July 21, 2022

Successfully Navigating the NEW Real Estate Market Conditions With Brian Burke

Successfully Navigating the NEW Real Estate Market Conditions With Brian Burke

In the 90th episode of Cash Flow Pro, we talk with Brian Burke, President and CEO of Praxis Capital Inc. Brian first began his real estate investment career in 1989. Since then, he has acquired over 750 properties, including over 3,000 multifamily...

In the 90th episode of Cash Flow Pro, we talk with Brian Burke, President and CEO of Praxis Capital Inc. Brian first began his real estate investment career in 1989. Since then, he has acquired over 750 properties, including over 3,000 multifamily units, with the assistance of proprietary software that he wrote himself. Like other investors, Brian began with the fix and flip strategy, and then about 20 years ago, he got into multifamily. When he made a personal 1031 investment, he never looked back.


Brian is also the author of The Hands-Off Investor: An Insider’s Guide to Investing in Passive Real Estate Syndications and a frequent public speaker at real estate conferences and events nationwide.


These are all the qualifications that make him the perfect candidate to discuss the uneasy waters that are expected in the real estate market.


Praxis Capital, Inc. is a vertically integrated real estate private equity investment firm. Their strategy involves combining an entrepreneurial approach with an institutional infrastructure. Together the executive team at Praxis combines more than 100 years and $5 billion of experience in the multifamily sector, including ownership and management of over 100,000 apartment units. The firm believes in “creating” value with every investment.



In this episode, we discuss:

  • Upcoming changes in the real estate market: cap rate compression and increasing prices
  • The perfect time to jump into real estate
  • Understanding the finances behind real estate and dealing with debt
  • Why no one is touching the Cali real estate market


If you are interested in learning how to navigate the current and up-and-coming real estate market conditions, make sure to tune in to this episode to find out more!


Find your flow,

Casey Brown


Resources mentioned in this podcast:


Casey Brown  00:06
Hey there, and welcome to today's episode of cash flow Pro, your daily real estate investing podcast and YouTube channel. I'm here today with Brian Burke of Praxis capital, Brian, how are you today?

Unknown Speaker  00:20
I'm doing great. Casey, how about you?

Casey Brown  00:22
Awesome man doing wonderful other than it is hot outside. As of recording, it's like 106 or seven heat index with like 80 or 90% humidity. So life is hot, but life is good.

Unknown Speaker  00:36
Awesome. Awesome. Well, I don't want to be willing to trade places with you. I don't mind the heat.

Casey Brown  00:42
Yeah, you know, they always said it's not the heat that will get you it's the humidity. And the older I get the, the the firmer, I believe in that for sure. So but so Hey, Brian, why don't you tell us a little bit about yourself and where you come from and how you got where you're going? And then we'll kind of dive in and and, and go into some capital raising and stuff like that?

Unknown Speaker  01:06
Yeah, well, you know, you're probably invited me out of this show, because I'm in the real estate investment business. And that's, that's what this is all about. Right? So sir, it's all about real estate investing. And that's, that's about the only thing I know how to do. I've been doing this for 33 years now. Started out in single family homes, and you know, buying fixing up and reselling single family houses, and you know, the fix and flip strategy, so to speak. And then about 20 years ago, I got into multifamily. When I did a personal 1031 investment, and never looked back. I mean, it's it's been a major part of our business ever since. And I would say in the last probably 1213 years, it's been a major part of our business. And now it's really our only focus is multifamily. We've bought about 4000 units throughout the years, and just getting close to about a billion dollars in real estate acquired, which is a statement I never would have thought I wouldn't be able to say, sure got into this business when I was 20 years old.

Casey Brown  02:11
Yeah, man. I mean, that's that's definitely moving on up. I mean, you know, that's where some of us that are that are a little younger, newer in the business, obviously. That's something we hope we can say someday, but man, it's it's definitely a tough business. And, you know, again, as of this recording, I mean, the interest rates are starting to tick up a little bit and, and the the climate is, is really starting to change in whether it's gonna be good or bad. I don't, you know, it's still yet to be determined, but nevertheless, some changes in the air. And I think we're going to start at least seen a little loosening up of the cap rate, wouldn't you think?

Unknown Speaker  02:55
Yeah, I think we're already starting to see that, you know, we've cap rates have been compressing for how long now? At least 10 years cap rates have been compressing. Yeah. And, you know, for 10 years, I've been saying like, this is gonna stop, you know, it's not gonna keep doing this forever. And for 10 years, I've been wrong, I guess, you know, even a broken clock is right twice, right. Finally, here we are, and cap rates are beginning to decompress, to an extent, which is long overdue, in my opinion. But we're starting to see that and I think, really, we're seeing the most of that happening over the course of the last, you know, eight to 12 weeks, depending on when this aired, let's use months or probably talking about, you know, April through June of 2022 has been the period when I began to see that Capri decompression.

Casey Brown  03:49
Yeah, and you know, and it always seemed like every time you know, every time real estate every time real estate would come down, it would eventually get to a broker's hands it's like once it got to the brokers hands that's like when it immediately compressed like as far as it possibly could, which we all know why I mean it's not that not a huge secret the brokers working for the seller and trying to get them the most amount of money possible, but at the same time it still man I don't know some of these things that just doesn't, I can't imagine they're going to come out of them when they come full cycle that they're going to be, you know, just super super profitable. I don't know I could be wrong. I hope I'm wrong. I hope the thing just keeps going and going and going but I just don't know. You know, and I've mentioned it on the show several times and I'm sure my audience gets tired of hearing it but the you know, back we're not that far separated from the times when big canvas signs were draped over the side of some of these apartment buildings saying free plasma screen TV with the sound I release, you know, and so yeah, or free, whatever. Just there's some type of a lead magnet of some kind So, you know, I've been, I've been very hesitant in some of the questions that I've answered myself, and I want you to kind of maybe take this too and talk about a little bit, but But you know, when, when the raising of rents is, like, I'm gonna say over 60% of the strategy for increase in value, or total, you know, turnaround value. I just man, that's, you got to almost be just super, super hesitant on that, because that's like the first thing that goes, you add a hard asset to an asset, you least have something? Or what's your thoughts on that?

Unknown Speaker  05:41
Well, you know, starting at the beginning of your of your comments, the remarks there, it's easy to blame the brokers for cap rate compression and increasing prices in an increasing price environment, because you say, well, they're trying to get the sellers the most money, but really, who was to blame was the buyers, because the buyers were paying it and brokers are going to push the price as far as they can, and still get offers. And, you know, I know, we were selling a lot of stuff, I've sold about 2500 units in the last year and a half. And you know, in a year ago, we were getting 15 to 20 offers per property that we would, you know, put out to market and buyers were climbing over one another to pay the highest price. Now, now we're starting to see cap rates loosened a little bit. And you know, now is when I blame the brokers for having some difficulty, right, because prices need to fall a little bit interest rates are up, rent growth is going to begin to slow down. So pricing has to react to that. And you know, brokers want to get the listing. So therefore they have to set seller expectations, they sit, they tend to set seller expectations a little bit on the high side, sometimes and not all brokers are in this category, some don't do this, but some do. And you know, when they tell the seller, well, you know, you can get $300,000 A unit for this property, the seller is forever married to that number. And you know, Now in reality for that same property is probably $250,000 a door, getting them to come off of that 300 Number is difficult. So So now we're in this difficult standoff where sellers want a higher number of buyers aren't willing to pay it. And therefore as a result, things aren't trading, you have deals falling apart, you have stuff that's being listed that's lingering and not getting offers, when they do get offers are not getting many. And that's because buyers are cautious, and buyers are cautious for a good reason. And that that comes to the last part of your remarks that you just made is that rent growth has been there for those buyers. And you know, you could have bought something three years ago and you're getting 15 to 20% annual rent growth. You know, even if you paid too much, you still look like a hero and you've got a great deal and whatever. But now you're starting to find there's limits to how much people can pay. And you know, when when this kind of first started getting kicked off, you would see people getting substantial wage increases, and they could afford to pay 20% More in rent and still have more disposable income than they had before their wage increase. But now you have other competing expenses for those wage increased dollars. You've got gas prices at six bucks a gallon I'm in California I just saw $7 the other day. Yeah, you've got food prices that are going up you got you know, other raw material prices that are going up regular consumer goods, appliances, everything is on the rise and they're all competing for that wage increase dollar and therefore there's less to go around to support continued rent increases the question in my mind always comes down to when is that music going to stop? You know, when are you going to see rent increases and begin to mitigate because that's going to drive cap rates up even further if that if that happens?

Casey Brown  09:21
Yeah, in you you know the single family businesses still is much the same. I mean, everything you're seeing on almost every local level is now you know the you're still getting offers but like you said you're you you go from buyers clamoring over one another and trying to trying to outwit everybody else to now you get a few offers and it almost in there it's almost like a like you said a standoff I guess really because now they're the buyers expectations are here. The reality is here, and then you're you know Your your buyers fall somewhere in the middle one. So it's it's really just, I don't know, man, it's gonna be an interesting run here, I think, you know, I think and I've had this discussion on the on the broker side of things with clients where they're like, you know, I had a guy that like just flat out threw a fit because he was gonna get a 4% interest rate he couldn't they couldn't get him the three and a half that could have got him two weeks ago or whatever it was, and it was just like, I was like, man, dude, when I started in this business, I mean, we were like, six 7% I mean, you're, you're like, I'm gonna take this deal out back and shoot it because you can't, because you can't get a three and a half, you have to get a four. And it's just like, I don't know, man. It's like the human psyche forgets all of this stuff. That that we've all seen numerous times, and we've all gone through numerous times. And and I don't know, man, this this, the winds are changing. So

Unknown Speaker  10:59
there's a concept in in, you know, called the what the five stages of grief. Right? And so like, you know, when there's a death in the family, you go through the five stages of grief. And usually the first stage is denial. Like, there's no way that person is gone. And, you know, we have to go through and then on the last stage is acceptance. Okay, they're gone. I have to move on with my life now. Well, to get from, you know, there's no way they died to I'm going to live without them is a is a is a long road to hoe. And this is the same thing, you have to go through the same five stages of grief. You know, there's no way interest rates can be this high, I'm not paying that. Then eventually, it's like, okay, well, if I'm going to invest in real estate, I'm gonna have to, you know, play by today's rule. Yeah.

Casey Brown  11:44
Yeah. And, and, and some of some of the churning of some of these properties as well, is gonna, I don't know, at some point, I feel like that could potentially catch up because at some point, or do you think the REITs take over after are the long long term, folks take over after a certain amount of time, because it seems like you have the syndicators that are stepping in, they're buying a property, they're increasing rents, they're doing value add, they're adding assets to the asset, and then they've got a five year cycle. And eventually, I mean, somebody's going to that five year cycle at some point is going to trip and they're not going to want to take so obviously, we had things built into the PPM and all that other stuff, right to, in order to kind of soften that to hey, we can have a one year extension to one year extensions, or whatever. And so, you know, some of that is going to be a little bit. I mean, I just don't know, it's just the cycles are gonna really just start to, I guess, show their show, what they're made of, I guess, is the way I feel?

Unknown Speaker  12:50
Well, yeah, you know, it's, we were, we were buying stuff, you know, three or four years ago, with five to seven year hold business plans, you know, we're gonna renovate and do all these things, increase revenue, and then sell in five to seven years. And then lo and behold, we don't do a thing. And rents still go up 50%. And we sell and hit our 10 year, price projection in 18 months. So those days are over, you know, we saw that happen. And you know, we we capitalized on that and had a lot of really short, quick turns, we're selling two deals, now we've owned only a year and a half or selling them for almost double the price. But you know, that's not gonna, you can't buy today and do that right now. If you're going to hold this thing for five years, on a five to seven year business plan, and you might even end up holding it for 10, depending upon whether or not there's any kind of trough that you have to ride through, before you start to see that appreciation coming through.

Casey Brown  13:55
Yeah, and the one. This is and again, I mentioned this many times on this podcast, and on other podcasts and, and when you look at when you look at looking at things in the micro, and I'm talking about the the micro stage of like a five year stage, right. That to me is is micro when you're looking at at a at a graph of say the last 100 years. And, you know, you go back to 2006 Man, there was never going to be another bad day. I mean, everybody was just going oh, everybody was bad. I mean, it was a strong and we were rolling There was never going to be another bad day. And then all of a sudden, not only was it a bad day, but it was the worst day right? And everybody was like okay, the end is here, the end of life as we know it is here and and then three years, you know and then now here we are 15 years separated from oh seven to 14 year separated my way And I don't know, that there's not a single piece of property that I, that I wouldn't buy right now almost sight unseen at a 2006 price, which was supposedly the highest that it ever was. I mean, you know, or or, you know, so So these so these trips happen, it just always seems to deflate people when they do. And it takes, it takes a lot of I guess we don't know the word trying to look like it takes a lot of cinnamon out of the market. Like it just it takes, it takes that human element and really exacerbates it. And the reflect the the reflection that people start to do on where they just came from. And I guess I'm talking to on a little bit of the consumer side more probably than the commercial side, but I think it has to emulate one another.

Unknown Speaker  15:51
It does. I mean, there's probably, you know, people that are in their 30s Right now, who would never want to own a home because they, you know, saw what their parents went through in 2007 and eight and lost a ton of money on that house and said, Well, you know, real estate's a losing game. And if their parents could have held on, you know, they would actually have a house worth more now than it was when they bought it. Yeah, yeah, it's so, you know, that's, that's just the way this business is. it deflates people and, and that's just part of the natural progression of the human nature, right? You know, everybody wants to jump in, when things are going great. But actually, the best time to jump in is when everybody else is, you know, just running for the exits. That's right.

Casey Brown  16:40
That's right. And I think that and then when they start running for the exits, that's where your deals are made. And that's where things really kind of come to fruition as far as like, like, that's, that's where you can pick up some of the things where the people that were emotionally in it, now are emotionally out. And now you can go in and be like, pick that out. And now the people that are pure numbers, guys like us that I mean, I'm gonna, I'm gonna sit down and dissect the numbers, no matter what, no matter what the news says, or what's going on, we get the numbers have to work in order to work for the investors. And so, but anyway, so tell us a little bit about, you know, Praxis capital, I'd like to learn a little bit more about your business and what you do, and specifically what your roles are, and how all of that kind of came to be.

Unknown Speaker  17:33
Yeah, I mean, our businesses is really like a lighter value add multifamily model. And we've transitioned a little bit here in recent years, you know, we used to buy a lot of like B minus to C properties. We are now where we've upscaled to like a minus two B pluses really our sweet spot right now. value add, versus light interior upgrades that can improve the desirability of apartment units for our residents. And that's, that's really all we're all we're focused on right now. And we have, you know, we built up this portfolio around 4000 units, and we started selling. And, you know, we've sold almost everything we own. We now we got two more properties that are closing escrow here and a couple months, I feel like we sold just right at the peak. And then that'll leave us with about 750 units or so that we acquired late, mid to late last year. And we'll probably hold those for a number of years, because I imagine it's going to take a while for us to see the kind of gains that we realized.

Casey Brown  18:54
Yeah, and you can if you've sold and have stuffed back enough and have a have a decent and have some investors that have a pallet for a little bit of risk, I mean, just the cash. I don't I think that you've if you've sold out of the real property, you've you've escaped the at least the peak of the inflation, nary period and you can kind of maybe ride that back out because everybody talks about inflation costing you money but you know, if you if you if you trade it out and you have the cash now and it starts to come back down that cash increases in value. It's just like what we used to say in the commodities market he used to we used to trade commodities that manufactured my series three license when I first got out of college and and and we you know, every time there was a winner there was also a loser every time there was a loser there was also a winner. And so you know, when you're when you're flipping out or things like that, and you can then you can stomach a little risk on those other units and a ride out a trough and then come out on the other side higher than you weren't this time.

Unknown Speaker  19:57
Yeah, you know, I think really the most important component of strategy right now for people to think about is the way that real estate is being financed. And that has a lot more to do with survivability than anything the market will throw at you, because the markets always going to have its own narrative, and you just live in it. But in order to survive it, you have to have the right capital. And for us, we've been kind of the conservative ones out there. Because, you know, I've, I've seen what happens when people are over leveraged, you know, I bought about 700 properties, single family homes from 2007, through 2013, you know, out of foreclosure at the courthouse steps, because owners were over leveraged, they had more debt than their property was worth and, you know, for a multifamily operator, you would think, Oh, that would never happen to them. But it does. I mean, over the course of the last three years, I'd say the majority of multifamily transactions I've seen in the market are being traded with buyers who are getting high leverage short term bridge debt, and oftentimes with preferred equity behind the bridge debt. And that's just the wrong capital stack, you know, we're coming in with about 40% cash and 60% leverage from, from the agencies. And that, you know, on long term 10 year debt, so that gives us the ability to kind of ride out whatever storm and not have to worry about, you know, a maturity risk, and we don't have to worry about being over levered. And really, if you can come in with reasonable debt, you can survive whatever the market through

Casey Brown  21:44
Yeah, yeah, the reasonable debt part is, is the biggie because, you know, that cash injection that you've got there, you know, that can fluctuate, it's okay for that to fluctuate, but you know, every every day that that note is gaining is the interest is ticking up on that and, and the serviceability could potentially change. But if you pay down quite a bit, because you know, when you start, what's always worried me is these big fluctuations, it's not so much the little, the little bumps as you go along, but then all of a sudden, it's when this the economy throws like it didn't know, seven, I mean, all the you know, not, it wasn't like, I think people weren't expecting, like somewhat of a of a little bump to be like, Whoa, here we go. And then, but like, it just went, like people were losing. I mean, on a grand deal, people were losing 20 30% of the value of their house. And literally, I mean, like, like, a couple of weeks. I mean, it was just unbelievable.

Unknown Speaker  22:44
Yeah, it was crazy. I remember that, as an as an exercise just of satisfy my own curiosity. On a lot of houses that we bought out of foreclosure, during that time, I went back in their history to look at previous sale prices of that very same property and compare those sale prices to the price we just paid. And this was, you know, 2009 1011. And I can look in a property's history and find a sale from 1982. And there were times where I paid less than that 1982 price. Yeah, literally, I literally turn the clock back. 30 years.

Casey Brown  23:29
Yeah. And then and then from just say, 2011 through today, you've you've made you know, you've you've made up 30 years and 10 Plus, you know, you've made up, just call it 50 years, made back to 30. And the first five now, you've made 20 more since then. And, again, I'm always I'm always kind of intrigued at the, the ability to quantify time and money like, like, and that's, that's really a really good exercise to do just to go back and say, Hey, what was? Where did we fall back to? And then where are we headed? And that also gives you a little pause to say, hey, if we've made a 50 year fluctuation and in 10, man, I hope the next fall off and then the last one, I mean, you just but who knows, man, it's not I don't think it's going to be I think the cost of goods is going to stay up and the cost of food and everything is kind of you know, it's kind of risen to to levels where I think everything's gonna kind of about stay like it is.

Unknown Speaker  24:37
Yeah, I also think that the fundamentals of the real estate market in general are, it's a different, it's a different scenario than what we saw in you know, oh, 7089 10 you know, then financing back then was just horrendous. And people not only did they have too much debt, but they didn't even qualify for the debt that they had, and it was a recipe for disaster from the get go. I mean, I remember going into foreclosure auctions in, you know, Oh 506 Right at the peak of the market, and we're watching some of this stuff, go to auction and a couple other bidders, you know, we're having a conversation and, you know, our kind of collective opinion was, you know, the, these prices are a ridiculous and be, it's not going to be long. Before soon there's going to be so much real estate to buy, but nobody's going to even want it. And hold fast forward about three, two and a half years from when we were making that comment. And it was 100%. True. I mean, there was houses being sold, there were for sale signs, every third house on a street, and no takers. And that's what Yeah, but now, you're gonna see that again.

Casey Brown  25:50
Least No, and I'll tell you one contributing factor I think that a lot of people forget is that we were at war almost we were two wars really. Which I don't care how big or small war is. But when when when your attention and your resources are diverted off of where they typically go, man, there's no, there's like, there's kind of no in between there. And I think that a lot of people, you know, and again, that that just is what it is. You can't the financial backbone of everything. It puts everything kind of in, in limbo, I guess so. But what what do you when you talk about buying the single families and doing all that stuff back then what was the GR what were the what was the geography? Like? Were you pretty well, staying in one area where you branched out over many states? Or what what did that look like?

Unknown Speaker  26:42
Now? We were in 13 counties in the San Francisco Bay area. Okay. And North San Francisco Bay Area, Sacramento, Northern California.

Casey Brown  26:51
Sure. And I've often said, Men, if you'd like you, either you either do California or you don't when it comes to investing. I mean, it's it's such a, because it's hard to you almost have to immerse yourself in the laws, the regulations, the the idea of California in general, you'd have to be immersed in all of that, in order to make sure that you don't get snipped in the rear and

Unknown Speaker  27:14
that I used to only do California now I don't do it at all. So yeah,

Casey Brown  27:18
you know, I've had several people on this podcast that live in California, and they're like, Nope, I'm out. I'm out. I'm one

Unknown Speaker  27:23
of them. And I can add one more to your list. I live in California, but I don't invest here. And we did you know, this was this was our primary stomping ground for 20 years. But I'm done.

Casey Brown  27:36
Yeah. You know, in New York, because is a lot the same way. It's not it's not necessarily good or bad. But you need to be there in order to and you know, the people that have the strongest lobby arm seem to get the most beat people that come out ahead a lot of times in those areas. I mean, it's still nuanced laws that they can really capitalize on really quick. And so but anyway, well, listen, Brian, I want to thank you for being on the show. Today, it's been you know, it's always a pleasure to talk to somebody that that really has a deep knowledge of where we've been, and, and hopefully some insight into where we're going. So I've got a couple of questions for you that we ask every guest that comes on the show. They're very simple. There's no right or wrong answer. But what is the best book that you have either recently read or are currently reading?

Unknown Speaker  28:28
Kind of counseling I just wrote? Or? No, I

Casey Brown  28:32
can't give it a plug. Let's, let's go the other route, what's the best book and then, and then let's give your book a plug.

Unknown Speaker  28:37
So I think I read a book recently called TED Talks. And it was or Ted it was written by the guy that Ted Yeah, is in charge of TED Talks. And it was a really interesting book, because it talks about public speaking and delivery of your message. And you know, in this business, where, you know, we're raising capital from investors and buying real estate, your ability to convey a message is very important. I thought that was a really, really interesting book that you don't think of as a real estate book. But it certainly is a great business book, in my opinion.

Casey Brown  29:16
Sure, yeah. And the conveyance of messages is so important. And that's why I think a lot of people get so torn up over social media is because, you know, especially the written social media is they lose all forms of context. And text messages the same way you know, you can how many you just, you can use the emojis and make those work some but, but ultimately, at the end of the day, context means a lot but no, that's great. That's that's interests. First time I've heard that book. All right, what is a dream vacation that you either hope to take or have taken?

Unknown Speaker  29:55
Well, Maui is my second home. So that said it's a dream vacation that I get to live about 25% of the year. And so now whenever I think about going to a beach destination, I'm always comparing it to my parents. Yeah. And it's like, wow, that wasn't as good. Why did I even bother? So, you know, certainly I would say Maui is certainly it, but I've never been to Europe. And in August, I'm going to London in Paris. I'm really looking forward to that. So that's awesome.

Casey Brown  30:24
Yeah, Europe is. Europe is definitely a sight to be seen. It's it's all of it. It's, it's intriguing. So enjoyed Laura too, as well. Awesome. Well, listen, if the listeners have heard something that jumped out at them and something they may want to connect with you on or way to reach out to you something like that, what is the best way for them to do that?

Unknown Speaker  30:45
Well, there's a couple of ways. First, they can go to our company website for Praxis capital, it's practice, it's Prax. C A You can also go to Instagram at Investor Brian Burke. They can find me on the forums at bigger answering questions on the real estate forums. And if they want to basically know everything that's in my brain, they can book the hands off investor. It's an insider's guide to investing in passive real estate syndications. It's written for the passive investor who wants to learn how to properly find and vet syndication investment opportunities. And they can check that out at bigger forward slash syndication book are available on Amazon or bookstores everywhere. If you can find a bookstore. It's still open.

Casey Brown  31:34
Awesome, man. Listen, it's been a pleasure. Again, I'm always intrigued at listening to folks that know where we came from. And hopefully, like I said, have some insight into where we're going. So thank you so much, Brian. I know you're busy man. And I want to thank you again for being on the show today.

Unknown Speaker  31:49
It was a pleasure to be here. Thanks for inviting me.

Casey Brown  31:51
Yes, sir. And listeners. As always, please head down and give a give us a subscribe, click on the subscribe button for us. And also, leave us a five star review if you liked what you've heard today. And I want to thank everybody for your time. Have a good one.

Transcribed by

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Brian Burke

Praxis Capital Inc