He Was Right in 2000, 2008, and 2020: Now He’s Saying to Buy

0:00The housing market is stalled out. Prices and mortgage rates are flat. Nobody seems to want to buy, but maybe you should. There are always good deals available for people willing to do the work. When it's easy, anyone can find those properties and grow their portfolio. When it's harder, like right now, there's less competition, but even more opportunity. Today, we're talking about how to identify those opportunities, grow your portfolio, and advance towards financial freedom, even in a slower housing market.

0:34Hey, everyone. I'm Dave Meyer, housing analyst and head of real estate investing at BiggerPockets. Our guest on the show today, backed by popular demand, is investor and BiggerPockets author, Brian Berg. Brian is going to share his views on where we stand today in the real estate market cycle and whether home prices are likely to rise in the near future. We'll talk about what types of properties and investing approaches represent the best deals in this environment. And Brian will tell us how property he bought opportunistically a couple decades ago and just held on to is now paying for his vacation home in Maui.

1:11Brian is one of the most successful investors we have on this show. He has a proven track record of understanding market cycles. So this conversation is full of valuable insights. Let's bring him on. Brian Burke, welcome back to the podcast. Thanks for being here. It's great to be back, Dave. For our audience who hasn't heard your many appearances on this podcast, can you just tell us a little bit about yourself and your track record as a real estate investor? Yeah, well, I've been investing now for 36 years in real estate. Started out in single family homes as a house flipper, pretty much like everybody else.

1:46Grew up into the big leagues and small multifamily, which was big leagues to me at the time. and then eventually grew up into larger multifamily. In my 36-year career, I've bought what, about 750 houses, about 4 ,000 apartment units, a billion dollars worth of real estate. I just crossed that milestone here last month. A couple of things I'm most proud of is in all the years I've been doing this, I've never lost investor money. Second is I've managed to dodge and navigate market cycles fairly successfully, I think, having sold three quarters of my multifamily portfolio right before it tanked here in 2022 and similarly avoided the worst of the great financial collapse and yet still took advantage of the run up.

2:34So I think my track record is one that I've been able to read markets at least OK. So share with us, Brian, tell us what you're thinking broadly, where we are in the cycle. Of course, there are different ones for commercial and residential real estate. Maybe give us an overview of where you see residential real estate right now. Yeah, you know, you're right about that, Dave. There's a lot of different cycles in real estate. I think residential real estate is in kind of this odd phase of a cycle where there's a bit of a standoff between people who own homes with, you know, 2.75 % mortgages who refuse to move because they're locked in and buyers who are trying to figure out how they're going to be able to buy with, you know, 5%, 5.5 % mortgage rates, even 6 % mortgage rates.

3:21So, you know, single families kind of, I think it's in a phase of a cycle where if you're a long-term holder buyer, this might be a really good time to start making some moves and accumulating a portfolio without, you know, having to fiercely bid against everybody under the sun to find reasonably priced real estate that you can hold for a long period of time and use as somewhat of a retirement vehicle. I agree. We're in this very strange market that feels quite flat to me and sort of just neutral in every way. When I look at the data, and of course, things can change. To me, it feels like this might last a while, though.

4:01Like it might not just be a moment in time where things are flat. But I kind of see this dragging out a little bit. Do you see it differently? Everybody's waiting for something to happen, right? Your sellers are waiting for better interest rates before they'll go on the market and buy another house with a new loan at a higher rate. Buyers are waiting for lower interest rates. Buyers are waiting for better prices, like lower. Sellers are waiting for better prices, meaning higher. So it's like nobody really wants to do anything. And when you get something that's in kind of a state of equilibrium, it's like a nice glassy lake when there's no wind, there's no ripples on the water.

4:38Something has to get thrown in the water. A gust of wind has to come along. Something has to happen to make the water choppy. And right now there's just nothing like that happening in the residential real estate space that I can see. Me neither. And although that could change maybe the labor market if unemployment really gets bad, but there's no signs that it's really heading to a catastrophe yet. It's probably going to weaken a little bit. Personally, I don't think mortgage rates are going to move much in any direction, because if you extrapolate this out, nothing's really moving the bond market either.

5:10Like something needs to get tossed in there for the mortgage rates to move. And frankly, I just think that we're in a stalemate there, too. If you sort of think about how mortgage rates are created, we have bond investors. Half of them are very fearful of a recession. Half of them are very fearful of inflation. And until something gives their mortgage rates, probably aren't going to move in either direction either. Yeah. You know, this time reminds me a lot of like 1993, 94. During that period, like around 1990, home prices fell just a little bit, you know, 10 or 15%. And then they just didn't move until 1997.

5:47So from like 93 to 97, there was this long stretch of time when real estate just did absolutely nothing. And it was a great time to accumulate a portfolio, even though it didn't feel like it because at the time, like, well, you know, the values aren't going anywhere. But by like 99, prices were clearly on the rise. And, you know, by the mid 2000s, we all saw that bubble and what ended up happening there. But even after all that played out, prices now are much higher than they were in the 90s. So if you bought then, you look really smart. But this is just another one of those periods. And you can have these long stretches where, you know, nothing really happens as a normal.

6:25We've actually seen real home prices stall out for, I think it's like 38 months now, you know, three-ish years. And I do think that can continue. You mentioned, Brian, that this is a good time potentially, you know, if you're doing it right, to accumulate a portfolio. Do you have any advice for the audience on how to go about targeting specific types of properties in this kind of stalled market? I think, you know, going to the, you know, the old, old route of, you know, contacting brokers and looking at what's listed and just looking for stuff that has some kind of a problem that you can solve is going to get you a better deal.

7:06I mean, you know, there's a lot of old housing stock, a lot of houses built in the seventies, eighties, even nineties. That's in need of remodel rehab roofs, landscaping fences, you know, all that kind of stuff. And you can buy those properties, you know, at a little bit of a discount because they need that, that work. and you can, you know, fix them up and rent them out for higher rent than you could have in their present condition. And, you know, that's the old school, tried and true, you know, mom and pop style real estate investing that's been around for like decades or centuries. Centuries, it is.

7:41Yeah. We were talking about this at BP COD. It's like real estate investing, we went through this period where it was incredibly easy in the, you know, 2010, 2013, 2022 is hard to miss, but you don't need perfect conditions to be a successful investor. Literally, people have been making profits off real estate for centuries, like you said, in these very normal conditions. But you sort of have to adjust your expectations. The market is probably not going to give you these tailwinds that you got the last couple of years where even if you didn't run a project super efficiently or you didn't buy the exact right property, you could count on four or five percent real gains every year for a couple of years.

8:24We're probably not going to see that. And so, as Brian said, you're going to have to work for that a little bit. That's either by renovating, maybe doing the work in terms of going off market and finding a particularly good deal, adding capacity in the form of ADUs or a second unit on top of things, buying in a great location. These are the kinds of things that you can work for and will make real estate investing still profitable for you, but it's a little bit different from when you could kind of just throw your line in the water and wait for the tide to push up values for you. Yeah, I think the difference is, is that yesteryear, let's call that, you know, like over the last, you know, skip the last couple of years, but the last five to seven years before that, investing was hard, but results were easy.

9:10And now it's the other way around where investing is easy, but results are hard. And so it's just kind of a different way that you have to approach what you're doing and think about like, okay, I don't have to bid against everyone to buy this property, but once I buy it, I'm going to have to work a little harder to get the outcomes that I was seeking. Whereas before, boy, you'd spend all your time trying to find a deal to acquire and making offers and all this other stuff to get almost nowhere. Then you finally strike something. and once you struck it, it's like you could do absolutely nothing and you're going to make a ton of money.

9:45So it's a different season and things happen differently in this season than it did in the last season. I've been encouraged. I just see better and better deals coming on the market all the time right now. And I mostly look at MLS deals and the ability to buy cash flow, the ability to stabilize rents and generate solid cash on cash returns is better than I've seen since probably 2019, I'd say at least. And I do think it's going to continue heading in that direction. And so for investors, it's an opportunity to be patient and to wait and walk away from deals. Whereas like you said, in 2022, if you had something that felt sort of borderline, you might push it a little bit because you're like, hey, if I just get in the market right now, it's probably going to do okay.

10:33Whereas right now, I think you have to kind of take the opposite approach. Be patient, wait. It's hard for sellers. But if you are a buyer, take your time finding great assets, because as Brian said, it's going to take some work, but the results will come if you sort of leverage what the market is giving you right now. Well, I think it's important to think different too, right? And so here's my approach to investing in stocks. I'll buy shares of a stock and my hope is that the shares go down and you think, well, why on earth would you want that? And it's because then I can buy more shares. And as the price keeps going down, I can keep buying more shares.

11:08Now, obviously, I don't want this to happen in perpetuity. I want it to happen for some reasonable span of time where I can collect and accumulate a portfolio. And I'd look at real estate, especially if you're getting started in real estate investing, look at this the same way where you kind of want the market to stay flat for a little while if you're just beginning to accumulate a portfolio. Because the longer it stays like that, the more of a portfolio you can accumulate and position yourself for when the market does make a move. Because it will make a move. And it's more likely than not that move will be to the upside.

11:44And even if it does make a move to the downside and you get the opportunity to collect even more assets at even lower prices, it's going to move back in a favorable direction at some point. And you're going to be really glad that you did that. I sort of agree with you about that approach. The better basis you can come in at, the lower the price you can enter in. If you believe long term that prices are going to go up, that is absolutely the approach to do is to keep accumulating even if prices are falling. I would agree with that because that's the whole idea, right? You want to build a base of assets and then let that asset base grow over time.

12:19Real estate, even though it's sometimes been called a wealth strategy or a get rich. Some people think of a get rich quick strategy. It's not a get rich quick strategy. It is a get rich slow strategy. The idea is you accumulate a base of assets, you wait for market movements, those assets go up in value, and then you have a variety of strategies you can deploy to take advantage of that. But this is a retirement strategy more than anything else. And that's one of the primary reasons I got driven into real estate early on in my career is I felt like, you know, by the time I'm old enough to collect social security, it's going to be bankrupt.

12:54No one in my family has a dime that I'm going to inherit. So, you know, what am I going to do to build myself up for a very secure retirement? And real estate is exactly that. Real estate investing, the whole point of being in this industry and putting your time and effort and money into it is you have a very high probability 10, 15, 20 years from now for being financially independent. And that's not even doing anything fancy. That's not even doing anything crazy. That's doing exactly what Brian said. You buy assets, you get into the market. No one really knows, maybe other than you, Brian, but no one really knows when we're gonna see these pops of real gains, right?

13:34Like they happen every couple of years, but it's pretty hard to know. I don't think a lot of people saw the COVID pop coming, for example. but you had to be in the market. And so if you can buy assets that are good and stabilize and can sustain themselves and still provide a solid return during these flat markets, then you have the ability to take advantage of those pops when they do eventually come. And if you've got two or three of those pops over your career, you're probably gonna be fine because they can be real wealth accelerators. You just can't force them to happen. Yeah, and it works a lot better if you've already accumulated the assets before the pop, because what a lot of people do is they think that the pop is the time to buy.

14:17And that's what kind of creates the pop and makes it a self-fulfilling prophecy is everybody starts going all in at the exact wrong time, which, you know, is that if you need the cash, that's the time to be a seller more than it is to be a buyer. But, you know, the pop, as you said, you can't predict when it's going to arrive. So don't try to time your entry point, you know, right before the pop. Accumulate your assets, wait for the pop. Then when the pop happens, that's your payoff. It is. Well, I think you've given our audience here today, Brian, a very good framework and way of thinking about investing right now.

14:51So thank you, at least on the residential side. But I do want to turn our conversation to multifamily because earlier in the year, you said you thought there was a sweet spot with certain parts of multifamily, other parts of multifamily, not yet time to buy. I'd love to get your updated take on that, but we have to take a quick break. We'll be right back. They say real estate investing is passive income, but if you've spent a Sunday night buried in spreadsheets, you know better. We hear it from investors all the time, spending hours every month sorting through receipts and bank transactions, trying to guess if you're making any money.

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20:07Welcome back to the BiggerPockets podcast here with Brian Burke. I spent the first half of the show talking a lot about the residential market, but Brian, maybe you can give us an update on how you're feeling about the multifamily market. Well, you know, I've been on this show quite a few times, really sacking on the multifamily market the last couple of years, haven't I, Dave? Yes. I mean, I love your brutal honesty about it because you are, or at least a large part of your career has been as a multifamily operator. You raise money in this space and I love your brutal honesty about how rough it's been.

20:38Yeah, I've raised at least$400 million for acquiring multifamily properties in my career. And I've been in multifamily for over two decades. So I've got a little bit of experience I can draw from. And, you know, I just think that it really depends, I think, on what your goals and objectives are. So there's a difference in my thoughts on multifamily. And the difference isn't as much about the real estate as it is about you, the listener. And I probably need to expand on that. So going back to our discussion on single family and accumulating assets and a retirement plan and all that kind of stuff, multifamily is really an extension of any other real estate investment objective, right?

21:21It's just a way of getting larger economies of scale and accumulating more assets like you do in Monopoly. And if that's your goal, then I think acquiring multifamily right now is a great strategy. The prices have come down considerably from where they were in 2021 and early 2022. The bottom fell out of the market in the second quarter of 2022, like an almost time to the day when it happened. And values are down in some cases as much as 50%. That may seem dramatic, but it's true. I'm actually seeing that. So if your goal is to do that retirement plan strategy and accumulating assets, this is a great time to be buying multifamily.

22:05And it's a great time to buy, especially kind of those mom and pop multifamilies, the five unit, the 10 unit, the 20 unit, maybe 30 or 40 even if you can swing it. Those smaller multifamily assets oftentimes have owners who are just in all sorts of distress, all sorts of tired, all sorts of ready to retire and get out of the business. And there's needles in haystacks out there that you can find that'll be really good deals. You're going to have to work for it and it's going to take a lot of effort and you're going to need to be patient. But I think you can find some real excellent opportunity in especially small multifamily right now.

22:44And I contrast that broadly to my thoughts about larger multifamily and other strategies, which I'm sure you're probably going to ask me about before we finish up here today. I will. I just wanted, for the audience, make sure everyone understands and make sure I understand. The reason you're drawing the difference there, one is just because the asset, but because people who buy large multifamily have a different business plan. It's usually a syndicator who has to return capital to their investors in five to 10 years, or it's institutional investors who a very different business model. So is that why you see the difference between small and big?

23:21Small might be an investor like me, who's just trying to retire off of this and hold on to this for decades, whereas the larger multifamily is usually trading every five, seven, 10 years. Yeah, you nailed it. You nailed it in two ways. One is that, yes, large multifamily is more of a business. Now, most individual investors can't afford to go buy a 400 unit apartment complex. Now, certainly there are some, but for most people, buying a 400 unit apartment complex is a group sport. That is a business much more so than it is an investment, so to speak. It's more like a financial instrument or an investment in a mutual fund.

24:04And so the reason for the distinction is twofold. One is that when you look at where you are in the market cycle, if you want to be successful in that business, you have to generate a healthy return for investors. And I think because of where we sit in the market cycle, it'd be difficult to do that. And the second to your point, Dave, is that generally these assets get held for shorter spans of time, three to five years as often is common in that business. And I don't see a market recovery of meaningful nature in the next three years, making those business plans just untenable at this point and just a little bit early.

24:41So I think that's the distinction is one is a wealth collection strategy where you're accumulating a base of assets for your long-term wealth, great time to buy. Contrasted to a business that's in place to generate returns for investors in relatively short periods of time, it's early. Thank you for making that distinction. Unfortunately, for our audience, I think most of us fall into that first category. I'm sure there are a few people out there who are currently syndicating or aspire to become larger syndicators, but I think most of us are just looking for retirement. And so I'm glad and a little heartened to hear you say that you think it's a good time to buy.

25:20Is that just because values have fallen so much and have values fallen as much in that, let's call it the 5 to 25, 5 to 40 unit kind of properties? They have. And I think where you find the most distressed pricing wise is in kind of that workforce tier housing. If you go to kind of that class C, you know, stuff, nobody wants that stuff right now. Like literally nobody's buying your 1960s and 1970s C class product. So if you're a young energetic investor with a lot of ambition and, you know, and you need to kind of grow your asset base a lot, because that's kind of what you do and you're a younger investor is you've really got to get pops, then those properties with a lot of hair on it is a really good place to be right now.