All Forum Posts by: Brian Burke

I don't read a lot of books so I don't have a great answer for you. But I did hear from one of my investors who is a Princeton grad--he read my book in draft form to give me feedback on the content and he said that it should be required reading for anyone in a graduate or post-graduate real estate program. I can't think of a higher compliment.

www.biggerpockets.com/syndicationbook

They were acquired across 7 different LLCs, but not because of liability segregation—it was for investor segregation.  And yes, always liability insurance.

Here are a few ideas:

1.  Raise phase 1 with a debt offering.  Offer a personal guarantee (reduces investor risk if you have the balance sheet for a PG to be worth anything).  Cross collateralize your other real estate if you have equity.  Then for phase 2 you raise $1.6 million and pay off the phase 1 note holders.

2.  Raise all $1.6 million at the outset, but call for the capital in stages. In other words, you get $1.6 million in commitments and call for 37.5% at closing and the rest when it’s time to start construction.  This means an investor that commits $100K contributes $37,500 at close and $62,500 at construction.  This way, all investors are on an even playing field as to risk, and there is no dilution because everyone is contributing pro-rata.

3.  Raise the $600K, do the pre-development work, then “sell” the property to NewCo.  Original investors are taken out plus profit in the sale.  NewCo is funded by new investors. Downside is setting the “ sale” price such that the original investors get fair value and NewCo investors aren’t getting a bad deal.  And you essentially have to raise the same $600K twice. This is called a “Recapitalization.”

4.  Do a side letter with Phase 1 investors to give them an extra X% pref and/or split.

5.  Charge phase 2 investors a funding fee, which gets distributed to phase 1 investors pro-rata to compensate them for their risk.  (You don’t get any of this fee).  Maybe it’s 3-5% of the new equity or something.

And forget about that 30/70 split after an 18.  I get why you want this but knowledgeable investors despise anything over a 50/50 split even if it’s over a hurdle.  If you want the 70% you could do a 50/50 over an 18 and co-invest 20% of the capital—then you’ll get 100% of 20% and 50% of 80% (over an 18).

Paul, the deportation efforts aren't overly concerning personally because the few assets I have left in my current portfolio don't have a high immigrant resident profile (nor do the submarkets).  

Having said that, I am a bit concerned as it relates to the overall market, especially in class C properties and most especially class C properties in border states.  C class in general is in for a major correction in my opinion (a lot of which has happened already but I think there is more to come) and this will be another nail in that coffin.

But as with all chaos, opportunity breeds.  C properties may become investible again in another year or three, for those who have the stomach for it.  And at a much better basis than any time in the last several years.

Class A and B I'm less worried, but there is still a chance that in some areas there could be some temporary absorption disruption.  But I think the market overall will take it in stride.

As for tariffs, it's hard to say.  Who is tariffed, what is tariffed, what exemptions, and how much all play a role.  Would tariffs cause the 10-year to tumble?  Will it spark the fed to act, and if so, in which direction?  No one knows, even the people saying they know might not really know.  Remember after COVID the consensus was rents would suffer and property values were in trouble?  That bet didn't pay...

At the end of the day, deportations and tariffs are things us RE investors can't control, so instead, focus on things you can control.  Buy quality properties in strong submarkets, finance with low leverage, bulk up on cash reserves, diversify geographically, and you'll be positioned to survive whatever the economy throws at you.

My best advice is to align with an active sponsor in a role that embraces your skill set.  If you have strong market knowledge and the ability to find deals, working in acquisitions for a syndicator or a real estate private equity shop could be a good fit.  There you can build up your skills even further and these jobs can pay a lot if you are producing great results.  

@Jay Hinrichs yes Maui did the same thing after the Lahaina fire, and you're also right that Santa Rosa had no such restrictions.  In my observation here in Santa Rosa, the first lots out of the gate that sold went for too high of a price.  I think there was some thinking on the part of "investors" that they were getting great deals on lots, when what was actually happening was they failed to realize how much lots were devalued after such a disaster.  

As time went on, prices came down because buyers saw the challenges with rebuilding--trade labor, insurability, not knowing what will be built on adjacent lots (like one lot where the owner built a house that looked like a concrete mushroom and that devalued the adjacent new construction homes built to more conforming architecture), and so on.

The weakness with moratoriums such as these is that it is now illegal to offer less than FMV as of 1/6/25--but what was FMV on 1/6/25?  How many lots in those neighborhoods sold near that date to establish comps?  My guess is ZERO, because that area was fully built out.  And, FMV on 1/6/25 is not FMV today because now you don't have a lot in an established neighborhood, you have a lot in a disaster area which comes with the challenges I listed above.

We built about three dozen "fire lot" homes after our fire--all lots acquired off MLS or from owners that came to us (we didn't market for lots), and not at a price that anyone would call a "discount". Most of the homes we built on these lots sold at a profit, but a couple did not, again, because of the reasons above. If anyone thinks this presents a runaway opportunity, think again. It's a big money maker for architects, engineers, and contractors, but not a huge opportunity for investors, nor should it be. Leave the owners alone, when and if they are ready to sell, they will, and there will be plenty of lots to choose from on the MLS.

I have no statistics to back this up, but in my casual observation after our fire is about 1/3 of the owners rebuilt their homes (some built similar, some duplicated exactly--big mistake, and some built better/nicer/larger homes).  About 1/3 sold within 2 years or so.  About 1/3 were in limbo--neither rebuilding nor selling, while owners tried to decide what to do--sell, rebuild, or fight with the insurance company--or just didn't have the money to rebuild and didn't want to sell.  I'd guess half of this final third eventually sold, even if several years later.  It's now been 7 years since our fire and cookie-cutter neighborhoods are about 90% rebuilt, custom home neighborhoods are about 75% rebuilt, and luxury homes about 50% rebuilt.  On my street, only about half of the homes are rebuilt, and about half of those are occupied by the pre-fire owners.  The other half is a mix of spec and owners buying lots to custom-build for themselves (more of the latter than the former).

Thanks @Don Konipol, but I can’t take all the credit here. I had outstanding partners. They were great at managing people. If anything, this is a great lesson in partnerships. The right chemistry can accomplish incredible things. The wrong chemistry, well, see what happens if you put a few drops of brake fluid into dry pool chlorine (actually, do not do this!).

Partner with people that bring things you do not.  And you bring things they do not.  Hire only “A Players”.  Be prepared to spend a lot of money creating the infrastructure.  Expect to put no money in your own pocket for a couple years.  

@Chris Seveney when I started my lending company with two partners our aim was to go from $0 to $2.5M per month.  We accomplished that within a few months, and five years later we were doing well over $100 million per month before we sold the company.

To get there, we hired top originators from our competitors.  We not only offered them a better comp package, but we offered them the opportunity to work for people who knew real estate investing as investors, not just as lenders.  That makes a real difference.

Initially we had one originator, one part-time processor, and a part-time admin assistant.  Within a year we had 3 or 4 originators, 2 or 3 processors, and a full-time admin assistant.  After year 1 we added more originators, more processors, an appraisal review analyst, a VP of capital markets.  By year 5 we had around 55 people.

We did hire a marketing person but frankly marketing wasn't our strong suit.  Our website was just OK, our email campaigns were hit and miss, our conference presence was fairly minimal.  Nearly all of our business came from the relationships that our originators had built over the years.  This doesn't come cheap--these folks were making high six to seven figures depending on volume.

We focused on lending to professional real estate investors--so our customers were frequent repeat borrowers.  Build and nurture those relationships.  Just like any aspect of real estate investing, non-consumer lending at a large scale is a relationship business.  If you don't have the relationships, hire someone who does.

@James Wise you're right about California's bad leadership.  But that's not why it's on fire.

Here is how I get my perspective:  I was a firefighter in CA for about a decade in my former life.  The house I'm sitting in right now is on a hill with 270 degree views and I can see about ten miles in each direction.  Nearly every house I can see from here burned to the ground in 2017, including the house that was on this very lot and almost every house on this street.  5,300 in total.  Thankfully, at that time I lived just a bit to the south and the winds blew the fire right by my house, missing by 3,000 feet.  I woke up that morning to a wall of fire as far as I could see.  

I drove to my office, everything around me was on fire including the landscaping and dumpsters in the parking lot--no firefighters around.  But the office itself didn't burn.

The fire had traveled ten miles in about 3 hours. You can't get mutual aid (with a several hour ETA) in time to stop it. The calvary arrives just in time to mop up.

I have a second home in Maui, and as I look out in one direction the entire town I used to see burned to the ground in 2023.  The wind blew that fire to our south, this time missing us by almost a mile.  This is becoming all too familiar, and yet I'm extraordinarily lucky that I suffered no direct fire loss in any of these.

In both of these fires, hydrants didn't work.  Firefighting resources were overwhelmed.  Winds were near or exceeding hurricane force.  The fire created it's own weather including "fire tornados".  

Part of the reasons hydrants didn't work was some water storage was already depleted for maintenance.  Power was shut off to prevent it from starting more fire (or was killed by the fire) and this power is what drives the municipal water pumps.  Homes burned, leaving their water service lines severed and freely flowing water onto the ground, depleting the pressure.  It's just chaos.

Suggestions above include:

To not rebuild and convert the land over to parkland.  How do you buy out over 5,000 homeowners?  Infeasible.

To build out of concrete block.  Ok, but from my house I can see what used to be a K-mart about a mile away.  It was made out of concrete block and it burned to the ground, along with a lot of other concrete and brick structures.  My next door neighbor built their house out of poured in place concrete.  Will it help?  Maybe.  The building codes are pretty strict.  Ours is built with stucco siding, concrete tile roof, tempered windows, self-closing soffit and crawl space vents (they melt when exposed to heat).  A lot of structures go up because the intense radiant heat from the wildfire ignites contents inside the home through the windows, or the embers enter the attics and crawl spaces through the vents--so just building from block won't be a cure.  

Build with steel.  These fires are so hot even the steel structures melted and burned.  The winds were so strong and fire so hot there were cars turned upside down in driveways, and then melted.

The bottom line is that 100 mph winds combined with dry grass and just about any ignition source is unstoppable once it gets going.  If the fire can be knocked down in its infancy you can save entire towns.  And that's what usually happens--there are hundreds of fires no one hears about.  But the ones that aren't stopped right away and get a head on them, when close to an urban area, with wind like this, will cause extreme devastation.  No amount of water will stop it.

And don't even get me started on insurance.  My $7,500 policy was "non-renewed" and I only got two quotes:  $42K and $92K.  Then by a stroke of luck I found another quote for $13K.  If that carrier doesn't stay afloat it's pretty dismal.