The Science of Flipping - The Reality of Real Estate Growth: From Wholesaling to Multifamily Mastery | Tim Bratz

Episode Date: August 21, 2023

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Yo, yo, welcome to the Science of Flipping podcast. I am your host, excited to have you here. As always, our number one sponsor, minutepages.com is your resource for the best websites on the planet. If you're a real estate agent or a real estate investor and you need to have credibility, influence, and authority, make sure you check out minutepages.com.

Now, if you're watching me on YouTube, you will see right now I have an incredible guest, one that I look up to in a big way. He has a massive portfolio, which I know all of you guys want to do is increase your wealth. And I have Mr. Tim Broth here, brother. What's going on? What's up, Justin? Appreciate you having me, man. Excited to be here. Hell yeah, man. Let's let's change some lives together, right? I have a it's called the science of flipping. But today is about how you start to build wealth, right? And this is the guy that I look up to and many even industry leaders will look up to.

Because I think, what do you have right now? Let's throw around some big boy numbers. What are your numbers? I was up to 4,800 doors, 4,840 doors. And I sold off about 1,500 of them. So I'm hovering around 3,300 right now. But I got 500 or what do I have? Probably another three, 400 under contract right now.

So there's so much I want to unpack with that, right? So I've been telling people I'm on a mission to get to 5,000 doors. You've already sniffed that number, right? And I'm a ways away from that number. But you and I chatted, I don't know, a couple months ago, and you're heavily looking at kind of repositioning asset classes and stuff like that, which we can dive in. But guys, I'll tell you, if you want to learn how to accumulate wealth, you want to pay attention to this episode because I am on a massive mission to get to 5,000 doors. He's already sniffed that number. He's doing a little selling off, but I know that just means he's going to ramp back up. And so let's get into it. Let's just talk about why are you selling? Let's go with that. Why are you selling off a little bit right now?

Yeah, man. So hopefully I can correlate a lot of things because I come from the single family world first. And I think a lot of us on our journey of real estate investors, we get involved in real estate for the allure of passive income and residual income. And then a lot of us on our journey of real estate investors, we get involved in real estate for the allure of passive income and residual income. And then a lot of us, man, I was brokering real estate, making transactional money. I was wholesaling real estate, making transactional money. I was flipping houses, but I was a terrible flipper, right? You're a good flipper. A lot of other people have made real businesses out of flipping. I was just horrible at it. And I found that for my desire for efficiencies,

I love efficiencies. I hate waste. Apartments and multifamily and commercial real estate just made a lot more sense for me. And it kind of teased those desires and it allowed me to then go to one house, or I'm sorry, one property and look at a roof of one eight-unit apartment building instead of going to eight houses, right? Look at one foundation instead of eight foundations. Pay one property tax bill instead of eight tax bills or one utility bill instead of eight utility bills. So there's management efficiencies on finding deals, raising the capital for it, underwriting those deals, construction management, project management, property management, asset management, across the board on everything and getting into the multifamily side of things, as opposed to

when I own single family properties. And so as soon as I got a taste of this multifamily world, I was like, this is it. This is what I need to be focused on. And that's what I did. I just put my head down and I got excited about apartment buildings and kind of hit that wave before it was cool to invest in apartment buildings. I started buying in 2012 and- Way before Grant Cardone, way before Bellamy made it all popular, right? Yeah. And I had about 140 units in 2015 and I had some exclusive partners that we just kind of butted heads. They wanted to go in one direction. I wanted to go another direction. My value had increased. Their value was diminishing because I got more and more experience. And it just came to a point where we decided to liquidate. So I started rebuilding the portfolio. We had to liquidate 140 doors, press the reset button. That sucked in theory, but really kind of set me up for better things moving forward. And so I started building the portfolio and very similarly to when I started interning in the real estate industry. And then I started a construction, I had a painting company, and then I got my real estate license. And then I started wholesaling, and then I started flipping,

and then I started buying and holding a single family. The same way that we go through these graduated steps in our career of like kind of different asset classes. I did something similar in buying multifamily, right? I bought small multifamily first and I bought in C-class areas first. And then I bought larger multifamily in C-class. And then I got rid of the small multifamily in C-class. And then I was able to get, because I had built my balance sheet and I built my portfolio and had a little bit more of a resume, it gave me more of a stature to talk to brokers and talk to sellers and raise private money and get loans. And so then I was able to get into B-class small multi and then B-class large multi. And now I'm able to get into A class large multi and I can

compete with some of those bigger hedge funds and REITs and all, but you can't get to that stage by just trying to jump into it right away. Because if there's somebody who owns 4,000 doors, even if they're C class, right? And they're competing for an A-class 200-unit asset. And somebody comes in without any doors, right? And they're going to go with me with my C-class doors, even though, because they know that I have the experience, I have the bandwidth, I have the ability to close and transact. And so when you're building your portfolio, I think a big eye-opener is like, oh, I need to find the perfect deal. No, you don't.

You just need to go do a deal, and you need to start building the balance sheet. If you don't have 100 doors, and I say doors, but it's really about $10 to $15 million of property, of assets under your ownership that you have GP, meaning general partner ownership in, that's what really is going to differentiate you. Because it's something like 95% or 98% of all commercial real estate deals, apartments, retail, office, storage, industrial, all of it falls under $15 million. You can do 98% of all real estate deals in the entire country if you have a $15 million portfolio because the banks are looking at you from, do you have the

net worth, the liquidity, and the experience in owning or managing this size of a deal? So what I would obsess over is getting to, let's call it $15 million of assets as soon as possible. And if they're C-class, they're C-class. It's not about these $15 million of property. It's what does this set you up to do? It's a stepping stone for the next 10 deals, for the next 100 deals, for the next thousand deals that you buy. Realize that it's going to play its purpose. And as you grow in your real estate holdings, you're going to take leaps forward and you're going to take a step back. You're going to take leaps forward and you're going to take a step back. And you're going to consistently refine,

trim the fat, look at your portfolio, cut the businesses or the pieces of property that are heavy management intensive, that aren't pulling the margins that you hoped or thought that they would pull, that are, you know, painting the ass with a billing department or zoning codes or whatever else. Those kinds of things, I'm trimming the fat on and I'm just focusing on the nicer properties in the better areas that I can get long-term debt on that I can in-house manage and I can hold forever. That's my buying criteria now. Damn, the podcast is over everyone. We're out. I was fired. And the reason why it's so big for me right now, you know I have an educational space for the single family homes, traditionally wholesaling, fix and flipping. I'm personally on a mission to get to your number, right? So I have to go buy $10 million more worth of assets just this year before the year is over. That's my own personal company goal for another 10 million this year. I say that because many of my students right now are coming to me and they bought one or two rentals and they're done. And I don't actually advise that. And you

brought up a lot that I want to unpack. But one of it is you actually did start wholesaling, flipping transactional money, making money, increasing your income prior to kind of building this whole thing out. Do you agree with there are levels to this shit, right? It's cliche. I get it. But like there are levels, there are seasons, there's a natural progression to this shit, right? It's cliche. I get it. But like there are levels, there are seasons, there's a natural progression to this. And I don't agree with people going out and buying a rental or two that are stuck on a W-2 income and that's it. They're done. Do you tend to agree with that? Yeah. So I would say, what do you want? Right? Like, here's the thing, dude, there's some people who just don't have the ambition maybe that you or I have, right? Or they don't have the goals or

they don't have that. And that's, I don't know. I might look back on my life and be like, I should have let work to W. I don't think I'm going to do that, right? But I think about, I'll give you an example. My brother, my brother works for the government as a government job. He's been working for the government since he was 23. He's now 43 or 42 years old, something like that. And so he's 20 years in, right? Working for the government. He's at a GS level of, I don't know what the hell they are, 13 or something. So he makes like 160 or 180 grand a year. When he retires after 30 years of working for the government, he's going to make 40% of what his highest three years of salary were. So it ends

up being like 65 grand. And then if he dies, I think his wife gets it. When she dies, the kids don't get anything. Right. Okay. So that's one of the 30-year plans. Here's the other 30-year plan. He accidentally fell into, when he moved to DC, he bought his townhome and then the townhome next to him was bank owned and he ended up buying that and renovating it and renting it because I'm his brother and he's like, dude, I should do some real estate. Then he goes overseas for a couple of years, rents out his primary residence. So he's got two rentals. Now these are in DC, nice area, appreciating area, great cashflow, lots of people moving there. Right. Uh, but hard to own there. If you don't know the nuances of owning in a very blue town. Yeah. Uh, but he, he moves overseas, comes back four years later, his two houses are still rented and he buys a new place. It's a

four story town home. He lives on the top three stories. And then the ground level, kind of like in New York city, a lot of the Brownstones, they read out as a studio apartment or one bedroom apartment, whatever it was. So now he's got a primary home and he bought each of these other two initial townhouses for 500 grand a piece. They're probably today worth about 750. Okay. He bought his own primary home for about a million dollars and has it rented. He's making $2,500 a month just from the ground floor apartment. And then it's probably worth about 1.5. So today he owns $3 million of property. Let's go over the exact same 30 year timeframe of working for somebody else that's going to pay him $65,000 a year and pass nothing along to his

kids. You take that same $3 million of property, it will at least, I would say, double in a 30-year timeframe. Sure. So now you're talking about $6 million of property and he'll pay down all the mortgages to zero at that time. And the cashflow from the two townhouses and the little apartment will generate close to $175,000 of net income for him annually. And if he dies and his wife dies, then his kids get $6 million of free and clear property. That's the difference between working a job and buying real estate. And he did it as an accident. Imagine doing this intentionally. So I guess my point to your question, Justin, is like, dude, there's a lot of ways to make money in real estate. I just, I, I, I'm more, I'm more, um, passionate about making sure people have ownership over their life and they know what they want than they are that I am about buying a certain type of real estate and at least you won't have your future income in the government's hands and them dictating what you're worth at some point in the future and being reliant upon them. Take ownership over your life.

So even if you do work a W-2 job and you love that W-2 job and that's what you want to do, at least buy a handful of rentals and do it that way. I think you're going to get a taste of it and you'd be like, this is where I need to be. I think most people are going to make that leap. But, you know, I don't, you know, my brother comes to my beach house. I'm not like, hey, dude, what's it like at your government job? Hey, tell your boss I said hi when you go back to work on Monday. Like, I'm not doing that. He's my brother.

I love him. But I want to make sure that he has intention of building his wealth. And I feel like a financial steward of, not steward, but like- The selfish thing you are. For him, because I know what it's capable of. Make sure that other people have that same thing. It's a must, right? I don't think anyone should get in the game for transactional real estate ever, right? Now, a lot of people want to just get in the game. My kind of point here is your brother even is a good example of doing things that most others wouldn't. He's actually buying properties to some extent, almost house hacking, moving, getting another property. A lot of people don't do even that, right? They go buy two rentals and

now they're just like, well, okay, I still make 80 grand a year and that's it. They're not buying a home, remodeling it, get rid of it, buy a duplex. There's some hacking involved there that's incredibly, because I'm a firm believer in increase your income first, get to a place where like a lot of people aren't making 60, 180 grand, right? Your brother's in a position to be doing that. But I believe there's a level that I would like people to, even if you're doing this part-time, I have a student making 300 grand a year extra wholesaling. And she just takes that and buys rentals with it. She didn't even go to her job. And I love that, right? That is the game the game right now that takes ultimate sacrifice meaning she's taking she's making all this money that she could go through really cool stuff with but she has the philosophy that i have and that you have is i want to accumulate wealth over time for a lot of different reasons because if you get big enough you actually don't have to do anything anymore

right like you technically could live a very nice life and just not do a thing with the amount of doors you have. Right? Yeah. That's not who you are. It's not who I am. I tell my wife that all the time. Why do you work so hard? I want more. I'm not done. But so let's just talk about, well, now you're selling. We're talking about acquiring. You literally text me saying, hey, bro, I'm selling this $14 million property. Hold on one second. I'll be a minute late. Awesome. Why? Why are you selling at all? If we're making the argument, everyone should be trying to accumulate. Yeah. And so that, and let me go back before I answer that. I think you made a really good point of generating, increasing the income and that you're

also developing skillsets in wholesaling and flipping properties, right? You're developing the skillset of how to find deals, how to underwrite deals, how to raise private money. And those are the exact same skillsets just at a zero when you get into multifamily and buy and hold. It's a couple of nuances, a little bit different of a conversation, a little bit longer of a hold time. But it's the same skill sets and really finding deals and raising money. And that's the core skills that you need in order to do real estate in any asset class at any level. If you can do those two things, dude, you can do it in any asset class at any level. And so I think that's a really, really important part to learn. And I learned that from wholesaling and from flipping houses. So absolutely. It's just understanding where do you want to go? And I don't like having the same problems. I like having new problems. I don't want to have the same problems as I had three years ago, let alone, I've been

in rooms with people like, oh, I've been a broker for 25 years and I'm trying to figure out how do I gain more clients? I was like, dude, if I have the same problems 25 years from now as I am today, jump off a bridge because like, dude, you're not growing if you have the same problems year after year after year after year. So just want to talk about that. So why am I selling? Kind of goes back to that, just creating efficiencies, trimming the fat, realizing that, dude, having 5,000 doors was cool to say, but they were very management intensive. And I've got a lot of heavy value add right before COVID hit. And then there was a 16 month eviction moratorium and then labor costs went through the roof. And then there was a supply chain got derailed and you couldn't get material. And I'm trying to build things and I try to renovate and I can't get rid of bad tenants. I can't renovate units. I can't lease out. It was just, dude, it was so... I took down a $100 million deal that I got 20% of just because

I signed on a loan. And I was like, got a $100 million deal, talked about it on social media. Everybody gave me all these accolades. And that $100 million deal, I was going to make about $6 million over the course of three to five years. But guess what? That $6 million would not change my lifestyle. I already live on the ocean in Charleston, South Carolina. I own a ridiculous mountain house. I can travel first class anywhere I want in the entire world and take a month, two months, three months off because I have a phenomenal team. I even own an island in South Carolina, 110 acres. So that $6 million doesn't change my lifestyle other than me signing on that loan, which

all of a sudden the management company defrauded us, placed over 200 tenants that were unqualified, made up income, failed background checks, overrode it, placed them anyways, didn't collect security deposits, or maybe they collected and put in their own pocket instead of putting it in the property account. And all of a sudden that deal that I was going to make $6 million on in three to five years, I'm probably going to lose money to write a check on or at best break even on over the course of the next three to five years. And so that deal would not have changed my lifestyle in a positive manner, but very, very much can adversely affect my lifestyle and has been. It's been a very stressful six months. We've

infused $8 million into the property. We've had to change management over. I was supposed to be passive in operations. I now take an active approach in operations. My team's on calls on a daily basis on this thing. And it's been, dude, it's been a nightmare. Now it's totally turned around. We still need more runway. We still need more money and time in order to get to where we want to be with it. And we should break even or better on it, but pain in the ass, right? So it brought me back to why am I doing this? Why am I, did I, you know, when I took down that deal was for ego purposes only, right? 100%.

Purely for ego, so that way I could tell people I took down a $100 million deal. And so we're much smarter right now because of the mistakes that we made and what we've had to go through in the new acquisition. So now I told you I'm buying about a little over 300 units, A-class, built in the past 20 years in downtown areas of Northeast Ohio. Why do I buy in Cleveland, Ohio? It's actually technically a little bit more bluer than it is red. And no, it's because I'm from there, right? Because I have a team there. My headquarters is 15 minutes away. It's because I know who the housing court judges are. I know who the local attorneys are. I know who the property management or contractors are. People are like, oh, well, I can't buy in California,

or I can't buy in New York, or I can't buy in Boston. Yes, you can. The only reason I don't go to those communities is because I don't have the resources, and I didn't grow up, and I don't know the people in those areas. But there's opportunity in your own backyard. That was just kind of a quick aside. But I realized I don't need to go wide. I don't need to go into all these different markets. I have stuff in Oklahoma. I was in 12 different States and I'm essentially refining to where my team is. I'm refining to my team is in Northeast Ohio, Cleveland, Ohio, metropolitan Cleveland area, and really coastal South Carolina, Charleston, Hilton head, Savannah is where I have team and I have properties. Not because those are

the best markets in the country, just because that's where my team's located and it's easy. And I can borrow a property manager from this property, send them over to this one if somebody's on vacation or we have to fire somebody or somebody quits or whatever. And so it's just easy. So I'm looking to simplify that side of things and then scale up a little bit more in those markets. So you don't have to go after a 300-unit apartment complex. You can buy 10, 30-unit buildings and still have the same efficiencies if they're within a couple of miles of each other.

And that's kind of cool because you're not dealing with hedge funds and real estate trusts and scumbag big landlords who have internal legal teams that are just trying to screw you over because that is a very real thing when you get into these bigger deals. I like just transacting with the mom and pops where you can shoot straight. I want to buy, they want to sell. We cut a deal that works for everybody and go that route. So I'm selling the out-of-state stuff and that's why I'm buying more in the markets that I'm already in. There'd be nothing more cool than to have this episode and then I buy some of the stuff you're selling. I think that would be legit. We should have an off-market conversation.

Because I got to go. I don't got to do anything. I want to go spend at least $10 million before the year ends. And if you're liquidating, obviously, I trust your underwriting, of course. I don't want a problem child. So let's not. Colby, buy this one. It fucking is crushing my soul.

I'm not looking for that. But I'll be honest. I already have. I don't even know how many doors in Oklahoma City. I don't know how many doors in Tulsa. So Oklahoma, if you actually are a Ligurian, let's have those conversations. I mean, it's worth it. So that's a cool with building a network, right? That's the key with having a social media following and talking about what you're doing and utilizing social media as a marketing tool and not just to consume content, but to create and share. And all of a sudden, dude, these connections start getting made. And all of a sudden you're trying to buy something. I'm trying to sell something. We make a deal work for both of us. And then who knows, dude, can you imagine what it looks like 10 years from now? You own 5,000 doors. I own X number of doors. We've made a huge impact on a lot of other people's lives. They own tens of thousands cumulative doors and we're showing up, uh, with all of our

yachts to the BVIs together, right? Like there's just cool stuff like that, that it's, it's fun to be in the network and support each other, support the good guys and promote and help and grow together. Well, I know we're both about changing people's lives, right? We've done a good job. A lot of, I would guess, uh, you did a lot of the heavy lifting yourself. There was no real giving it over to you. And I know I, that's my story as well as I just picked up the ball and started running. Right. Um, I want to hit on something real quick. I think it's really, really important. There's so much, and we probably can need another podcast episode, but I think people look at you, they look at me, they look at those they aspire to be, and they think we shit gold.

And what you just talked about is very real in all of our businesses is there are decisions that are made that we have the best intentions with. We believe to be the right decisions. And there's other times that maybe some of those decisions are taken from us. We don't even get the opportunity and it causes a rough scenario. I know if I've gone through my share of these decisions I made or even decisions I didn't get to make because the decision was taken from me, that has caused turmoil within my businesses, my real estate businesses, my coaching businesses, et cetera. I think I just want to highlight your pain, not because I want to celebrate it because I want people to really know the reality of business that just because the two of us are at a place where people aspire to be doesn't mean we wake

up every day and just everything is amazing. There are real challenges with growth. And that is the point I'm making is your ability to get to a, you know, sniffing that 5,000 door. Well, that caused pain, challenges, hurdles, potentially massive setbacks in your growth because of challenges of growing. Right. And people need to realize that it kind of is echoing this point of like, there are levels and I would prefer slower and steady progression, right? I call it aggressive patience rather than just going and chunking out big plays and hoping we can figure that part out. And so I just, I wanted to hit that because I think even in my world, the single family space, more of the active

incomers, the wholesalers and the flippers, you know, they, they come across these challenges that they think is like world ending. And it's, by the way, Tim is going to be just fine. It sucks for him. And it may take him 36 months to kind of unwind all this nonsense and kind of wash it out. My multimillion dollar loss on a development play, I was developing 79 townhomes. I thought it was world ending, right? Like, holy shit, I'm losing multiple figures. 11 years, eight years later, here I am. Right. So speak to that a little bit, just because I think people need to know the reality of Tim and Justin and stuff of that nature. Yeah. Well, first of all, every level of excitement and success comes with another bottleneck. And early on, I was trying to raise $100,000. Then I reached a level where now I have to try to figure out how to raise a million

dollars for a deal. Now, the deal that I'm closing, the 300 units is a $13 million raise. And so I had to raise $13 million in the next 60 days. And that used to put its huge bellyache in me, this lump in my stomach. And now it's like, all right, let's get to work. We know the process. We know the method. We've built the muscles, right? You have to go through it. I've seen guys, and I know people personally, who have gained access to money and then went on a buying tear over the past three to five years and never built the muscle. And now, dude, they're collapsing. And you're probably going to see some pretty vocal people on social media that were very vocal and very celebrated that are now going under in the next 18 months because they didn't build the foundation to your point. I told you at the beginning, I've been investing in apartments since 2012. I've been building up the portfolio and exercise and putting in the reps every single year since 2012. Yeah, I got a lot of attention in like 2018, 2019, because I went through this compounded growth phase, but I was already in the business for eight years, nine years before I hit that stage. And so you don't go to the gym and start throwing up 300 pounds on the bench press the first time you go. You start out with a lot less weight and then you add a little bit of weight and you add a little bit of pressure. And as you get stronger, you can solve bigger problems. And as you get more experienced, you can solve bigger problems. And I try to talk about that. I love that you brought that up because I think it's a really important piece. But you also don't see people, I used to be like,

these guys, they're only talking about the positive things. And that is true. You see the highlight reel a lot of times on social media, but I also try not to focus on that. Because if you focus on negative things, then all of a sudden you're depressed all the time, you're negative all the time. It's conveyed in your conversations to your private money investors. It's conveyed to the brokers. It's conveyed to the sellers that you're trying to buy property from. It's conveyed to the buyers that you're trying to sell property to. And so there is an element of just staying positive all the time. And the reality is, dude, business is a math equation. And one of my favorite things about

buying and holding rental real estate is that you've got time on your side. Eventually you pay down enough principal balance. Eventually the property rent grows to a point where the rent is up here, the principal is paid down. And if you give it enough runway, if you give enough time, it can absorb any of those losses. Now you're not talking about a million dollar loss, right? If it's a transactional type thing and you're a million dollars underwater, you're like, shit, man, that's a million dollar hit that I'm going to have to take. Versus you're buying something on a 30-year time horizon and you amortize that million dollars over the next 30 years,

only a $33,000 per year hit that you're taking, right? You hang onto it long enough, rent's going to grow, which means the appreciation of the property happens. You paid out enough principal. The tenants are paying down enough principal on your loan, right? And eventually you get to a point where you're at break-even or better than break-even. And then you just hold the property longer. You just transact it in seven years instead of in three years. And that's a very real thing. And so if you're in an asset class like rental real estate, and you can do this with single family or any commercial class as well, just understand that you've got kind of that safety net with you. And I think as you grow your net worth, you want to grow that safety net. And there's a lot of things that you can do

in order to do that. So that way you can keep on pushing the envelope, maintaining the ambition that you have, and still having a contentedness of, of an appreciation for what what's got you here and the impact that you're making and show other people like what's possible too. So yeah, man. Dude, I, we could go on and on, you know, we should do, here's a great idea. We should do a mutual event. We do a mutual event together with our audience transactionally and for the longterm and kind of show the beauty of all of it. I think that'd be really cool. I think a lot of people would love that anyways. Yeah. That's a one-off. That's cool, man. So dude, first of all, if anyone is interested in finding you, I'm respecting your time. I know you

have a call right now. So where can everyone go find Mr. Tim Brotz, the man? Social media, right? I'm very active on Facebook, Instagram, and we have a YouTube channel called Legacy Wealth that we're always dropping a couple of videos a week out there and post almost daily on the other social platforms. So yeah, just hit me up. me up. I, I answer my messages. I answer my Instagram. I answer my Facebook, just send me a message. Happy to, uh, point you in the right direction. If you need a resource, make a connection, whatever that looks like. Um, there are a lot of people who helped me out on my journey and I try to pay it forward as much as I can. So appreciate you having me brother. It's always great having a conversation with you. I love your mindset. I love your vision and the desire to make a big impact

on other people's lives. So kudos to you too. Yeah, brother. I appreciate it. Thank you for the time. Blessing the Science Flipping Tribe. And you and I will be talking here shortly. That's all, folks. See you later.