do what I did, but it worked for me.

Greg Lyons (09:32):

Speaking of advice, we like to say on this podcast that we don’t give investing advice or tax advice or anything like that. We want to really emphasize that point right now that maxing out every credit card that comes in the mail. Lot of good idea. We’re going to actually give the negative on that one. You should not do that to play it safe, but that’s what you did and that’s what you figured out and that’s what the evolution of an entrepreneur is. In any business, it could be real estate, it could be whatever, but you put one foot in front of the other and that’s the most important thing, and you put so many feet in front of each other that you flipped over 700 homes, right? You’ve been in the single family world, you’ve been in the multifamily world, but when you were flipping all those homes, what kind of time period was that? And then what was the kind of aha moment to say, Hey, what about multifamily family?

Brian Burke (10:28):

Yeah, so I started flipping in 1989 and I built that business through actually most of it through the mid to late 1990s. And then we got to 2000 and I got into building homes. So I started building a few houses and then come about oh 3, 0 4, I started going, something’s wrong with the market. This whole thing just doesn’t even seem right. So I actually started pulling back in oh 5, 0 6. I bought almost nothing in oh 5, 0 6. I had sold out most of my flips. I did get into a few commercial projects, which I wish I hadn’t have because I thought I was growing my business, but that didn’t turn out to be the best idea. I found out I’m a lot better at residential. And then about 2008 after the market just totally tanked, that’s when my flipping business really grew. This was drinking out of a fire hose.

(11:29):

There was foreclosures everywhere, and that’s what most of my flips that I had bought throughout the years. I was buying on the courthouse steps at foreclosure auction like nobody’s going to sell to this 20 year old kid that looks like he’s 15. So instead of trying to go to sellers and buy houses, I’m just going to go to the auction and buy ’em where nobody can say no, I just have to be the highest bidder. So after doing that for a number of years, then the big foreclosure debacle of oh 8, 0 9 2000 10, 11, 12, it was just massive. We were doing like a hundred flips a year, 120 flips a year, started buying single family rentals, bought 120 single family rentals in the San Francisco Bay area right at the bottom of the market. All that was going great. Meanwhile, before the collapse, I was searching for how do you grow a business?

(12:18):

This whole house thing is the whole two roofs, two lawns, maybe it’s one roof, one lawn, but more units kind of thing. It prompted me to start getting into malti. So I did a 10 31 exchange, had a couple of rental houses in around 2002 and bought an apartment building again for only 10% down. I got the seller to carry back 10 or 20% of the purchase price and then had out bank finance the rest, and that was my entry into Malti and I had no idea what I was doing, but I learned a ton of lessons. I had to survive through that through the whole downturn and learn about what to do and what not to do and how to survive, that kind of stuff. And then when I was hard and heavy and all this flipping, raising tons of money for that, it’s like what’s going to happen when the foreclosures are gone and that’s going to happen? And that’s when I turn more to multifamily as our primary business model. It’s like we need to be able to have a business that’s scalable where it’s sustainable throughout variety of market cycles. We can raise lots of money now we’re getting all these investors, and that just kind of was a springboard into doing larger stuff and multifamily specifically.

Tim Lyons (13:31):

Dude, I love that. I’m about to do some pushups in the aisle here, Greg, because I’m getting pretty motivated at the moment, but before I start doing that, I want to talk about a few things. The first question, Brian, is I would love to hear, just on a personal note, what was it when you were in law enforcement? What was the moment that you knew it was time to leave? Something that I’m struggling with at the moment, and I just would want to hear it on a personal note. What was it that you said, you know what? This is the time to go. And then the second one is if you can parlay that into how you raised $500,000 from the police department guys, and how you walked out of the room of 500 K from 28 guys that had guns. That was a great story. So yeah, go ahead. All yours.

Brian Burke (14:23):

Yeah. Well, I struggled with the decision to leave for a long time. I liked the security of the job and the pension and all that stuff, but at a certain point there was two things that were happening at the same time. One is I was making as much money off of my real estate investments as I was off of the W two job, and so I felt like I had an income replacement scenario in the works. The second was that it felt like the constraints of the job, especially the time was getting in the way of growing the business even further. So it was preventing me from be all you can be, right? So I figured I had to hang it up. Really. My wife was very encouraging. She’s like, now’s the time. You’ve got to do this now, otherwise you’re just never going to get past where you’re at.

(15:23):

So I put in my two weeks notice and the first thing that happened is my sergeant came to me and he’s like, are you sure you want to do this? He’s like, you got three weeks paid vacation. You got 2% at 50 retirement. You got this and that and the other stuff and pension and holiday pay. And I’m like, yeah, I’m sure. I think this is the right move for me and if it doesn’t work out, maybe I’ll come back. So I rented out the room at the community center, and so I told all the guys at the station, I said, look, I put in my two weeks notice. I want to tell you all about why and what it is I’m doing. So come to the community center, or I rent out the room on whatever day. And so the whole room was full.

(16:15):

I mean there was like, I don’t even know a hundred people. I mean it was like there was a lot of people came and I did a one hour talk on real estate, what I was doing, house flipping, where home prices were interest rate, this, that, the other stuff. And then I said, Hey, look, if you guys will invest with me, I said, this isn’t like a big bunch of money guys. This is a bunch of cops, right? I’m like, I’ll take investments as small as $5,000. He said, I’m going to put it into a fund and I’m going to split the profits 50 50 with you guys. I’m going to go buy houses to flip with the courthouse steps, split the profits 50 50 and you nailed it, Tim. I walked out of the room with 500,000 in investment commitments, 28 investors carrying guns, and I knew that I had to make sure I didn’t lose a dollar of their principle or I was a dead man. And that’s kind of how I’ve operated my business ever since. Principal preservation is job number one. Earning a return is job number two, three and four or maybe three, four and five because job one and two are both. Don’t lose people’s money.

Greg Lyons (17:15):

That is awesome. That is awesome. There’s so many golden nuggets there, and I think number one is the investor is number one in your world, whether it’s guys with guns or just a regular investor taking care of investor capital and living by that motto, and that’s job one, two, and three. That is fantastic. It sounds like you were starting a meetup before real estate meetups were even popular. You put a ton of guys into the little room there and they probably thought there was going to be beer and cake there as a going away party. Meanwhile, it was a real estate conference, but that’s beside the point.

Brian Burke (17:59):

I Did have pasta to be fair.

Greg Lyons (18:00):

Oh, that is good. That is good. So they got something out of it, but love a free meal.

Brian Burke (18:06):

Absolutely. Oh yeah. Firefighters and pasta. I mean, forget about it mean you have to have that.

Greg Lyons (18:11):

It’s so true. It’s so true. But you left that security, you left the pension, you gave the two weeks notice and you had a supportive partner in the whole thing and your wife, and that is just so very important in any journey you go into, whether you’re going to be a passive investor, an active investor, having a buy-in from that team, you and your partner is just so very important. Everything goes smoothly. There’s going to be some ups and downs and you got to work through those things. So coming from a single family flipper, and it sounds like you did right by the police and they’re probably still investors to this day, you built an extraordinary multifamily business and I think going from everything you learned of dealing with tenants and getting through the hard times, you were able to build praxis capital to at 1,400 units. Kind of take us on that journey of, I think you bought your first multifamily, it was 16 units and where did you go from after that first multifamily purchase?

Brian Burke (19:17):

Yeah, so that was a 16 unit deal in California. And the next thing, this was like I said, around 2002 or so, and then oh four came along and it’s like nothing makes any sense. People were coming to me saying, oh, I want to buy a rental house. And I’m like, why? They’re 500 grand and they rent for 1500 a month. What’s the investment thesis there? And I was feeling the same way. Where am I going to go next? The numbers just don’t work. So then I am scouring around the internet trying to figure out what I’m going to do, and I come across these fourplexes that are going to auction on eBay for 40 grand and there’s four units and they rent for $400 each, and they’re in Buffalo, New York. And I’m like, huh, Buffalo. I don’t know anything about Buffalo, but the value never goes up.

(20:06):

So if the market crashes, which I kind of think it’s going to, maybe they won’t go down either and $400 rents times four for 40 grand sounds really appealing, and I could buy these things on eBay and I could just click buy, right? So I’m looking at this, I’m like, I got to go out there and go see what’s going on. So I get on a plane, my wife goes with me, we fly out there and we drive up to this $40,000 fourplex and it’s like, ah, it’s all boarded up. Everything around it on all four sides is boarded up. Literally the next morning I’m reading an article in the newspaper, there was a gunshot, a shooting in the street, one block over about an hour after I was there, and it’s like, that’s why these things are 40 grand. I’m like, okay, so that’s not going to work.

(20:56):

And then so we’re driving around. I had called an agent out there to like, Hey, can you show me around? So we go out with this agent and he’s like, I’m about to get this listing on this 11 unit building downtown. It’s like it’s the best neighborhood in town. He’s like, you should take a look at it. So we go look at it. My wife’s like, that’s what we’re buying. Let’s get back on the plane and get out of here. There’s nothing else out. This is the property. So we did, I mean we put an offer on this thing and we got it. And so now I’m an owner all the way across the country. I’m in California, this is in Buffalo, New York. We decided to go out there and go check on it. It’s February. There’s like three feet of snow everywhere. We’re like, okay, this sucks.

(21:34):

But we had to figure out how do you deal with something like that all the way across the country? It was a great lesson in long distance real estate investing, and to this day, I still own that by the way, and it is a great property. And so then it was like, now I’m like, well, Texas is a great market, so let’s go down there and go look at stuff. So I thought, we’ll buy some rental houses in Texas. So we go down there, we look at all these houses and it’s like, okay, but do we really want to manage all these houses in Texas? Maybe I should buy apartments down here. So then we started looking at apartments down there. I bought a 60 unit apartment building in Dallas, and then it grew from there. And when oh nine or 10 comes along and we’re looking to really get into Malti, I just dug back into what I already knew. It was like, okay, I’ve got a building in Texas. I know what it’s like over there. I’ll go over there and go see if I can find something to buy. So went to Houston actually and started buying, I think the next one actually, the next one we bought was in Austin, 54 units then like 136 in Houston, and then another couple hundred in Houston, the other 276 unit, and it was just one after the other, other just kind of started snowballing.

Tim Lyons (22:46):

So I love that, right? I mean listen, we started off in one house and we started with credit cards. Demi went to the cops and then you had a line of credit, and then you were doing funds or individual deal. I’m assuming you were doing Reg D offerings, is that right?

Brian Burke (23:01):

Yeah, single asset Reg D at the time,

Tim Lyons (23:03):

Single asset reg D at the time, meaning that each property that he was acquiring, he would put together a pro forma and he would put together the underwriting and investor summary and a pitch deck and the investors got a chance to kick the tires on one individual deal as opposed to being in a blind fund and saying, Hey Brian, here’s my a hundred thousand and let’s see what you could do with it. So you get up to 4,000 units and by the summer of 2023, I had heard you on a podcast saying that you liquidated the assets, right? You were starting to sell them off and at the time in I think it was July of 23, you had sold maybe 3000 ish because you had that feeling again, I think that you started to have in 2004 and 2005. Talk to us a little bit and to the listeners a little bit about what that feeling, maybe the transference from the 2004 and 2005 feeling to what you’re having today and what your portfolio looks like today.

Brian Burke (24:02):

Yeah, you nailed it. We built up to 4,000 units and it was actually in 2021 when I started to get that feeling again, kind of like that oh 4 0 5 feeling where I’m like, there’s something that’s about to happen and it’s not going to be good. So we started selling pretty aggressively in middle of 2021, and we actually sold, the last asset that we sold was in, I think it was May or June of 22, and by July of 22, the market was falling apart. Prices were dropping like a rock, so pretty excellent timing. I think it actually worked out. So now we’ve got about, I think 900 units or something, left class A properties in great markets, great locations. That’s the only stuff we capped long-term debt. So I don’t have a mortgage maturity until my first one’s in 2031, and the thing is right now when markets are going against you, the biggest thing that will be your death sentence in this industry is short-term debt maturities.

(25:19):

And there’s a lot of people that were buying stuff in 20 19, 20, 21 and 22 with really short-term debt, three to five year bridge financing, higher interest rates, and I just felt like there’s going to be a lot of distress out there in the market, so I wanted to get ahead of it, sell at the top, and then we keep our quality stuff. We have a little bit of flight to quality, so we kept the quality stuff and we’ll jump back in when the timing is right, when there’s blood in the streets and everybody’s like hates real estate again, that’s when we’re going to come in and we’re going to build it back up.

Greg Lyons (26:01):

Yeah, I mean as Buffet says, buy when there’s blood in the streets. We may or may not be getting to that time and because we’re supposed to be in a recession right now, but are we in a recession, inflation, all these different things. But a lot of deals, like you mentioned, are coming under pressure because of interest rate hikes and they’re going to have financing issues in the next whatever it is, six to 24 months in that area. As we navigate these times of higher interest rates and kind of a recession on the horizon that we keep talking about, what’s your view of tenant’s ability to pay rent and are you underwriting right now for deals for your own portfolio?

Brian Burke (26:51):

Yeah. In the last recession, I learned that what can happen is half the units are empty and the other half aren’t paying. That’s what it was like for me in 2008. I laugh, but it was actually almost true. I mean, it was really that bad. I had this one property that 60 unit I told you I bought in Dallas, that property, when the market collapsed, there was literally not enough money coming in to pay anything but the utility bills and the property management fee and the insurance, that was it. There was no money for debt service, and I started servicing that $15,000 a month mortgage out of my own pocket, and I did that for four years to get through to the other side of that market cycle, and it all came out okay, all the investors got their money back and all that. I got the money I put in back.

(27:44):

So everybody at the end of the day was at least satisfied. Nobody was happy. We all wanted to get a good return, but we were satisfied that nobody lost any money. Again, job number one was accomplished and so was job number two. Now this recession may look different. There might not be as many job losses. It certainly will look different for me now, I only own class A multifamily. At the time I was only in class C and class C gets hit the hardest into downturn and the ability to pay is they’re closer to the fence in class C, and it doesn’t take much for those folks to run into difficulties in servicing their rental obligations. It’s another reason why I had this flight to quality and another reason why we kept the Class A stuff. Those tenants tend to pay, and I think we’re going to come out okay, but there’s going to be some class C stuff that’s going to get hurt.

(28:45):

There might even be some class B stuff that isn’t going to perform as well. We’re seeing rent declines right now in a lot of markets, which you need a couple rent declines with concessions and some non pays, and it translates to a lot lower NOI for owners, and that makes it even more difficult for them to sell a refi out of their loans. And it’s all that stuff that’s going to create the distress. I mean, people talk about are we in a recession yet? This, that and the other thing. People can survive the initial stages of adverse market cycles. It’s when these things drag on for longer periods of time where people just can’t hold on any longer. And we’re starting to get there. We’re seeing, we’ve seen some foreclosures on the Multiside, we’ve seen some investors get a hundred percent wipeouts. I’m hearing chatter off the media chatter, other sponsors about groups that are really struggling right now and are likely to have a hundred percent wipeouts on some of their syndications, and it’s as scary time for a lot of people. But it also that as scary as that is to get into real estate, it’s also what creates the opportunity down the road to get some good investments. And I like to get out before that chaos happens and then get in when the chaos is kind of at its worst.

Tim Lyons (30:15):

I love that. So Brian, that was a perfect setup for a book that’s published by BiggerPockets and some guy Brian Burke wrote it. It’s all about the passive investor, and you mentioned syndications, you mentioned Class A, class C, class B, you mentioned different structures, and it turns out that you wrote a book to kind of guide and hold the hands of limited partners or passive investors to navigate the channels of how to get involved in some of these main street investments off Wall Street. So can you kind of just talk a little bit about your book and why you wrote it and who it’s for and how you serve them, and maybe even adding on top of that, what’s some of the bad advice you’ve heard from some of the experts or gurus or book writers out there that your book tends to upend?

Brian Burke (31:12):

Well, I think maybe one of the pieces of the worst advice is that it’s always a good time to buy, right? You always get into real estate. It doesn’t matter what things look like, you should just invest and then invest and wait. What does it go? Don’t wait to buy real estate. Buy real estate and wait. To me, that’s not the greatest advice. The time value of money is a real concept, and timing plays a huge role in outcomes and investment success and investment returns, and I just feel like there’s times to invest in real estate and there’s times to play golf and sit on the beach. Right now I’m golfing and beaching. I’m not buying any, Greg, you asked me earlier, are you underwriting anything? No, not really. There’s no reason to. I mean, we completely shut off all underwriting in 2021. First half of 22 didn’t underwrite a thing.

(32:02):

We started underwriting in later 22 and now we’ve been underwriting a lot of stuff, but just because we’re trying to keep tabs of the market, so I’m just not buying it. The reason I’m not buying is because placing my investors first. Some people just want to build a business. I just want to perform for investors. That’s all I want to do. I don’t care if I’m the biggest or have the most units or whatever, it doesn’t matter. At the end of the day, if I lose all my investors money, I’ve completely failed. So to me, it’s all about the investors, and that’s kind of why I wrote the book, the Hands-Off Investor, because this book is written for passive investors to teach them how to invest in passive real estate offerings the right way. What questions do you ask? What things do you look for?

(32:42):

How do you know if what they’re telling you or showing you is a complete bss? A friend of mine that I worked with back in my grocery store days, this was even before law enforcement had made a real estate investment and had a fourplex and it appreciated value and it had all this equity and one day she sold it, did a 10 31 exchange and invested in a passive real estate offering. It was a tick, which can now people do. This was a tick. It was kind of before DSTs were a thing and it’s a way that you could do 10 31 exchanges into a passive real estate offering. She did that and made this investment, put all the money into one deal, and it turned out that the sponsor was a crook. He basically stole all the money. The real estate went into foreclosure was a hundred percent wiped out, all the investors lost.

(33:30):

The sponsor went to prison, but my friend was completely wiped out. Her entire retirement savings was completely wiped out. She went from being set for life to driving for Uber to put food on the table, and I thought, I don’t want to see that happen to anybody else. If there’s anything I could do that maybe would help prevent that from happening to someone, it’d be worth every minute I spend on it. And so this book was written maybe prevent one person from having a similar experience as to what happened to my friend because this is bad investments in syndicated offerings or a black mark on the entire industry. Anytime anybody loses money, they tell friends who tell friends, who tell friends. It’s bad for all of us as real estate sponsors, bad real estate sponsors are bad for the good real estate sponsors because they make it more difficult. I can’t tell you how many times I heard in 2000 10, 11, 12, well, how do I know that you’re not the next Bernie Madoff? If I give you my money, how do I know you? You’re not Bernie Madoff. This is a big Ponzi scheme, Lieutenant Ponzi, you should know. That’s the kind of questions you have to answer to when there’s bad operators out there. And if I could expose the behind the curtain and people could see how this business really works and what to look for, maybe we could prevent some of that.

Greg Lyons (34:51):

That’s just so well said. I think we have a lot of the sponsors and we’re capital raisers. You’re an actual sponsor and operator. We have a lot of the same conversations with people, and you’re right when there’s a crook or there’s a bad operator, it is a black mark on all of us in the industry, and it’s hurtful because there are some really, really great people out there. I mean, you just kind of took us on a masterclass of an evolution and from a house flipper to someone that is a steward of people’s capital and four units and the important work that you do of being a steward for people’s money, it’s been really refreshing to have you on because of the careful nature that you invest. So it is just been, I hope people have been listening, taking notes and really enjoying this episode. But for right now, we are going to transition into our last three thoughts of the podcast and to follow up on those conversations we have with investors. Sometimes someone will say to us, investing in real estate is too risky. What do you say to someone that has that sort of thought

Brian Burke (36:09):

That maybe real estate doesn’t fit your risk profile? There’s this, people want to always try to put a square peg in a round hole. Some people, maybe they should only put their money in CDs, and that’s totally fine if that’s what your risk tolerance is. I get it. Don’t do it. One of, there’s three things that people have to trust in order for them to make an investment into a passive real estate offering or basically into anything. First is they have to trust, well, if it’s real estate, they have to trust real estate or if it’s building widgets, they have to trust whatever it is, but they have to trust real estate. If they don’t trust real estate, they’re not making an investment with you. And I don’t care how much time you try to spend trying to get them to trust real estate, it’s a total waste of time.

(36:56):

The second trust circle that they have to complete is they have to trust you. The operator, if they don’t trust you, they’re not going to invest with you. You can convince people to trust you by showing them your track record and all sorts of things. And then the third thing is they have to trust the deal. If they don’t trust the deal, they might love real estate. They might think you’re the greatest, but if the deal is total crap, they’re not going to invest in it. And so I don’t spend a lot of time on trust circle number one of trying to convince people that real estate is a place to invest. If you want to invest in real estate, I’m here for you. If you don’t want to invest in real estate, there’s JP Morgan Chase, there’s Fidelity, there’s any number of places you can go to find investments, but just know that every investment carries risk.

(37:40):

I don’t care how safe you think it is, every investment, even a savings account carries risk of a bank failure. When you get above FDIC limits, there’s always risk. So yes, real estate is risky. What you have to do as an investor is manage that risk. Take risks that are acceptable to you, make sure that you don’t put more capital that you’re comfortable with, and then just make sure that strategy fits for what you’re trying to achieve. And if that all goes together, then make the investment in real estate. But if you just think it’s just way too outside of your box, then there’s people out there that can help you find investments that are perhaps more appealing to you.

Tim Lyons (38:22):

A hundred percent. I couldn’t agree more. And what Brian, when I was first doing this, I was so enamored with real estate. I had a three family. I sold it. I doubled my money. I wanted to tell everybody about my success, and I found myself kind of defending real estate to a lot of people, and I wanted to support, I was an ER nurse too for nine years. That was my side hustle on top of the firehouse, and I found myself, I wanted to support those people. I wanted to support first responders and the nurses, and then I found myself defending real estate, and I’m like, this is not the avenue I need to go down. It’s a time suck. I love you guys, but I just can’t. If you’re not into it, then I can’t help you get there. When you’re into it, I’m going to be your guy. So I totally understand and I love that answer. Number two, Jim Rohn says, there’s a great quote by Jim Rohn that says, A self-education, a formal education will make you a living and a self-education will make you a fortune. What does that mean to you?

Brian Burke (39:21):

I have a PhD from the School of hard knocks. So that’s everything, right? I didn’t go to college and get a degree to learn how to work for someone else. I learned everything the hard way. And I’ll tell you what, when you’re losing money on something, that’s when you pay attention, and that’s when the biggest lessons come. So my worst deals were my best education, and that stuff can carry you for a lifetime. And people ask me all the time, what would you change? What would you do differently? Is there anything you did that you wish you hadn’t done? Well, sure, but I wouldn’t change a thing because every one of those experiences is what molds you into who you are today. And at least that was certainly the case for me.

Greg Lyons (40:02):

Yeah, Brian, you were certainly in the game to win and lose and learn the whole way through, and that’s been definitely highlighted in this episode. Our last thought comes from Robert Kiyosaki and for a lot of the real estate investors out there, Robert Kiyosaki is high on the book list or the author that you read, and he said something that’s kind of controversial or could be in some people’s minds, but he said, savers are losers and debtors are winners. What does that mean to you?

Brian Burke (40:34):

Well, it’s difficult to make a huge base of wealth if you aren’t borrowing and leveraging the capital that you have. And so there is good debt out there, and I think even Robert acknowledges the good debt versus bad debt in some of his books, if I remember back just to the day when I read those many years ago, and that good debt of borrowing money to leverage your capital is real, and you can build a lot of wealth using other people’s money, even if it’s debt savers or losers. Yeah, I don’t know. There’s times to be a saver when the market is capitulating. It’s kind of a great time to be in cash. I kind of believe in that. And yeah, you’re not going to get rich off of earning a quarter of a percent, but right now you can earn five and a half in a money market, almost no risk.

(41:27):

So why not? When assets are falling, this is a good time to be a saver. So I’m not really a believer in absolutes, and I’m certainly not going to be saying that Robert’s wrong about it. Robert’s a brilliant guy, but there’s no absolutes. There’s times when being a saver is a great strategy, and there’s times where being a borrower is a great strategy, and there’s times where being a debtor can absolutely destroy you, and what debt does really over anything else is it amplifies results. If things are going really well, debt is going to really leverage you into some very positive territory. If things are going really wrong, the debt can cause you to be wiped out, whereas if you had none, you would’ve survived. So debt is a tool. I always tell people, real estate and debt both are kind of like a loaded gun. It really depends on how you use that weapon. It will either kill you or save your life depending upon how you put it. To use

Tim Lyons (42:33):

Man as a first responder life and death. I mean, this is right up my alley, Brian, so thank you for kind of drawing that parallel there. Listen, I mean, financial education is everything. If you’ve learned one thing on this show through a hundred and what two episodes now or 101 episodes, is that Greg and I are always talking about education times action. You can read all the books you want, you can listen to all the podcasts you want, go to all the meetups you want, but if you need a PhD every time you had to make a decision, you’re not going to get there. So education times action means everything to us. And if you’re going to start, I would highly recommend Brian’s book called The Hands-Off Investor, and you can find that pretty much anywhere. I have it pulled up right now on my screen on amazon.com, $13 and 79 cents. And listen, it’s 367 pages of goodness. If you haven’t started down this journey yet, start there. Ask, learn what Brian is the entire career that he’s had, he’s put into this book. So Brian, in addition to the book, if people want to get in touch with you, invest with you, find out more about Praxis Capital, what’s the best way for them to get in touch?

Brian Burke (43:42):

Yeah, well, starting with the book, in addition to Amazon, which is really easy to buy from, you can also go to biggerpockets.com/syndication book, and you can buy it direct from the publisher. One reason I suggest that is because if you do, you get free bonus content, which will include questions to ask a syndicator. You can get, there’s some video interviews that I did with passive investors, which are really cool, and so you get that stuff in addition to, so you might want to check out as well. If you want to reach me, you can find me at our company website, praxcap.com. It’s P-R-A-X-C-A-P.com. You can follow me on Instagram at investor Brian Burke. You can catch me on biggerpockets.com in the forums, just answering questions randomly throughout some of the question and answer forums.

Tim Lyons (44:30):

And yeah, I love, that’s probably the best ways right there. And for people who are familiar with BiggerPockets, it’s kind of where everybody gets started, right? There’s forums there. There’s pretty much any question you could ever possibly imagine, whether it’s fixing and flipping, private note lending, multifamily self store. I mean, it’s all in there. Some already ask the question, and people like Brian actually go in there and they will answer questions. People who have been in the fight, they’ve been in the trenches, they’ve written books, they’re on podcasts. I mean, people are doing some great things there. It’s one of my most valued resources for getting started in real estate. So highly, highly suggest you had over two biggerpockets.com. That’s going to do it for this week’s edition of The Passive Income Brothers podcast, and we look forward to serving you again next week. Thank you for listening to another episode of The Passive Income Brothers podcast. We would be grateful for your support of our podcast by giving our show a five star rating and review and subscribing to our show on your favorite podcast platform. Don’t forget to take inspired action after listening to this show so that you can start building out your passive income streams. Finally, head on over to citysidecap.com to connect with us and find out more information about how to get started passively investing in real estate.