BiggerPockets Real Estate Podcast - 3: Getting Started in Real Estate and Raising Money with Brian Burke

Episode Date: January 31, 2013

In today’s show we talk with Brian Burke, a house flipper and real estate investor from Northern California with a fantastic story and fascinating business model. Two days ago, Brian wrote a wildly popular article on the BiggerPockets Blog titled, “Anatomy of the Grand Slam: How I Made $800,000 on One Flip” where he talked about flipping a large apartment complex using a combination of hard money and private capital he raised. In today’s Podcast, we’re going to look more in-depth at how Brian got started, the strategies he uses to flip over 100 houses per year, and how you can use the same techniques that he does to raise money for your next real estate deal. Last week, the BiggerPockets Podcast reached #6 on the Top Business Podcasts in all of iTunes. This is an enormous honor and we want to just take a minute to thank everyone who has taken time to listen on iTunes or leave a review. As of today, we are up to 49 Five Star Reviews. If you haven’t yet left us a review and want to help us out, please click here to leave a review in your iTunes player. Read the transcript for Episode 3 with Brian Burke here. In This Week’s Podcast We’ll Explore: How Brian started with no money, no experience, and without rich friends How losing money on early deals helped grow Brian’s business Investing in real estate when you look 15 years old. Why dealing with sellers is Brian’s least favorite strategy for real estate investing Brian, Brandon, and Josh’s differing opinions on using credit cards to finance real estate Why raising private capital is one of the most important jobs for an investor Three tips for raising private capital Why Richard Branson gets in a hot air balloon and sails around the world. How Brian funds dozens of real estate flips per month Using property managers to get you inside information The one piece of advice new investors can’t survive without. Using partners to invest in real estate Links from the Show Reg D Offering I.R.R. (Internal Rate of Return) The Anatomy of the Grand Slam Flip The BiggerPockets Radio Podcast 001 – Building a Successful House Flipping Business and Losing Millions with Marty Boardman BiggerPockets Facebook Page Tweetable Topics “If you don’t screw up – you don’t learn.”(Tweet This!) “They won’t say yes if you don’t ask.”(Tweet This!) “Sometimes failure is your biggest boost.”(Tweet This!) “Whether it’s Harvard, Yale, or on the streets of real estate school – every lesson costs you money.”(Tweet This!) “Sell yourself… the more track records your build, the easier you can raise capital.”(Tweet This!) “If you want to change your situation, change your vocabulary.”(Tweet This!) “A lot of this business is sounding like you’re smart – but you’ve gotta back it up.”(Tweet This!) “If you don’t love your work – you’ll never make it to the next level.”(Tweet This!) Books Mentioned in the Podcast Rich Dad Poor Dad Real Leaders Don’t Do PowerPoint David Lindahl Books Art of the Deal – Donald Trump Art of the Comeback – Donald Trump Think and Grow Rich – Napoleon Hill About Brian Brian Burke is co-founder and Managing Director of Praxis Capital, LLC, a real estate private equity investment firm created to provide high rates of return to his investors while tactically managing risk. He has been a real estate entrepreneur since 1989, and has purchased over 500 properties valued at over $150 million, primarily from foreclosure. Brian’s BiggerPockets Profile Brian’s Company Website: Praxcap.com Learn more about your ad choices. Visit megaphone.fm/adchoices

You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing without all the height, you're in the right place. Stay tuned and be sure to join the millions of others who have benefited from BiggerPockets.com. Your home for real estate investing online. Hey, everybody. My name is Josh Dorkin from BiggerPockets.com and welcome to the BiggerPockets podcast, show three. Today we're going to talk with Brian Burke. Brian Burke is from Santa Rosa, California, and is co-founder and managing director of Praxis Capital, a real estate private equity investment firm.

He's been a real estate investor for more than 20 years, focusing on residential real estate, mostly single family and multifamily, as well as development, self-storage, and commercial deals. Brian's completed more than 500 flips and has a current rental portfolio of over 400 residential units. Brian's clearly a sophisticated investor, but he's also a nice guy that could relate to the rest of us. So, without further ado, let me welcome my co-host, Brandon Turner. Hey, Brandon. Hello, Josh. How's it going?

It's great, man. This is going to be an exciting show. Brian is one smart guy, isn't he? He is. I've been looking forward to this show for the past week or so since I first talked to Brian about it. So, yeah, I'm excited to get him on board. Most investors spend more time chasing deals. than reviewing their insurance.

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Hey, thanks for having me, guys. I got to tell you, I listened to the first couple podcasts you guys put out. This is some first class stuff. I'm really humbled to be here and appreciative of the invitation. And thanks very much, guys, for having me be a part of this. Thank you. Yeah, thank you. We're glad to have you.

Absolutely. No, this is good. Cool, man. Well, listen, so let's just jump right in and talk about you. So, Brian, you're in Santa Rosa now. where'd you grow up? How'd you come up through the ranks here? I grew up in Southern California down in Los Angeles County in the San Gabriel Valley. And then when I was in junior high school, my family moved to Northern California.

We settled in in Sonoma County and the beautiful wine country of Northern California. Unfortunately, I don't drink, so that does me absolutely no good whatsoever. It's a great place to live. And when I was 20 years old, I got this wild idea to start investing in real. estate of all things. And I'll tell you, it's been quite a wild ride. Wow. So 20 years old, you say out of the blue, hey, you know what, I'm going to be a real estate investor. What was the revelation? How did that come to being? Well, you know, I had no real estate experience. I had no money and I had no rich friends. So what else to do except for getting one of the most expensive

businesses in creation, right? There you go. And I, you know, I really started with I bought a rental house because I had a family member that had nowhere to live. And I thought, well, I'm renting my own apartment and I don't want this person living with me. So I guess I could go and buy a rental house and they could rent it from me. So I managed to convince somebody to sell me this house with getting a finance company to finance a first loan. And then the seller did a carryback. So I got into it with absolutely no money down. and I learned my lesson on why you never rent to family.

I was just going to ask about that, how that turned out. Well, I'll tell you, the one thing that's great about real estate is no matter whatever happens in this business, everything is a learning experience. And a lot of people are afraid to screw up. But if you don't screw up, you don't learn. And I'll be honest with you, you know, there's a lot of lessons that I've learned in this business that I never would have learned the full value of those lessons if I hadn't experienced them for myself.

Anybody can go out there and tell you, watch out. for this or do this or don't do that. But you're still going to go out and do it. And then when you do it and it really bites you, then you say, all right, I learned my lesson. I guess I shouldn't do that again. So that was one of those. And of course, there's been many, many more instances like that in the years since. Yeah, yeah.

Hey, you talked about that first deal having a seller carryback. As a new investor, what got your brain around, hey, I'm going to do a seller carryback? Where'd that come from with somebody with no experience? Well, what's even more surprising is they actually agreed to it. I mean, here I am as a young investor. I'm 20 years old. The fact that they actually said yes was incredible to me, but I guess they won't say yes if you don't ask. And just for those who don't know, what exactly is a seller carryback?

Well, what we did was we got a finance company to do the bulk of the loan. And then the seller carried back a second loan. In other words, they said, well, okay, let's just say the purchase price was $100,000, and the finance company provides $80,000 to the capital stack. Then the seller comes in and says, all right, I'll make a loan for the other 20, and you can pay me back later. Okay. Yeah, that makes sense.

So it was a pretty simple process, but it was a great way to get in. And, you know, that was supposed to be a rental, and it was for a while. And I sold it and eventually and lost money on it, which, of course, you have to do that in real estate too in order to really learn how to get into this business. And then I decided, you know what, this rental thing is kind of hard. I better wait until I learn how to do this better before I do this again. So I'm going to get into the flipping business. So then I got into buying, fixing, and reselling houses is my next venture.

And where did that come from? I mean, you know, we didn't have the house flip shows back in, back, you know, 20 years ago. So what inspired you to actually do that? Well, it was the only way I could think of to really make any money. You know, you can buy rental houses and make $100 a month or something if you're lucky or in my case you could lose money. But, you know, I have the same golden dreams as everybody else. You know, I wanted to make a ton of money and, you know, everybody says it's got to be easy. So, you know, anybody can do it.

You know, you don't need any money or any free time. You know, you can just do this in your spare time with no money at all. And it's a simple thing to do, right? Yeah, that's true. That's what they say anyway. And you pulled that off, right? While you were, you know, I don't know, about two hours a week, you were flipping housing for it. Yeah, absolutely.

You know, you know, it's kind of interesting. When I first bought that first place or first got into studying real estate as a business, I was working in a grocery store and I was making about 12 bucks an hour and I didn't have any money at all. And I thought I had these wild dreams I was going to get into real estate. So, you know, I got a partner. And I thought this is going to be my key because not only was I 20 years old, I looked 15. So I thought, there's no way I can approach a seller and say, you know, I want to buy your house. So I got a partner that was older than me, and that was his only qualification.

So that, you know, I thought that gives some credibility, right? So, you know, I think it's really important that, you know, you got to pick your partners right first of all. But anyway, I tried to get in and make a breakthrough that way. That didn't get me very far. So I still had to pay the bills. And grocery store wasn't going to do it for me. So I ended up getting into, at first I thought I was going to be an area. traffic controller. So I took the air traffic controller test and missed it by like a half a point.

Then I thought, well, okay, let's help. And I'm so glad I didn't get that, by the way. I would not be where I am today. And I'll tell you, sometimes your failures are your biggest boost. Let me tell you. So then I decided to get into a law enforcement career. And I went into law enforcement. And the great thing about law enforcement was I was working evenings and weekends, which left me essentially the business week, the Monday through Friday 8 to 5 part, as free time. So that was a huge advantage for me as opposed to work in a 9 to 5. It gave me all week long to go out and chase foreclosures and go to foreclosure auctions and learn and figure out how all that process works and go down to the county recorder's

office and learn how to research title and just all the things that are required to build a foundation of knowledge in this business. So that was great. And then I decided it's time to pull the trigger and start flipping houses. Hey, so back then, back then, before Nixon was in office. Hey, I'm not that old. No, but, but, you know, you did start at a time that predates the modern internet. So, you know, I think it's kind of interesting.

Maybe to even look at what you were doing back then versus what people do today and are there are any tactics and techniques that you were using back then that people stop doing, but which are really effective. Is there anything that kind of comes to mind on that? Yeah, there is. When I first started buying houses at foreclosure auctions, which wasn't my first or second deal, this was a little bit later on, there was no such thing as the Internet as it exists today. And I had to figure out how I was going to learn all the pieces of information that I needed to learn about a house going to sale at a foreclosure auction

because there's just no information given out by the trustees that are putting on these sales. So the only way that I could do it is I had to go high-tech. So I taught myself how to write computer code, and I wrote my own computer software that enabled me to take all the information that came from all these various sources and compile it into one central location so that when it was time for me to go to an auction and bid on a property, I knew everything I needed to know about that property. All the information was stored in a very methodical way so that it was right in front of me and I could make quick and accurate decisions. And that was a real important thing. Now they've got Internet subscription-based websites that keep track of some of this information for you, which I still don't use. I still do it old school. But I'll tell you what, and this is kind of interesting, and this has to do with you guys at Bigger Pockets.

I joined Bigger Pockets as a member. I don't know, maybe about six months or so ago. I had no idea what I was going to do with it. It looked interesting. There was a lot of interesting information. I thought maybe I can give back and help. some people along. But man, I'll tell you, there was nothing like this in existence when I got started. When I was trying to figure out how I was going to do this, I had to read books and figure it out and

trial and error. And if I would have had a resource like what you guys have developed, I would be a lot further along than I am today because I'll tell you, I struggled in this business for 10 years trying to get it right before my business really took off. So my hats off to you for what you guys have been doing. Thank you. Yeah, I mean, I'm kind of, I'm, I guess, an example of how that did work when I first started. I mean, I know nowadays I'm kind of the cheerleader for Bigger Pockets, but when I first started, I found Bigger Pockets by searching Google and for how or what to do when a tenant doesn't pay.

And because that was the question I had. And, you know, that helped me through that situation, that helped me through a million more since then. And, you know, Bigger Pockets is, I mean, I credit them as my number one reason for everything I have today. because every time I had a question about anything that I couldn't overcome, I just went on the forums and asked it. So, yeah, I'm a, I'm not just, you know, part of bigger pockets. I'm also, you know, somebody that am who I am because of bigger pockets. So, yeah, that makes complete sense. Makes complete sense.

Okay. So, well, thank you. I mean, that means a lot. And, you know, if only I were, you know, a little older or something. I don't know. Hey, listen, I mean, I started, I started the site because I, I was making, you know, I was screwing up left and right, and I thought there needed to be a place where I could get help. So, I mean, that's, that's where it came out of. But so, you know, it, it sounds like you've got all the, I mean, you've literally explored every different avenue. You've flipped, you've done the auctions, the foreclosures, you know, I mean, you've hit, you've used probably every strategy, I'm guessing. What strategy have you found to be, um, Your least favorite, actually.

My least favorite strategy actually is going and dealing directly with sellers. When I first started in this business, I was doing the old postcard mail out and wait for the phone to ring and, you know, knock on doors of foreclosures and that kind of thing, just trying to scour out for a deal. And, man, I struggled with that. And I just couldn't get any traction with sellers. And when I finally did, you know, I got really close on a couple deals where, you know, we were all the way to the point of signing the contract. And it's amazing to me how so many people that are in a distressed sale situation just never really can sign on the dotted line and make the decision to do something about their situation.

And I had a couple deals get really close and then just completely die off because the sellers just went totally dark. So I came to the realization that I had a couple problems. One was that I was having a lot of trouble getting through to sellers, and the other was even if I could get through to sellers, getting that deal to close. So I came up with the strategy of buying at auctions, and I really did it out of desperation because it was the way that nobody could say no to me, right? I could go to the auction, and I could either buy the house or not buy the house. And I didn't have to get permission from a seller.

I didn't have to get him to agree to anything. I could just make it happen on my own. And it was the only way that I could actually take control of the situation and actually make something happen. So, Brian, how did you fund your first couple flips then? How did that, or your first couple of projects, how did those come about? Well, my first flip was actually one of those direct from the owner deals that I told you I wasn't a big fan of.

It was actually the only one that I actually got it to work. And it was a deal where the home. owner was in foreclosure, they were back on their payments. So I went in, I had no money, but I offered him $1,500 to deed the property to me, and I took it subject to the existing financing. So I would took a cash advance out on a credit card, paid the owner the $1,500, and then I took another cash advance out on my credit card to pay the back payments on the loan that the former owner was behind on. Then I used my credit cards again to finance all of the fix up and all that stuff. And then I sold the house. And man, I'll tell you, the cost of that financing, it is steep. When it was all

said and done, I made a whopping 1500 bucks on that flip. But I'll tell you what, it wasn't about how much money I made on the flip. It was about the fact that, look, I've done one. I had no resources to start with. And I actually can now say I've flipped one of these houses. and made it work. I've proven the concept. Now I've used that as a building block so that when it's time to go and do the next one, I have a bit of a track record. Yeah, when I first started, I actually read a book that said to do that, that that was okay. You know, they said, go out and get, go get credit cards and just max them out and use it for the flip because, you know, you'll make back much more than that. And I remember thinking, oh,

okay, so I went to Home Depot and I opened up, you know, I think I had four or five Home Depot cards at the time that I financed most of one of my early flips with. And then that flip didn't sell. And it didn't sell and it didn't sell. And I ended up holding that house for, I think, eight months before refinancing it and paying off most of those credit cards. But that was a terrible, terrible learning experience for me. Now, I'm kind of in the same boat as you where I say, you know, I did it. You know, I made it work and now it's a good cash flowing property. But that put me behind, I think that put me behind quite a bit, and in my, I guess, financial independence was because of those credit cards. But you know what, though, you learned a lesson, and every lesson you learned cost you money.

I don't care if you go to Harvard or Yale or you do it on the streets of real estate school. Every lesson will cost you one way or another. So consider that to be your student loan. Exactly. And that's what I tell people. I say it was cheaper than college, you know. It was hard, but it was organic learning. I just wrote that in the forums the other day that I think people often want, you know,

know a proven method and that's why they go to the gurus they just want to this is how it's done and I said I think the best learning is organic you know it's good and it's bad and it's ugly and it it's organic but it works that way but what people I just say if people want to learn how it's done it's done by getting out there and doing that's how it gets that's how you learn how it's done okay that said what would you guys say to some guys starting out who's working a grocery job who's got you know maybe one credit card and he wants to flip houses are you going tell him to go put all that debt on on his credit cards to flip that first house or are you going to tell him to kind of hold out until he builds a little bit of a nest egg potentially what's what do you

guys advise and we may all disagree on this one we might i would i advise people that you've got to do what you're comfortable with with your tolerance for risk you know i when i did it i was in my early 20s i didn't have a lot of tolerance for risk because if i lost a lot of money it was going to be really tough to convince my wife to do this again. So I had to be really careful and make sure that I could do a deal where I knew that the worst case scenario was breaking even. And that meant that I had to sift through a lot of deals to get there. And there were a lot of deals that didn't get done because of that. But everybody has to take their own risk in mind when they set out to do this. I can't tell a guy that's $50,000 in credit card debt to go make himself $80,000 in credit card

debt to do a flip if he doesn't know what he's doing. But I'll tell you what, if you don't take risks in life, you don't get the rewards in life, and sometimes you just got to do what you got to do. How about you, Brandon? All right. So I would say, you know, a couple years ago I probably would have said, yes, go ahead and do it. Today I'm a little bit more conservative, and I would say rather than using a credit card and spending the hundreds or thousands and the risk, I would find a partner instead.

I would find somebody who's got good credit, who's got some money and wants to go 50-50 on a flip. I mean, that's what I would advise somebody if they were saying, I'm going to go use a credit card to flip. I would say, well, why don't you, if you're going to start out, why don't you go find a partner instead, or maybe even another investor? Well, you'll do all the work and they'll help you, you know, cover part of it. So that's where I'd go today. I'm a little more conservative. Knowing now what I know and having done what I've done, I agree with you 100%.

That is the way to do it. But here's the rub, guys. I mean, when you go out to go talk to a private investor to back your deal, what's the first question they're going to ask you. What have you ever done? What is it that makes me think that I can give you my money and I'm going to get it back? So sometimes you've got to take that risk yourself on the first one to be able to go to that private investor on deal number two and say, look, here's what I did on my first one. Look how successful this was. I want to do one with you and you can share in the success. And I agree with you, a thousand percent. That's a better way

to do a deal. Every deal I do now is done that way. I don't cash advance credit cards. I don't pull money out of my house. I don't do any of that stuff anymore. But I don't because I don't have to. When I'm young and I've got no deals under my belt and I'm trying to get into this business, I did what I had to do to get to where I am today. Would I want to do it again? Absolutely not. Would I advise somebody else to do it? I see you got to do what you got to do sometimes. But it's a risk you have to decide whether or not you are willing to take. I agree. I mean, I, it's easy for me now to say, you as a partner, but that's because I don't have a problem anymore finding partners to work with because I have that experience. But you're right. I mean,

back in the day, I mean, I don't know too many guys that would have jumped to work with me because I, all I had was what I had read and all I had was the books I had. So, well, let's let's, let's get into that in a second. I, I personally am way more risk averse today than I, than I was, you know, with family and kids. I mean, you know, everything changes. Um, and, and, and, I, I, I, And if somebody asked me and said, hey, should I put it on credit cards? I would actually say flat out no. I would say, find another way to go. I would say, you know, work your job until you've got at least the resources or you pay

down your debt or something. I, you know, I'm just a lot more conservative. And I don't think it's, I don't think that your advice is bad because, again, it happens, it has to do with the risk tolerance of the person. But, you know, so you guys. You know, we're talking about partners. You've talked about it a couple times. Let's get into that and let's talk about finding that partner and getting to the point when you first approach somebody to be your partner.

How do you go about doing that? You know, clearly you need some kind of experience. Clearly you need to have proof of concept, right? I've been successful on one, five, ten, twenty deals. You know, come in, let's do a deal together. But what's the approach? You know, obviously you go out and you find people, you know, who have money. but how does that pitch go?

Yeah, you're exactly right. I mean, that really is it. I mean, and I'll tell you, when you start to get big, and I don't know if I would call myself big yet, but I think it's a fairly sizable organization I've put here, put together here, you find yourself spending a lot of time raising capital. Probably about a third of my time right now is spent raising capital. And it's tough.

You know, I was out with yesterday, in fact, I was doing an investor presentation with a client of ours. He's an investment advisor at a multifamily office. And for those of you who don't know what a multifamily office is, basically it's an investment advisor that works for ultra high net worth clients, typically clients that are worth over $10 million. And they help them manage their money and make investments. And in some cases, these outfits are full service. They even pay their bills for them. So I was out doing a presentation with one. This one group has invested a couple million dollars with us.

And they were bringing in some more clients to invest some more. And we were talking. Somebody in the group had asked me a question about deal flow and that kind of thing. And I said, look, our problem isn't with deal flow. We have plenty of deal flow. Our problem is in raising capital. Raising capital is difficult. And if our organization has any weakness at all, it's in raising capital.

And the investment advisor chimed in. And he said something that was really, I thought, very profound. And this guy has, he's really dug into our business and done a lot of due diligence on us. And he's a really sharp guy. And he says, do you know why you having a tough time raising capital? And I said, why is that? And he says, because you don't over promise. I thought, you know what?

That really is interesting. A lot of people raise capital by saying, oh, do this deal with me. I'm going to make you a 50% return and I'm going to double your money in six months. That's like the guru approach to raising capital, right? I mean, a guru has to overpromise to sell boot camps, right? I mean, they have to say, you're going to make a lot of money. It's going to come quickly and easily. You can do it in your spare time, give me $30,000 and I'll come show you how to do it.

Well, that's an overpromise. And investors typically get overpromised all the time by investment sponsors. So if I could say anything on how to get investors, one is to just be honest with people. Be open with your investors. Tell it like it really is. Don't over promise. Sell yourself, but sell yourself based on your track record. Show them what you have done so that they can see what you can do instead of always showing them.

This is what we're going to do. So that kind of dovetails back. you've got to be able to build that track record. The more track records you build, the easier it will be for you to raise capital. The bottom line is you've got to be relevant. You know, I want to add one more thing to that, too, that knowing the lingo is huge in real estate. I mean, when somebody comes to me and tells me they want to flip a house because the monthly depreciation is going to fund their next deal. I'm like, that doesn't make any sense whatsoever.

You know, like, they don't know what they're talking about. I immediately know they don't know what they're talking about. You know, they might have meant to say cash flow or appreciation. I mean, not knowing the language, so for a complete beginner, I would start with that. Just, you know, start with what do the words actually mean? You just get that from interacting with people who know what they're talking about. Yeah, yeah. Who was it that said that?

Was that Kiyosaki in his rich, dead, poor dad book about expanding your vocabulary? I think so, yeah. Yeah, and how your vocabulary is what, you know, if you want to change your situation, change your vocabulary, you know, learn the language. of the business that you want to get into. And when you go out there, you can sound like you're smart. Yep. And really, a lot of this business is sounding like you're smart. The problem is, is you've got to back it up.

Fake it until you make it, right? You've got to back it up. You've got to be able to produce those results that you're promising that you can produce. Otherwise, you're going to be in this business of perpetually capital raising to replace investors that didn't get satisfied by your last deal who go walk off and find somebody else to work with. Now you've got to go back out, repeat the whole process over again to find another investor. You know, one of the things that I'm most proud of is that we've been able to keep all of our investors. Nobody leaves once they come in because we produce for them. And that's what people have

to do. If you want to raise capital successfully, produce for your investors. That's tip number one. Tip number two, you've got to be relevant. You've got to get yourself out there and you've got to mean something to people. And I'll give you one last tip on the free way to raise capital that I think most people really need to take into account. And we've raised more capital from investors that have come to us after reading articles about us in the newspaper. You've got to get in the press. You've got to do something newsworthy. You wonder why Richard Branson gets in a hot air balloon and sales all the way around the world? It's not because he's crazy. It's because he knows that that publicity means something. And when things like that happen, people pay attention. And if they're not

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That's bill.com slash bigger pockets. So I'm assuming then that you're paying for your deals today via those investors, correct? Yes. Okay, great. And how does that work? So you've got investors, you've got deal flow. How do you make it happen? How do you put it together?

What do those packages look like? What are we doing here? Okay, well, we're getting a little bit into advanced class investing. So let's build up a couple building blocks, then we'll graduate. So to begin with, the first thing you've got to do is you've got to go out and do a few deals so that you can show people that you've got, number one, the ability to get deals and actually make something happen. and number two produced for your investors. Once you've gotten to that stage, then you can move to the

next level, which for me, what it was was establishing a fund. And here's how I did that. When I was working in law enforcement, I was going out and using credit cards and using a person that we knew that had a few bucks to kind of help us partner on a deal. That was the next step after credit cards and I did about a dozen or so deals then then I graduated to using private money financing and and after getting about a dozen or two dozen deals under my belt I went and I said all right I've got this down I'm gonna go full time I'm going to I'm going to quit my job and I'm going out on my own and I went I went into the police station and I said guys I quit and on next Tuesday

day at the senior center, I rented out the room. I want all y'all guys to come down there. And I'm going to tell you what I'm doing in real estate. And that room was full of guys. And I said, look, here's what I think is going to happen. Here's what I've been doing. Here's what I've done. Here's my results. I've got a plan. Over the next five years, I want to buy about 10 houses a year, fix them up and resell them. I'm going to split the profits with you guys if you guys will invest in a fund. I walked out of that room with 500 grand and 28 investors that all had guns. So if anything is going to motivate you, it's going to motivate you to know you cannot screw this up. So I did a little Reg D offering. I had my attorney draw it up, put these guys into it.

I had essentially a $500,000 expense account that I could go out and use to buy houses at foreclosure auctions. And by now I had done a few. I'd done them with the credit cards and whatever else. And now I started doing about 15 to 25 houses a year using that fund. I had full discretionary power to spend. And I produced for these guys over that whole five year span. They netted in their pockets over 20% annualized return on their investment. So they did well. Almost all of those investors are still with me to this day. So that's how you grow from the very minutely level to the intermediate level. And that's what that was. That was the intermediate level. The graduate class comes after. So you approach these guys. These are people you knew. You weren't out soliciting people

out of the blue because if you were to do that, what would happen? Yeah, that's right. I mean, now you're going out and you're soliciting for securities, right? Unregistered security. So you've got to know what the securities laws are. And before I did this, I went to my attorney and I said, this is what I want to do. And he said, okay, if that's what you want to do, these are the guidelines you have to work under. It has to be 35 or fewer investors. It has to be people that you have a previous personal or business relationship with. You can only raise so many dollars. So I knew what my guidelines were.

And, you know, people oftentimes they get so tied into, okay, what are the rules and what do I got to do and what are the steps that they forget that what they need is a concept. Let the attorney figure out the steps. Don't try to save the cost and don't overanalyze it. Just go find out what the rules are for what you're trying to do. Put it together and go out and do it. That's great. That's great. But that said, you do need to understand at least the basic laws and the basic rules

because if you were to go out and hit up random people in the street and say, hey, I'm starting this real estate fund. You know, come on in. You're breaking the law. Absolutely correct. Don't do anything without running it by your attorney first. Don't try to save $250 on an attorney consultation to go out and try to do this on your own. Yeah, that's excellent advice, excellent advice.

And I actually need to. I said that last time, and I called my attorney, and I have hopefully an appointment set up this week. So we'll see. You guys have to keep me accountable on that. Yeah, that's right. Yeah, I've been, Brandon and I've been going back and forth, and I'm kicking his butt a little bit on the, you got to get your lawyer to respond. But, you know, we all deal with that. I've been trying to deal with my lawyer for a week now,

and it's hard to get them on the phone. So, you know, that's the price. Well, I'll tell you this. When I approach an investor that's looking at investing, say, $10 million with our company, one of the first questions that they will ask is who's your law firm? So if you don't have an attorney and you don't have a relationship with one, you're not going to get to that level. Guys that are playing at that level want to know that you're professional

and that you've got a law firm in place that's helping you put your offerings together. If you don't, they don't want to deal with you. And you might as well start when you're first getting going and get started with an attorney that can help you with that. Oh, that's great. That's great. Well, I want to take it back a little bit because we kind of skip from beginner class to advanced class. And why don't we circle back around to something that, you know, I think a lot of people are going to find exciting. And we're going to call that your home run flip.

The home run flip, yes. The home run flip. Yeah, man. And so, you know, for those folks listening, if you go to biggerpockets.com slash show three, in our show notes, we're going to have a link to an article. I think the title was Home Run Flip, but we'll point to it. The Anatomy of the Grand Slam. The Anatomy of the Grand Slam.

There it is. There's a picture of Babe Ruth on there. Yeah, Yankees. But, you know, I'm a Mets fan, but, you know, Bay, Booth. Come on. Anyway, so let's talk about this, man. You profited $800,000 on this flip. That's quite a profit.

I know the post goes into it, but maybe you could talk about it a little bit. Yeah, well, this was a flip of a multifamily deal. And originally it wasn't intended to be a flip. We were going to buy this and hold onto it for five years. It just did so well that we could actually get a higher IRA for our investors if we exited early rather than carry it out to the five-year term. But essentially, it was a deal down in Texas. It was 54 units. And I got a call from my property manager saying, hey, there's this apartment complex that was taken back in foreclosure.

The lender's really anxious to unload it. They were in escrow for somewhere near a million eight. It just fell out. They lowered the price to a million three, and it's in a great spot. and it has a lot of potential. You really need to check it out. And I'll tell you what, that right there is why you use property management firms. Because if you've got the right one and they know what's going on,

and they got their finger on the pulse of the market, you can get a lot of information from those guys. And I got to credit this one to our property manager for sure. So, you know, the story's all in there. I don't know if you want me to rehash the whole story. I think people need to go back to the site and they need to check out the article and they'll see how it all went. but this was a deal where we financed it using private investors.

Reg D offering, I had no money in the deal myself, but our investors did awesome, and I think so did we. The thing I found most interesting in the story was your point about not budging and not negotiating against yourself. That to me was one of the best pieces of advice I'd seen. So can you go into that a little bit? So yeah, this is the thing that's happening a lot today. And, you know, guys that are out there making offers on REOs, they know exactly what I'm talking about. Now, the biggest thing you'll see when putting in REO offers is they always come back and they want you to give your highest and best offer. And sometimes you're bidding against yourself and sometimes you're actually bidding against other people who have legitimate offers in.

But in this case, there really was nobody else that was on this deal for whatever reason. I'm not quite sure why. but I just wasn't going to budge. I had to stick to my ground. I knew, and this is kind of the way I always operate is, you know, when we're buying houses at auctions, it's the same kind of a thing. We have a strike price. We have a limit where we're going to go. And when we get to that limit, we're out.

We'll wait for the next one. So when the broker kept calling saying, can you come up? The answer is no. This is our price. We're in or we're out. It's your call. And if we didn't get it, we would have moved on to the next one. Now, looking back, I would have been pretty sad if we didn't get it.

Yeah. And that's, you know, it's a good lesson, I think, particularly for new investors who, yeah, I think they a lot of times get caught up in the hype and the excitement of potentially bidding or wanting that property, getting emotionally attached. You know, your point about sticking to your strike price and not budging and walking away. I mean, it's incredibly important. Well, guys, this is the Grand Slam flip, right? But let me tell you, this business is not made up of a series of grand slams. This business is made up by going out and trying your best and making some base hits and one day you'll hit a Grand Slam. And I've hit my share of strikeouts and I've lost money. You know, in 2008, when the economy catacalismically collapsed,

I took a really bad haircut and I lost a few million dollars of my own. money and I know exactly what it feels like to really get hurt in real estate by making mistakes. You know, I heard Marty's podcast about his story and podcast number one and I can really relate to what he went through. I went through the same thing in the market collapse. I know what pain feels like. And let me tell you, when you've felt pain in the real estate market, it wakes you up. It causes you to pay attention and be careful in doing what you're doing. And I'm a full believer in expanding your comfort zone and growing big and getting into new things and taking some risks. I think you have to do that.

But let me tell you, if you do it carelessly, it's going to come back and bite you. And those student loans that Brandon and I were talking about earlier with credit cards, they can get really pricey. Yeah. Yeah, they can. What piece of advice would you give to somebody starting out other than put it on your credit card? What would you say over your career? What's that one golden nugget that you think any new investor just can't survive without? Boy, that's a tough one.

I think one of the things is that you've got to go out there and give. it your best and despite whether or not you have challenges and setbacks, you have to keep going and you can never give up in your dream. And you've got to have a passion for this business. I do what I do because I love what I do. If guys are getting into this business because they saw the guru pitch and they think that you can work three hours a week and make $100,000 a month, if that's why you're in this business, you will always have challenges and obstacles in your way. When I come to work every morning, I don't feel like I'm coming to work. This is fun for me. I like what I do and I enjoy it. And if you don't, you're never going to get to the next level.

You've really got to have a love for it. And that way, when you do fail, you can get back up on the horse and ride off again because you still love what you do. The other thing that I think is really critical is having a support structure behind you. I've got a very supportive spouse. I've got, now I've got you guys. And I think that having that to fall back on is vitally important. Yeah, very cool. Yeah, I want to actually look at your whole kind of business model right now as a whole. If you don't mind, you know, you talk about doing, you do a lot of flips, you know, at one time. You're doing, what you say, dozens and dozens probably. How many do you do a year? About 100 to 120 flips a year.

Yeah, I remember you saying that. I just thought that was incredible because, you know, I struggle with doing one or two at a time. So how do you do that? And like, how does that look in your company? Well, I've got 25 employees. And I think that makes a big difference. I mean, there's no way I can flip 100 houses a year by myself, you know, and really it was organically grown. I mean, I started out in this business doing one flip at a time like anybody should start out. If anybody starts out doing 10 flips at once, they're probably going to crash and burn. So I built it from a one at a time business to a two at a time business to a five at a time business. And I carried it at about a five at a time business for three or four years. And then I

actually scaled back. In 0405, 06, I saw the light at the end of the tunnel. The problem was it was a train, and I had to get out of the way. So I was kind of in, you know, in retrench mode during that point in time. I scaled my flips all the way back to four flips a year during those peak years when it was big on TV and all that stuff. And then after the market crashed, and, you know, while I had stopped flipping, that's when I decided to go out and do other things that I had no experience in because I knew I couldn't make any money flipping, and that's when I took my haircut. So stick to what you know, I guess might also be one piece of advice. But anyway, after the market collapsed and I realized that the market can giveeth back what the

market taketh away, I knew I had to really get going. And the only way I was going to bring myself back was to get busier. So I started flipping again in 2008 pretty heavily about four, five, six at a time. And then I knew, I saw what was going on with the foreclosure volume. I knew that there was going to be a huge amount of real estate coming along in the foreclosure pipeline. It was going to create a massive opportunity and I had to figure out a way to take advantage of it. And I was a solo operator. I had one employee that was my bookkeeper and I had one independent contractor that was my buying agent and project manager. And I knew I had to grow. So I was looking for a partner and looking for the right partner.

And I realized, you know what, even if I have to give up half my business to a partner that can bring in more than what I can do by myself, I'm actually going to make more money between the two of us and me only getting half than me doing it all myself. So coincidentally, as I met my current partner now, he was the CEO and founder of one of the largest home building companies in our region. And he was seeing the same thing that I was seeing in the real estate market, that there was just, there was no opportunity in building houses anymore. So he was scaling back his homebuilding operation was one of the only independently owned home builders in our area to survive and get out of it without losing all of his money. And I realized that we could take his ability to build houses in a production line fashion. He was doing about $75 million a year in sales at the time and adapt that to a production line fashion. in house remodeling, which is easier than house building. And that's exactly what we did.

And we took some foreman and superintendents that he had with his firm and taught him how to flip houses. And we built what we have now. And now we've got a team of 25 people. About half of them are in acquisitions department. And about a third of them are in the project oversight department. and then there's all of us back office people. Wow.

Okay, that's incredible. So you know, you scaled this one-man operation up. In doing so, certainly you must have made a mistake or two. Are there any bits of advice you've got for folks in actually scaling? In scaling, you've got to scale measurably. We didn't make any mistakes that, that I can say is something that we shouldn't have done. Everything that we've done is something we should have done.

Even if it didn't go the way we planned, you don't get to where you are without stumbling along the way, just enough to correct your course of action and make you who you are. No major mistakes, but I'll say that what we did to avoid the major mistakes is we expanded methodically. When we expanded our geographical regions, we did it one region at a time and we got entrenched in that region before we would go to another region and expand into another region.

Some people, what they'll try to do is they'll try to grow too quickly and not be careful about how they set up their operations. And I think we did really well at avoiding that. Fortunately, my biggest mistakes were in 06, 07, 08 when I got out of house flipping. When I stay in house flipping, house renting, and multifamily, I'm just much more comfortable when I bridge out. out into other things. I get taught why you only bridge out into other things when you know what you're doing. Yeah, that's great. That's a great advice. You know, Brian, I like talking to you a lot because

you are where I want to be, you know, in 10 years from now. Like the multifamily, the things that you do, that home run flip, the grand slam flip is exactly what I want to do and the kind of investing I want to get into. So this has been, this has been awesome. But before we wrap it up, we do have some, you know, some questions that we like to ask everyone at the end. So, Josh, why don't you start that off? Sure, sure. First off, where can people find more information about you? Presumably, you're on BiggerPockets.

We'll point people in the show notes, biggerpockets.com slash show three to your Bigger Pockets profile. Are you also on Facebook, Twitter, anywhere else that you linked in, that you like to link up with people? Hey, you know, I got to tell you guys, I'm still old school. You know, when I started this business, I didn't have the internet, and I still haven't quite figured all that out. So you can reach me through BiggerPockets.com.

I read all the forums and I answer people's questions, and I've got the article on the blog now, which is great. There's, of course, our company website, Praxcap.com. You can Google me on the internet or Google Praxis Capital and read all kinds of stuff that we're up to. If you want to connect with me, just shoot me a message over BiggerPockets.com. That's great. Great. What is your favorite real estate book? My favorite real estate book? That's a tough one. I think everybody says rich dad, poor dad. So I love that book. But I like the books written by David Lindahl. I think his books are good. There's some good content in there. And I liked Donald Trump's The Art of the Deal and the Art of the Comeback. I especially can relate to the Art of the Comeback.

one, but I'll tell you, one of the best books that I think is out there was written in 1937, and it was called Think and Grow Rich by Napoleon Hill. It's a great one that doesn't get mentioned a lot, but definitely a must read. Yeah, that's a great book. Yeah, I just bought that the other day. I haven't finished it yet, but I started it. Well, you've only had about 50 years. How about your favorite business book?

Favorite business book? Well, I'll tell you the one I'm reading now, which I'm actually. finding really interesting. It's called real leaders don't do PowerPoint. Now I'll tell you, as I said, about 30% of my time now is spent in raising capital. And it's funny when you watch presentations, so often these presentations are so boring. And it's one slide after another of a guy reading bullet points. And you just never want to present that way. And learning how to give a good presentation, I think is critical to growth. And so far, this book has been pretty interesting and helping to shape that.

I'm going to pick that up now. Oh, go ahead. I'm going to pick that book up now. That sounds awesome. Oh, yeah, yeah, absolutely. Yeah, you got to check it out. Excellent, excellent. How about hobbies?

I understand you might be a bit of an aviator. Yeah, you know, real estate's my business, my hobby, and my passion, but I'll tell you my love when I'm not here doing real estate is definitely aviation. I'm a licensed pilot. I got my pilot's license. Actually, when I was in high school, I used every paycheck I got working in the grocery store to get my pilots license. And I just love flying. I've been flying now for 26 or 27 years or however long it's been.

And now, you know, the great thing about real estate is it's enabled me to do the things in life that I would never have been able to do otherwise. And now I'm learning how to fly helicopters, which is a total blast. Nice. Yeah, that sounds awesome. I used to be... Always wanted to do it. Yeah, I used to be a friend. of flying but now more and more I want to I want to get my pilot's license sometimes so

that's very cool now last question yeah yeah very cool so last question I got for yeah I ask us to everybody so in our industry you've seen a lot of people I'm sure come and go you've seen a lot of probably you know wholesalers and flippers come and go quickly that you know they read the guru stuff or whatever what what sets apart the people you know I think like you you know who really make this a business and make this big the top performers, what sets them apart from the people who come and go, in your opinion? I think a lot of it is expectation management. Some people get into this business with the expectation that it's easy, that there's huge amounts

of profits, it's not. So I think that the successful people understand that's a lot of hard work. They're in it for the right reasons. They know that they know that they. They got to put in their time before they make it to the big time, so to speak. And they got to have a passion for it and love what they do. And never let setbacks stop you from accomplishing your dream. Because if you do, you will end up doing something else that isn't real estate that you probably don't like.

And you might even give up right before you were about to hit that grand slam flip. That's great advice. great advice well Brian listen it's it's been an absolute pleasure this has been fantastic some some very high level stuff and and some great tips for folks starting out so fantastic again for anybody listening this is Bigger Pockets podcast show three you could find our show notes at biggerpockets.com slash show three also make sure to check our Facebook page out at facebook.com slash bigger pockets and lastly if you're not a member of the site Guys like this, Brian Burke, are on the site every day, giving great advice, feedback,

helping out new guys, helping out sophisticated investors, people are coming together doing deals and doing business every single day on the site. So please take a chance and take a moment and join us at biggerpockets.com, www. www.biggerpockets.com. Brian Burke, thank you so much. Thanks for having me, guys. Yeah, thank you, Brian. And that was today's show, folks.

I hope you guys enjoyed our talk with real estate investor Brian Burke as much as we did. Really quickly, before we go, we just wanted to say thanks to everybody for helping make bigger pockets a top 10 business podcast and all of iTunes last week. This is truly an honor to be one of the most listened to business podcasts in the entire world. As of now, we're up to 49, that's 49, five-star reviews in iTunes. Thank you to everybody who's gone to iTunes. and left us a review. We couldn't be where we are today without you guys.

And if you haven't left us a review yet, please, please help us out. Take a minute, jump onto your iTunes player and just leave some feedback. Every single review, you guys, helps us to climb in the rankings and get more visibility so we can help more investors learn and grow in real estate without worrying about the upsell, about the pitch and all the nonsense that you get elsewhere. So please do take a minute to leave a review there. Finally, just remember all the information talked about on today's podcast can be found in our show notes at www. www.biggerpockets.com slash show three.

This is Josh Dorkin. Thank you so much again. I'm signing off. You're listening to Bigger Pockets Radio. simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place. Be sure to join the millions of others who have benefited from biggerpockets.com.

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