Wealthy AF Podcast

Exploring the Shifts and Challenges in Multifamily Real Estate with Bronson Hill

• Martin Perdomo "The Elite Strategist" • Season 2 • Episode 274

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What's the real story behind shifting from single family homes to multifamily real estate, ATM machines, car washes, and even oil and gas deals? That's what we're exploring with seasoned investor, Bronson David Hill, managing member of Bronson Equity. His investing journey is a compelling one, revealing why California isn't the golden state for real estate and why job and population growth matter for your returns.

In an industry where crunching numbers is king, we often forget the importance of our gut instincts. Bronson shares his insights on why intuition is crucial when vetting syndicators, operators, or deals. He also talks about the hard realities of the real estate market today; from high expenses and interest rates to the '2023 year of operations' concept, experience is now more important than ever.

Finally, we're taking a closer look at how rate hikes affect the multifamily space. Bronson discusses the thin margin of safety and the unique challenges of newcomers vs. old-timers. We further delve into inflation, the future of multifamily, and how the current state of real estate necessitates strategic adjustments for profitability. Plus, find out how you can use inflation to your advantage and access a free ebook on the topic. So, buckle up and get ready for some real estate wisdom from the trenches.

This episode is brought to you by Premier Ridge Capital.

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Speaker 1:

and welcome back to another episode of Latinos and Real Estate Investing Podcast, where individuals just like you come to learn how to create wealth through real estate investing, entrepreneurship and business ownership. And today's guest is Bronson David Hill. And Bronson is a managing member of Bronson Equity and the general partner in over 2,000 units with over 200 million assets on the management. He co-leads a large in-person multifamily in Glendale California, now Pasadena, glendale California Glendale California multifamily. They're called the ITI in Glendale California ITI multifamily. Is that the name of it, bronson?

Speaker 2:

Why is it just ITI? It's investor to investor.

Speaker 1:

yeah, Investor to investor and he's also the host of Mailbox Money Show and understands the investor mindset. I'll talk about that in a little bit. Bronson has spoken individually with over 1,200 investors and having raised over 35 million for real estate deals, so a lot of experience here. Man, my brother, thank you so much for being here. Thank you for taking the time from your busy schedule to coming on my show and sharing with myself and my audience.

Speaker 2:

Awesome, I'm really excited to be here. Martin, thanks for having me.

Speaker 1:

Thank you, brother. So let's get right into it, man. So how did this journey start? Man, that's a lot. You've done quite a bit. You've spoken over 1,200 investors. That's quite a bit. $35 million you've raised in capital. For some that's a heck of a lot, For others not so much, but that's a lot. That's a big number still, For me, that's a big number right. So tell us, how did you guys start it in this journey, Bronson? Where did this begin?

Speaker 2:

Well, I see it all starts with a single step right. So it's just putting one fund in front of the other and figuring out how to do it. So when I first, it's kind of surprising to see where I'm at now, like, wow, how did that even begin? But my plan was to do real estate. I wanted to become financially free. Like a lot of people, I thought I would become financially free or really get freedom through single family real estate. And I realized single family it takes a long time, it's really hard, there's not a lot of cash flow there and it's a lot of work. It kind of becomes a job and so a lot of times we don't realize the work that it takes. We're going into either do flipping or we're doing, you know, buy and hold rentals, even if you have a property manager. And so I had this plan to get 30 houses and there's a saying that when the student is ready, the teacher appears, and so that happened for me.

Speaker 2:

There was a relative I hadn't seen in years and I told him my plan to get 30 houses in the Cleveland area. These are low-cost houses but I thought if I get enough of these, then I can have passive income I can replace, or at least get close to replacing, my regular income and I could have this passive income lifestyle. And he said you know, that sounds like a lot of work. And I started to realize it was a lot of work. And so he said why don't you look at multifamily? And I said, well, I'd love to do multifamily, but I don't have the money.

Speaker 2:

And so a lot of times we see something that seems too big and we think, well, I can't do that. And the better question is how can I do that? Right? No, I can't do it. It's how can I do it? So, just changing that up. And so he said, well, because I was like, well, I don't have the money, he said you can raise the money. And so he taught me about something called syndication, which is basically just raising money from other people putting a deal together. So now we have, you know, maybe 100, couple hundred passive investors that invested with us just, you know, 50k, 100k, 200k each and they put money and we raised millions of dollars and we go buy multifamily real estate. We're also doing now ATM machines and car washes and oil and gas deals and other things as well. So so it's been a lot of fun. It's been a real journey, learned a lot, always growing and learning and, you know, always trying to find a way to scale and help more people.

Speaker 1:

Got it, man. So you've. You've expanded into ATM machines, car washes. That's really interesting. I want to talk about that journey and how that that evolved. But what's there right now? A little bit in. I was staying real estate right now. So you're in California, I know you. You told me you're in LA. You're in the city of angels Great city, great, a lot of great stuff going on there in terms of weather and the people. I love the city, but you also have a lot of challenges going on there off air. You mentioned, hey, yeah, I, I live here, love the weather, but can I hang my hat here? Great airport, but I don't invest here. Can you elaborate on that a little bit?

Speaker 2:

Yeah. So there's a saying that you can live where you want and invest where the numbers make sense. We typically look for areas to invest in where we're seeing growth you know we're seeing population growth, job growth, income growth and that doesn't really. It doesn't exist. In California, I mean, there's a net population loss of about 2% in the last couple of years, versus a place like Florida, where we do invest, there's a lot of growth happening, there's new jobs, it's very. It's also very landlord and business friendly in California.

Speaker 2:

In LA I had a friend who had a tenant that just it was kind of a. He showed up with my friend, didn't really do the correct background checks or do all the stuff you should do when you have to be coming. So you got a bad tenant in there and it took about almost six months to get them out and so he just was getting no rent during this time. It's very difficult. There's some states where somebody says I was paying or, you know, says hey, they have intent not to pay, and you get them out, sometimes even within a week or within a very short period of time, and so that's one challenge is just being able to, you know, manage the property the way you want.

Speaker 2:

So when you're buying an area where you're seeing growth, right, if the population is growing, that's a big one. There's a saying that the rising tide raises all the ships, right. So if you're in a good market that's growing, you know, like in Jacksonville, Florida, where we buy generally, there's going to be more demand for rent next year because more people are moving there and there's you know, there's they're not building more housing. So where are these people going to go? Well, it's going to put upward pressure on rent prices. People have to go further out to find a place to live, and so that's a great kind of recipe to be in and you can actually raise rents how you want to raise them, versus in places like California, New York, other states, there's a lot of rent controls. So where you can't, so. So that's kind of why and how I've been able to do that, as I found partners that really work on the operating side and that partner with them and a part of the team but I'm not the primary person that really runs the asset.

Speaker 1:

That's great. So you mentioned a few things there in that statement. There's a lot to unpack there. But if I'm listening to you, I'm a listener right now and I'm like, wow, I'm running Plus, with, with, with bronze sentiment and Plus with this guy, and they're asking for advice. And the question they're asking you is what are the three things you one should be looking for when investing in a city that's not my own, like you do? Top three, yeah, look for.

Speaker 2:

Yeah, so I mean I think I shared a few. You know the population growth, job growth and income growth. But I think, even analyzing any deal, we do this beyond, even beyond real estate. Once you understand real estate deals, you can go from Using this kind of system to looking at ATM machines or car washes or private deals or gas stations or whatever. Whatever. It is right, there's so many things out there that you can invest in, but it really comes down. It's almost like a funnel right. So the top, you've got the market right. So the market is Jacksonville, florida, or ATM machines in this particular area, or it's car washes or whatever it is.

Speaker 2:

You're trying to figure out what's the market? Is that a growing market? Well, what's the what's happening in that market? You know again, if you're just in a good market, you'll do much better. The second thing really is you know, once you figured out, if it's a market, you like, you know what, who is the operator of that particular deal? Right, because who's operating that. Or you know, if you're Now this, if you want to do it yourself, a lot of people want to do themselves and but there's a lot of people that make a lot of money.

Speaker 2:

If you're making more than a hundred thousand dollars a year, it might make sense to say, hey, maybe I should invest passively with someone else, right, because I can make money in my business or my job. I worked with, used to work with positions in the medical field, and you know there's some of these guys who are making millions of dollars a year. So it doesn't make sense to go actively do all this stuff yourself, and so there's a way you can scale without taking up your time. So you can vet a team you look at. You know who is this team operating a deal, what's the experience, what's the track record? Is this deal we're looking at? Is it, is it kind of in their wheelhouse, or is it a new area or a new type of deal?

Speaker 2:

And then the last thing really, is the deal itself right, and these usually come in a in a reverse order. You see the deal first, then you've got to pay way with the market. Who's the operating team and what's the actual deal? But when you get out the deal, then you say, well, what is the deal is? The deal makes sense? You know how do you make money with this deal, what would it look like?

Speaker 2:

And then you have to understand what are the one or two primary risks when it comes to this deal. You know, if you don't understand when you're looking at a deal with the primary risk or a couple of the main risks are, then you probably need to look harder, because there's always a risk to any investment. Right, there's always a way things can go wrong and usually comes down to one or two Primaries. Now it could be another risk. That is a reason why it doesn't perform, but in general, it's usually there's one or two reasons why and identifying those you know are important just what the risks may be. So those are a few things I look at whenever looking at a particular market. I look at, okay, what's the market? And even if it's your team, you know what's your team, what's your experience, how are you able to perform on that? And then also, how does the deal itself look and do you see both the positives or how it could go well, and also the risks and are you comfortable with those risks?

Speaker 1:

Yeah, you gave us a lot, of, a lot of meat on the at that bone right there, brother. But my next question for you is what questions do you ask to find the primary risk? So, so, if I'm, if I'm a listener and I'm like, hey, I want to vet, I want to vet this deal and nor I want to vet the syndicator. I want, they want to vet syndicator like you or myself, and we want to find out what the risk with the real risk are. A lot of syndicators, if you, as you probably said, through presentations, they show you all the glamour but they don't show you the potential downside and it or they don't tell you.

Speaker 1:

I don't do that. We, when we show our, our investors, we, we put it on the table. Hey, here's the risk, here's how we're hedging against that risk and here's how we're structuring this deal. That, if this, that happens, we do this. If this happens, we do this and if this happens, we do this. Right, what should, what questions should a LP or a limited partner, someone that's vetting an operator like myself or yourself, what? What questions should it be asked?

Speaker 2:

I think it's a good question. I mean, I think, um, there's a lot of things I think you know. Really, you want to just get a lot of questions and figure out you know who is the group and the values and the. You know there's a lot of these things that kind of go into it. And you know, the more people you talk to, the more you're kind of realized I used to think everybody, like all operating groups, kind of have the same values. Uh, but not every has the same values. You know, sometimes I value, you know I value communication with investors and you know partnership or whatever, and you think you know a lot of every value. That not every value Is that if someone just happens to look at the money and then don't talk to us for five years, will perform on it. Whatever I'm like, I like having a relationship with investors. I found a lot of investors do too. Um, so I think you know there's.

Speaker 2:

I think there's no specific because, again, there's different deals to look at. Um, the few things we look at in multifamily deals or real estate deals in general are what are the projections at exit? So, when you're looking to exit a deal, what are things that you know, uh, you know it's the cap rate going going higher as you exit, which is a more conservative way to approach it, or is this something that's going lower, right, so there's different ways to be able to look at that. Also, what are the rent growth assumptions? You know, now we're seeing rents. You know, instead of growing 20 year, 20% last year, they're growing. You know they're not really growing, they're going down. So how are we, you know, can I have allow ourselves to, to do that type of thing where we kind of project that?

Speaker 2:

And then, um, the biggest thing I think I call it the gut check is just, a lot of times, you know, an Eckhart Tolle talks about this and the book Um, eckhart Tolle talks about it in the power of now and he says sometimes we'll be confronted with information and all the information checks out, where it just checks every single box. All the information is there. But in our gut we'll say, you know, something doesn't feel quite right here. And he said, you know we can't put words in whatever, uh, but the gut will eventually always be right and I think there's something really interesting about that.

Speaker 2:

If we're we're humans like we can take, we see, we see something, even a small image or a you know a video or something we get, we get a feel for what that is. We don't, we can't even sometimes put into words what that means, but I think that gut check is just something that's really, really important. I look back on times where, if something has gone Not well in life or in a friendship or in a deal or like it's just, it's almost always come down to just something didn't quite feel, didn't feel quite right at the beginning right.

Speaker 1:

I think as we, as we get older and we Get seasoned in life and experience in life, I've realized that as the older I've gotten, the more that voice comes and I call it the voice is that gut check Becomes more prominent. You know, I like to share an example with you. The other day I we're doing we're trying something new with this podcast with my team sends me. We're doing something called mindset manifesto, where just answering mindset questions and something really really cool, different, right for the pot in the podcast, and my team sent me a. They sent me they, hey, they said here's the content, right, here's the question we want you to answer. And the minute I looked at it, bronson, I was like Now that does not vibe with me, it's gonna come through like just my gut, immediately, immediately, right you? No, I'm not doing that. I said go back to drawing board, bring me something else. That's not something I want to talk about. I don't want to do that Like it just is new.

Speaker 1:

But as a younger man in my younger days, without having been in touch with myself Be being in tune with that gut, I would have probably ignored it and just gone through with it, because they suggested it and they did the research and whatever the research said, I don't care what the research it's gotta, it's gotta resonate with me, I care from. Hundred million people want to know that if I don't feel good, if it's gonna come across on the other side on the mic, people gonna hear it, it's gonna be like no, this is not, this is not genuine Question. Man, you said something really important, my friend, and you said something about values and that's another thing that, as I, as you, become more seasoned and in business, you tend to understand that I want to touch a little bit on that because my business partner and I we talk about values all the time. Right, like that's what I value to communication right with my investor. I would value that because I'm invested in other deals myself and other syndicate, another set, another deal myself, so we pride ourselves in communication.

Speaker 1:

Integrity is our highest value, right? But what does that mean? And how do you vet that when you're talking to you know, how do you? How do you vet that from a team Without offending someone? You follow what I'm saying like without offending, because you and I may understand that we need to have values and we have a value system for our businesses and for our personal life, and they usually our businesses. The value systems in our businesses are usually an extension of the value systems of the leadership. They're an extension of the of leadership's value system. But how do you ask that question and you mentioned communication, any others? But more more so, how do you extract that? Because some, some, some companies out there you and I both know this Don't have that. They can't articulate it.

Speaker 3:

Yeah.

Speaker 2:

I think there's different ways. The great question is how do you extrapolate what people's values are? I think one thing is you ask questions and you're trying to figure out. Okay, and I think some questions that are good questions of tell me a time that something didn't go according to plan, right, and what that question does is that's one of two things that are gonna happen here is say, oh nothing, we've always, we always perform whatever like well. Then you're like well, I don't know if something sounds too good to be true. That's like I mean, because in my experience I don't know your experience, but nothing ever goes as planned. It really seems like something goes better in one area, it goes worse in another area. This happens. We learn this, we got our butt handed to us on this one thing, and so stuff, there's tons of stories, right? So if somebody doesn't have any stories, either they're not being fully transparent or they're just they're inexperienced, and I think there's probably a mix of both. So I think that's kind of one thing. And then if you go to somebody's website, you're looking at information there.

Speaker 2:

You used to do a search online. Reputation is a big deal, so that's why I go to a lot of events. I go to meetups and events. I'm at, you know, usually typically a local meetup in Los Angeles, at least once or twice. At my like, I got a Lee Collead one and then I go to other ones as well, speak with them, and I'm always talking to people. I'm going to conferences, national conferences, and it's just amazing because after a while everybody kind of gets to know everybody.

Speaker 2:

And when I come across somebody I had an investor come across somebody who was sent something and they said, hey, what do you know about this person? Whenever, and I said I've never heard of this, I don't know if this person is, and I kind of followed the link that they had sent me and it was kind of a clickbait kind of thing. That was some ad they had online I said, you know, I don't know, you can, I've never heard of this person, right. So like, I think, just paying attention to like who's who out there Because people's reputation, you get a reputation for how you show up right, and even as an investor, you get a reputation for how you show up. So you know, if somebody shows up at a meetup and they're sitting in the back of the room, their arms are crossed or they're half asleep, they're dressed sloppily. That says something about who they are, right. And so there's these clues that we have how somebody speaks, how they show up, how they dress, how people talk about them and on their website, the things that are there, the performance stuff they send you. All this stuff is just clues that help you understand a little bit about who they are.

Speaker 2:

And I think sometimes I actually get approached by a lot of different groups to partner on deals with and I'm so, hey, let's do this, let's partner whatever. And I think, well, okay, let's look at it. But it takes me. I'm a very slow mover when it comes to getting into new partnerships Because I have a theory, especially as a general partner or as an investor, you really don't know somebody until you do a deal with them. You don't know what they value, you don't know what's important, you know how their temperament is when something goes south because it almost does in every single deal. They said I think something happens usually and so seeing that is really important. So I think as an investor it's just kind of eyes wide open, just kind of learning and not moving anything quickly talking to other path investors and just seeing what's the feel you get. For who this group?

Speaker 1:

is.

Speaker 2:

And you'll get to feel, okay, what's a great group, what's a group that's not as good? And as you invest, you'll pay attention and you'll start to develop those relationships over time 100%.

Speaker 1:

Really a lot of really gold nuggets, man. There's a lot of wisdom in what you said how someone shows up values. I get them a lot too. People come approaching me about wanting to partner in deals and I'm like, hmm, we got to align in values, man, and that takes time for me to uncover who you are, cause I don't care how much money's on the table. If I'm gonna go, like you said, it's like a marriage right. If I'm gonna be married to you with this deal, man, I gotta be able to trust you. I gotta be able to trust you completely with I'm not, cause there's so much happening in a real estate deal, as you know, when you're doing these bigger deals there's so much, especially if you're doing the value add deal. There's so much, so many moving parts that we have to be watching that if I gotta be watching the moving parts and then I gotta be watching you and I gotta be in the back of my mind worrying about my partner, dude, that this is not gonna work, that's just not gonna work. That's just I'd rather pass on the deal, cause it's just not gonna work if I can't completely trust my partner 100%. So those of you listening it's actually to partners. Now you know maybe why I've stalled or said, no, I'm gonna, I'm good, I'll just help you from the outside, Rather than doing, than doing a deal with you.

Speaker 1:

I wanna talk, I wanna, I wanna talk about rent projections, right, cause you, we, we both know, as we record this, we're in June and we both know that rents are starting to soften across the country, right, so there's, we're also starting to see I saw a report this week that we saw. There's a report that office space is down 2.5% While multifamily apartments are down 5.6%. It's actually leading the pack in devaluation, which is, which is very surprising to the marketplace, to all of us investors, I know, to me it was a big surprise. Like, holy crap, multifamily is so we're seeing interest rates go up, which is impacting, impacting cap rates. Cap rates are decompressing. What do you? How are you projecting right now, when you see that report? And we're also seeing bigger pockets just put out a report I don't know if you saw that or you read that that rents are actually down. They're in a in a in a downward trajectory.

Speaker 1:

This year we're not seeing any growth. Actually, this year we're actually seeing rents come down, which is kind of a little bit scary in an environment where interest rates are going up. So what are your thoughts on that? And how are you projecting rent out? You mentioned earlier about when you're in these meetings listening to these presentations or these syndicators or these. You know GPs are presenting deals and everything is up, up, up up and we both know a lot of those guys that were thinking up, up, up up right now this year. They're gonna be hurting this year and next year. What are your thoughts on rent projections and the decrease in rents that were?

Speaker 2:

Yeah. So the good point, Martin, you know, I think, rent projections, you know there's I've. The longer I do this, the more I realize that real estate is. It's both macro, so it's meaning it's broad, it's the whole country, but it's also hyper local, so it's it's what markets you're in as well. You typically like, like Jack's, you're not really rents go down. I mean they're. They're just. You know, I think that the rent bumps that we're looking at I mean we were buying stuff that was, you know, rents a thousand bucks we're pretty expecting to put in six grand and then rents go to 1500, right. So then okay, maybe they're not 1500, I'll be there at 1400 or 1450. Well, for us they're still going up, because so that's, I think a good thing with value at deals is there's some margin of safety there. But but no, it is a concern Cause, yeah, you have all these factors, we've slowed down on purchasing because, you know it's just, things have changed.

Speaker 2:

I mean it's really challenging to get a deal done. I think that they, up to a few months ago, the transaction volume from 12 months prior was down 80%, the army year before. So it's just, we're not seeing the volume and there's a lot of you know deals out there that are in trouble, gonna get in trouble, and I, my friend Ken McElroy, said this. He said you know one of my shows I did. He said you know, 2023 is the year of operations and so what that means is to be a good operator. You have to be able to execute the plan and this is where I think it really does separate people that can operate deals really well. There's not as much margin there. There's just kind of see how things go and do the renovations and, okay, occupancy drops to 70% or whatever, like I mean, the things are tighter and so we're seeing you know deals.

Speaker 2:

Just in general, there are more struggles out there and costs are. I mean, actually we're seeing in Florida where costs of insurance have gone up three or four times as much as it was before. The costs for labor and material is still up 30 plus 30 to 50% in some cases. So we're seeing higher expenses. We're seeing higher interest costs, especially even if you have an interest rate cap. Where it's most debt on apartments particularly is bridge debt. There are some long-term fixed debt, but a lot of people have a bridge debt with a cap and because the cap is there, they're still. It's at the cap, so it's as high as it can go and people are paying on that.

Speaker 2:

And then there's kind of this, you know, judgment day is coming of. What's it gonna look like when you're ready to sell or you have to refinance, right? People are really concerned about that. Instead of having to cash out refinance, there could be some situations where there's a cash in refinance, right. So I think so this is just stuff that's all to be aware of.

Speaker 2:

I think good operators, the deals will be well, but it's an interesting environment because they're still short. You know somewhere between three and seven million housing units in the US. So we have this incredible demand, but yet pricing's down. So in a way, there's a great opportunity there. Just hard to get deals done and get them across the finish line. I think at some point, rates will have to come down a little bit. Even if they come down a little bit, I think a lot of money in the sidelines will flood into things like multifamily and other things where there is big demand. But right now it's just trying to make sure you can weather the storm for a while, because it's been it's been a little rocky for a lot of people 2023 is a year of operations.

Speaker 1:

I like that. You know I watch. I watch a lot of Kenny stuff. I never heard him say that, but that's true. Can you elaborate a little bit on that? When Kenny says that to you, what are you thinking? Well, meaning, meaning, what exactly Meaning? Hey, you got to run a tight ship, keep occupancies up, keep expenses down. What exactly? Don't venture out too much. What do you think he means when he says that?

Speaker 2:

The 20, 25 years. Well, so, yeah, I think, yeah, ken, I think what he's saying and he's elaborated on this a bit but I think what he's saying is that just, you know, people that are have experience. You know, this is one thing I always look for in deals that I do as well. Is there someone on the team that has substantial experience, like 10 years, 15 years experience, cause, no matter if it's four guys, that men in college and they're all you know, kind of their first deal and they're doing some big 100, 200 unit deal. That's going to be challenging. So, I think, operations. But because the challenge is you can have whatever plan, you can have whatever projections you want to have. You know, I think you're familiar with Apple's way, the big deal in in the deals in Houston which hit the headlines 3,200 units, $200 million, default, right and what happened is the guy it seems like guy, kind of inexperienced, kind of this stuff you know a little bit on his own and then just kind of lost his way and you know, just just was not able to one part of stuff, probably started struggling and then he just kind of never really, you know, figured it out and never really got help and everything. And so the challenge is you know, if somebody has like one of my partners has 28 years of experience and 13,000 units he's owned or bought and sold, and so when you have that kind of experience, you're gonna see a problem before it's a problem, right, there's just, there's no steps to do for experience. You're gonna know ahead of time, oh, in this part of the cycle that you can't even always intuit why that is. You just know, okay, this is gonna happen in this way. It's like, whatever your specialty is I was in medical device sales for 10 years I could walk in a room and tell you just by looking at somebody, or even open my mouth I haven't just saying hello, whatever, whether someone was ready to talk, right, just there's things, intuitively you'd figure out about that job, and it's the same about the job of being an operator or being an asset manager. I think, hey, this is what's going on here, let's do this, let's squeeze over here, and so people that are really good at that there's the margin of safety, as Warren Buffett talks about has gone from being a pretty.

Speaker 2:

If you did anything the last five years in multifamily up till about a year ago, you were usually doing pretty good unless you kind of really managed something. That's something really unfortunate to happen. But now it's like that margin has come down because all these headwinds are here, rents aren't really necessarily rising as much, costs are higher labor insurance, interest costs, all these things are there. Even valuations started coming up. So it's squeezing that kind of grace that was there in the deal.

Speaker 2:

And now it's like, okay, well, you have to be able to perform on what you said you were gonna be able to do, and if you can't do that, or you let things slide or you got a property manager, that kind of falls off. And we've seen this. I was at a property manager. They're great, and then all of a sudden they suck, and so to be able to replace that, and you can get that and get that in there quickly and do that, those are the things good operators are gonna be able to do, and so I think that the chasm between those two right now is really really critical.

Speaker 1:

Yeah, there's a lot to unpack there, man, a lot to unpack. I was talking to someone this past weekend and this kind of this topic came up Bronson and the topic was about knowing there's something about an experienced operator. I speak to a lot of guys you probably do too going to meetups, hosting meetups I host a meetup as well, hosting these podcasts, going to events right, and you meet a lot of operators and there's something about and maybe you'll notice this observation too but there's something about an experienced operator, especially the ones that I've been through through that went through the last week to the last great housing correction, right To the great recession of 2008, and worse in the business, because I was in the business then and there's just something about us when I'm talking to those guys. You use the example of four college guys young guys come to college that you know there's a lot that don't have necessarily the experience. But there's just something about, when you talk to experienced guys, a little small level of paranoia that we have because we experienced that we got some bruises and we got some scars and it's like we're constantly looking and paying attention at what's happening to the environment and it's just something I've noticed when I'm talking to experienced and I experienced operators, I can't pinpoint it like I can't say it's that or it's this. It's just certain level of just a little bit of paranoia that, like you said, hey, you can see things kind of before they happen.

Speaker 1:

We bought a fifth. I'll share this with you, bro. We bought a 57 unit apartment complex in January of 20, what are we? 23, 21? 22, 22, 22. And the feds were just doing their first right hike. Remember February, they did their first right hike of 22. And my business partner I was one month into the deal. I was talking to lenders because the feds are telling me they're gonna increase rates. We were on a bridge loan. The feds are telling me we're gonna increase rates. And my partner was joking. We were in a meeting with our investors, reporting, giving them what's happening, communicating with them what's happening with the asset, and she was joking about it. She was like you know, martin, in February, a month after we bought it was already.

Speaker 1:

There's that level of paranoia that, hey, I see this coming. I see this coming. Inflation's crazy If it's gonna go. I see this coming. And if I don't protect the house, if I'm not making the moves to protect the house. I couldn't, obviously because of the seasoning requirements. We got it to the finish line. We were able to refinance it. We got it at a decent rate but it was painful last year.

Speaker 1:

Refinancing anything in this capital market Just pretty darn tough right now. I don't care who you are man, it's tough, it's a tough place right now and this in this environment. I feel bad for newbies trying to get money because of the guy like myself with experience and I know a lot of guys that we're having challenges getting money. Men newbies are, are going through it. Which leads me to my next question Bronson, what are your thoughts on the capital market?

Speaker 1:

So we see that. We see the feds. We see the feds didn't increase interest rates. This past week Mr Jerome Powell said we're in June again. So if you're listening to this June of 233, if you're listening to this, maybe they've increased it by that, but we're talking as we're right now. So last week they didn't increase the interest rates. Mr Jerome Powell saying we're gonna see at least two more he is very probable. He's very he's very selective on the words he uses is very probable. We'll see two more rate hike this year. My question to you is what are your thoughts on that? Do you see two rate hikes this year? What impact, if any addition, of the UC in the multifamily space?

Speaker 2:

Yeah, I mean, I think I I've been a little more I it's. It's been a bit of a surprise, honestly, how quickly they have raised rates, how Persistently. Ben, I personally think you know the inflation battle that they're fighting. I Don't think it's something they're gonna win by raising rates, because I don't think that Inflation is actually six percent, I think it's more like 15 percent. And I think you know, if you look at the CPI, which is the consumer price index, they've changed the way they've calculated that three times over the last Four years. Thirty four years. It's been since 1980. They changed it when inflation was 20%. They kind of changed the way that they they calculated a statistic. So you know, if you want to just make things look better, just change the way they calculate a statistic, right, they did it again. Actually, we change it. Yes, in January 23. They did it 1980. They did 1990. They did again in January 23. So so I think what they're trying to do is make it look like things are better.

Speaker 2:

I mean, the challenge is right now there's so much debt. You know, paul Volcker was the the chair of the Federal Reserve in 1980. He took rates almost 20%. He took literally from where we're at you. Just keep on higher, higher. He said that he could not have done it With kind of what we're seeing now, because our debt is already so high, we have so much federal national debts that I did Just you know the study on this. It was the basic a 32 trillion. You pay, you know, at 5% interest rates, you know, per year. That's 1.5 trillion per year just in the interest payments, right, so that. So it's crazy the higher those rates go, the more Kind of we start to get as a country into a bit of a debt spiral as well. So I think they're gonna keep it high.

Speaker 2:

My opinion is that there's going to be some sort of crisis. Something's gonna come up because, if you notice, we don't really have booms and busts anymore. Here's a recession and here's a boom. Is it's going from crisis to stimulus to like it's just kind of going this knee jerk back and forth, whatever. So some of this is we're starting to see things with the financial system since 2008 when they're just trying to throw money at things, and so I think it's, I really think it's a it's how can we weather the storm? And again, we don't know if this is gonna last for other three months, six months, 12 months. You know, ken said recently thinks it's gonna last another year or so. It's gonna last a while. These rates are gonna be a little bit higher.

Speaker 2:

But again, there's a lot of commercial debt. It's not just multifamily. There's a lot of office space. An office actually is getting hit really hard because people don't you know people work from home.

Speaker 2:

There's a huge decrease in the, in the, in the value of those properties we're talking about. You know hundreds of millions, billions and trillions of dollars of these assets. So We'll have to see, you know, if that stuff starts coming down, how does that affect other things? And is the Fed concerned about that? I mean, they, they see it. But I think you know you can, once you start make major, you're making major changes to the financial system. They're gonna keep raising rates until something breaks. And we've seen it a little bit where you know some of these banks, such as Silicon Valley Bank, first Republic, we've seen some issues where the cracks are showing up and so when you do this, it puts incredible pressure on the financial system and any financial assets lending all this stuff. So right now, lending, I think it's gonna stay tough until once we get hey, okay, the right the Fed has as has Held where they're at and maybe there's some slight decrease.

Speaker 2:

I think when there's a very slight decrease, I think money will start to come, as it will signal that, okay, we're at the top. But if I'm a lender and I'm lending, if I lend now and there's two more rates coming, I'm actually losing money by lending now. Right, so I don't want to lend, I want to wait until, okay, they kind of say we're do a long pause, okay, maybe I'll get in there, maybe wait till the first the first rate drop comes, and then things will start coming back. But you know they're almost. They're trying to engineer a recession and We'll just see how that goes. Yeah, it's hard to Control this. The Fed is got their hands on a lot of things. Yeah, it's just weird.

Speaker 1:

Isn't it just such a weird time where and man the market, the stock market, is is? It's rallying, it's performing at, interest rates are going up. We had two negative consecutive GDP quarters last year July. If you remember first and second quarter of last year, we had them and they changed the definition of a recession that say no more use, no more to negative concession. Consecutive negative GDP quarters anymore is whatever it is. Now that they, whatever they want to call it, and it's just it's weird times, man. We're seeing inventory low and it's just the housing starts I don't know if you saw that builders are now builders. I think housing starts is up 21% from its right.

Speaker 1:

This article this morning cost our report 21% from May's or April's numbers. Mays numbers came out or something. There's a 21% almost. Make this up like whoa. This is crazy. They were scared. They were scared a few months ago and now they just, they just, yeah, they're writing. So my last question for you, my friend, before we go into the inside around it what is your thoughts on the future of multifamily and Realistic?

Speaker 2:

Well, I think you know, long term, you know there's really I might pay that, as really I don't think there's really any better asset class for most people to get into. It's a solid. You know there's so many benefits. There's inflation hedge. There's, you know, rents keep pace with inflation. There's, you know, incredible we're underdeveloped. We didn't develop enough apartments over the years. There's huge demographic shifts. They're having a particularly to move into certain metro areas. So I think there's incredible demand for it. There's benefits, all kinds of things, and so I think it will continue.

Speaker 2:

I mean, there's no way apartments are going away. There's no technology that exists that we don't see. People will need a roof over their head and a place to sleep. Right, there's no like you know all the AILs. There's nothing in the horizon that like you go into a pod and they'll put you somewhere and then you wake up Like there's nothing out there, that's you're not going to live in some sort of house or apartment or something. So that's very solid and I think that's something we'll continue to see.

Speaker 2:

You know, for the short term it's again, it's operations, it's being cautious, it's continuing to look for opportunities. It's not that we're not where we are looking, but it's got to be a unique situation for it to make sense. But that's why we've shifted a little bit to do some of the alternatives to the other stuff that's a little more cash flowing. So even a lot of the deals we were doing in multifamily that were cash flowing really well have gone from, you know, really good cash flow to like either cash flowing a little or not really cash flowing. So I think those are all factors to look at and consider. But I think there are always be opportunities in every market and I think, as an investor, it's important to pay attention.

Speaker 2:

I don't like sitting in cash because again, it's the question is you know what's the alternative? If you don't invest in multifamily, what do you do? And I don't like sitting in cash. I think people are losing 15% a year just through inflation. I like to be in cash flowing assets to pay me to hold them. So I'm finding things to put it into and in businesses and other things that I find make sense, and I do think multifamily will. You know it will continue to grow a year for a long time. I just think it's kind of a very interesting season right now where we're kind of watching and waiting and seeing what's going to happen.

Speaker 1:

Yeah, I got one last, last question, because I wanted to ask you this from the beginning, so you just said it. You said you're looking at alternative asset classes, that you're investing in not classes, but assets, that cash flowing, like I know. You mentioned ATMs the beginning, car washes, oil changing stations. So if someone is listening and they're like man, that's really cool. I have a couple hundred thousand dollars I have and I want to diversify. Where do you go to look to find these deals? Now, I know that a lot of those deals, you know we find them at the events that we're in, right, we're talking to other about, they're giving us and they're telling us, hey, I'm here, I'm there, I'm diversified here. That's how I learn about some of those asset classes is to those events and guys like yourself. Where do you find them? Where is there a place where you can go? Is there a website that you could recommend? Is there somewhere? You know businesses, central businesses, yeah.

Speaker 2:

Yeah. So you know, the best place to find deals I find is it's not online, it's not through a podcast, it's not through a lot of things, it's basically talking with other people. I wish there was some central way that you could just go somewhere and find everything, but it's the best deals I found. They've always come through a relationship. They've always come through somebody I met is oh, that's really interesting. Someone thought about that and I've gotten in. I just kind of like learned that way.

Speaker 2:

I've actually got a book coming out called Fire Yourself Replace your Working Income with Passive Income in Three Years or Less. And it talks about this how do you increase your deal flow? Right, because that's what we're talking about. Is you know? You say cash is king. Well, cash is great, but if you don't have a deal, it doesn't mean anything. You don't have the best deals. So the best deals that I've heard about ever and I've been involved with have always been off market. No one knows about. I get one phone call, even multifamily deals, you know, in a multifamily space, usually a broker will make you know. Make a phone call to someone. Hey, you want to buy this deal, it's at this price, and if they don't go to the call, the second call, third person and 80% of these deals don't even go to market. They don't even go to like a listing. So all the best deals out there, whether it's business deals or other things, they typically go through.

Speaker 2:

You know people, people know and they work with. And Warren Buffett has saying he said you know we only work with people that we like and we trust. So if you have a reputation as an investor that you're somebody likeable, you know somebody likes working with you and you're trustworthy. I just had an investor recently that you know we had an issue with one of our tax forms where it was taking a little bit longer, unfortunately, but this investor just kind of like, was very disrespectful and just really like I mean just really hurtful, like why do you even say that?

Speaker 2:

You know I'm trying to be helpful, whatever, but I realized like this person's invested in a few deals with us, but I realized, you know, if we do another deal, I'm going to have to have a real kind of come to Jesus conversation of like, hey, this is not how we operate. Right, I understand this, whatever, but like you're upset but like you know, we don't do partnerships Like this is not how we work Right. So if you're somebody who works well with people, you play well in the sandbox, people will invite you back Right. And so, even as a passive investor, you got to be careful how you interact and you don't look at people as hey I, there's all these deals out there. You want to be somebody who really, you know, is invited to the table at some of the best passive investors. I know they spend a ton of time on calls and conferences, networking, and that's how they find their deal flow.

Speaker 1:

Yeah, that's, that's really, really good points that you said. And I think the biggest thing is reputation, protecting your reputation. That's the one thing I hear on both sides right, passive and an operator, and I was talking to my CPA and he bought me a, he bought me to a, to the table with a group of investors very, very high net worth and they're like hey, we want to fund your deal period, we want it, we want to fund your deals. And it's because and then so they, they walked one of my deals yesterday, something we were working on, and I got a text message from my CPA saying hey, man, these guys like you, they like how you present yourself and they trust you.

Speaker 1:

So all the things you just said, all the things you all the things you just checked off, and I was like cause man it? You know, we, we like to operate a level of integrity and we and I protect my reputation. It's important, right, that we constantly do what we say and say what we do. If it's good news, we give the good news. If it's not so good news or we're having challenges, we also share that new too. We share it with integrity and we're we're always up front and arms, my friend. Thank you so much, brother. I learned so much from you. It was a wonderful conversation. All the way to 4-HP, we're going to go into the untitled round where we're going to ask you a series of questions. We're going to um, you don't have to think, you don't have to justify one word. Answers is fine. Are you ready to play my?

Speaker 3:

friend, I'm ready, let's do it, let's do it. Real estate is Real estate is freedom. A million dollars is a good start. I've always wanted to travel to New Zealand. People coming to Pasadena, california, should try Uh going to the Rose Bowl. Inflation is here to stay.

Speaker 1:

I think the president right now.

Speaker 2:

Is is not running the country.

Speaker 1:

My advice to young people is.

Speaker 2:

Get started right now.

Speaker 3:

Family or business, family Book smart or street smart, both Wine or beer, beer.

Speaker 1:

Tenant or angry coworker.

Speaker 3:

Angry tenant Logic or emotion Logic and lastly, money or love, love, that's bad.

Speaker 1:

Thank you. Thank you so much for it. Thank you so much for being such a great sport. More importantly, thank you for taking the time and spending with me and the audience and just having this great conversation. I love having conversations with smart people. Thank you, brother, really appreciate you taking the time. So, if people wanted to connect with you, they wanted to attend your meetups and they wanted to check out your book I know you said you're writing a book. That's going to be. You know if you're working on currently or maybe they just wanted to look at your deal and see how they can connect with you and your deal. How do they find you? Where do they connect you? Where are you on?

Speaker 2:

Yeah, so I'm on all the socials, just Bronson Hill, you'll find me Uh, the best way to connect, I think. Or we have a free giveaway. It's an ebook called how to use inflation to your advantage. So we talk about how we're getting hurt by inflation. This is the way you actually can use it to your benefit, and so there's some creative strategies Most people haven't heard of. It's at BronsonEquitycom and it's just a pop up there. You can download the ebook for free and then we'll let you know about kind of our future happenings and just some really exciting stuff that's happening, that we're seeing both in economics as well as deals and just really creative stuff. So it's been great, mark, thanks for having me. I appreciate your brother. Thanks a million. Thanks so much.

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Martin Perdomo

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